Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for the Republic) Share this | Hansard source

by leave—I also join with the chair of this committee, Mr Falinski, in commending the report to the parliament. Mr Falinski is right; Australia doesn't have enough of an appetite for risky investment in this country, and we have a fairly weak corporate bond market by comparison with other nations. A corporate bond, of course, is a debt security. It's issued by entities to finance their business operations. And, unlike equity, it doesn't dilute corporate ownership or ownership of the company. It's riskier than government bonds, and that's typically because it relies on the solvency of the company into the future. And the compensation, if you like, for the riskier nature is the offer of a higher coupon payment.

In terms of the Australian market, in 2019-20 the value of bonds issued by Australian corporate entities both domestically and offshore was $1.7 trillion. Most of that is held by large superannuation funds—about $60 billion worth of it. But 95 per cent of it is issued domestically to wholesale investors, who have to be registered with APRA and are known as sophisticated investors. There's very little to no offerings to retail investors through the ASX. One of the reasons for that is there's a complicated regulatory process that companies have to go through in terms of disclosure—offering a prospectus—before they can get on to the ASX. It has to be registered with ASIC. That's one of the factors the committee has identified as a barrier to more corporate bonds being issued here in Australia. So less than one per cent of corporate bonds held in Australia is owned by private investors—less than one per cent. Compare that to the United States, which we all know has that entrepreneurial investment ethos and culture, where 20 per cent of corporate bonds are held by private investors. So, there's a big difference. Even New Zealand has a much more liquid and deeper corporate bond market than Australia.

Is this something that we should be trying to encourage? Well, the committee is of the view that we should. And the reason is that, if you have more options for investment, you diversify that risk, you increase competition and there are better deals available. And ultimately you grow the pool of investment funds that are available and that, hopefully, spurs entrepreneurship, startups and investment in new jobs and new opportunities in this country.

So, what are the problems that the committee has identified? There's certainly a lack of awareness and understanding about how the corporate bond market works for retail investors in Australia, and that comes down to a lack of information and a lack of confidence. There are market access barriers. The minimum parcel and size of bonds that can be issued is $500,000. So most are not traded on the ASX directly. It's concentrated in banking, in finance and insurance, and less than five per cent of those that are offered is in other areas—for instance, manufacturing. The credit rating is generally only available to wholesale investors. There are onerous disclosure requirements. As I mentioned, you have to register with the ASX but also with ASIC. ASIC did issue a class order to streamline those disclosure requirements in 2014, but, according to KPMG's evidence to our committee, that process has failed and hasn't resulted in an increased take-up.

But the real issue in terms of why we don't have a deeper and more liquid corporate bond market in Australia is simply the taxation treatment; and it's the difference between the issue of shares and corporate bonds. Tax concessions are available on investment in shares in Australia. It's quite topical. It's known as dividend imputation. You get a franking credit for the tax paid by the company on the dividend for the amount, and it sometimes results in a refund. We all know about that on this side of the chamber. No such tax concession exists for corporate bonds. As a result, where do you think Australians put their money? They put their money where the tax concession is, and that is in shares.

Although we've made some great recommendations here, I think the reality is that, until you deal with that difference in the tax concessions between corporate bonds and shares, you're not going to get the uptake that you see in other nations throughout the world. So that's an issue that perhaps the parliament has to look at in the future. Nonetheless, this is a good report with some great recommendations around lowering the minimum investment amount, early redemption, the role of trustees and, of course, recommendations regarding disclosure requirements. I particularly point to the ASX submission, at paragraph 3.31 in the report, where they have issued some great recommendations regarding ASX 200 issuers with a term sheet and a cleaning notice and issuers outside of the ASX 200 with a reformed simple corporate bond prospectus, early redemption—which the committee has picked up—and removing anomalies and efficiencies in the existing two-part prospectus regime. They're some great recommendations that the government should look at. I commend the report to the House.

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