Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Mr Speaker, it is very good to see you this morning!

Tony Smith (Speaker) Share this | Link to this | Hansard source

You too, member for Mackellar!

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Committee on Tax and Revenue, I present the committee report entitled: The development of the Australian corporate bond market: A way forward together with the minutes of proceedings.

Tony Smith (Speaker) Share this | Link to this | Hansard source

The member for Mackellar may proceed.

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Thank you, Mr Speaker. Your generosity and kindness are renown throughout the land. I know this will be the most important thing we do in this House today, not that the galahs up in level 2 will realise that or the media will report it or that this will lead to television news tonight, but the corporate bond market and the retail segment of it remain critical to the future of Australians, of Australian companies, of Australia's economy and for those Australians who are, at this moment, considering retiring. Too many good ideas in our nation are funded by taxpayers through the university system, through R&D grants and concessions in our tax system, and, just as they are getting ready to become commercially viable and successful ventures, they leave our shores for the primary reason of seeking capital in other countries that have access to risk capital. So, when you look at Atlassian for example, it was funded generously by the Australian taxpayer, but, when the point came when they were to become a successful commercial entity, they had to list on the Nasdaq in North America and then list on the London Stock Exchange. The reason for this is we don't have enough risk capital in Australia. The retail corporate bond market can help fix that problem.

Also, when you look at Australia, we have all the necessary blocks in place to be a major global centre for the bond market: we have a large pool of savings; we have a common law system of justice and governance through our court system that is both well-understood and is not biased or discretionary; and, most of all, we have a large number of skilled workers in this country and well-developed market systems, whether it be the Australian Stock Exchange or other market mechanisms that make bond markets so successful in the rest of the world.

Then, there are the demographics. Too many Australians find themselves having to invest as they get to the age of 55-plus—that's really old, Mr Speaker, as you know! Once you reach 55, that becomes a very old age! At that point you start thinking of retirement, you start thinking of how to live out those twilight years of your life, and it is important at that point in time that you have access to investments that can continue to give you a steady stream of income but do not have the downside of, say, bitcoin or the Australian Stock Exchange. So, it is important that we have these sorts of assets available for those Australians who about to commence their retirement years.

What are the blockages? Given that we are so well set up for these things, the blockages are all in the regulators. There is a form of tax that needs to be reformed by this parliament, but ASIC's active disinterest and discouragement in a retail corporate bond market, I think, verges on a derogation of their duty, and Treasury's inability and refusal to look at this area is extremely disappointing and a disservice to the Australian people.

When you look across the ditch in New Zealand, they undertook the reforms that our report is advocating. New Zealand, a much smaller nation than ours and without the structural advantages that our economy has, has a larger, broader, deeper, more liquid bond market than Australia does. This is unacceptable, at any level.

Finally, the chance for us to make this work is long overdue. It gives new meaning to the word 'urgent'.

I would like to thank the secretariat for all their help and assistance on this, especially during COVID when all of the hearings were done online. I'd like to thank the member for Kingsford Smith who came up with a catchy title to this report, which I know will live on long after I've stopped speaking, and, most of all, I would like to thank the parliament for making this investigation possible.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for the Republic) Share this | Link to 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.

Tony Smith (Speaker) Share this | Link to this | Hansard source

The time allotted for statements on this report has expired. Does the honourable member for Mackellar wish to move a motion in connection with the report to enable it to be debated on a later occasion?

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Yes, I move:

That the House take note of the report.

Tony Smith (Speaker) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting.