John Watson (Tasmania, Liberal Party) Share this | Hansard source

I rise tonight to speak about why Australia is the hub for superannuation fund management applications in the Asia-Pacific region. An Australian government advertisement in Hong Kong’s The Financial Times states that, over the last two decades, Australia’s investment management industry has developed into one of the most significant and dynamic components of the Australian financial services sector. Economies of scale in the Australian investment management industry have created a cluster of local and international investment management companies with a large number establishing or expanding existing operations to service the Australian region.

Of the world’s largest 20 global international managers, as reported by Pensions and Investment Magazine, 16 have a significant presence in Australia, reinforcing Australia’s position as the funds management hub of the Asia-Pacific region. Ranked the most resilient economy in the world for the fourth year in succession, the strength of the Australian economy has been confirmed by 14 years of uninterrupted economic growth at a rate well above the global average. This backdrop in the rapid growth of Australia’s compulsory pension savings has contributed to a strong, sophisticated and innovative financial services sector. Australia offers global financial institutions opportunities in a rapidly expanding domestic market and is an ideal location for the servicing of markets in the Asia time zone. This leads me to one of the most important reasons for Australia’s success in this area: our geographic advantage.

Australia is often referred to as the gateway to Asia, and this is true. We operate in the same time zone as all of Asia, and our Stock Exchange bridges the US and European markets in a way that none of the Asian ones do. A notable expansion from the Australian shores recently has been expansion of the National Australia Bank’s wealth-management arm into China. In fact, NAB’s chief executive for Australia and Asia, Ahmed Fahour, hopes that the bank’s China operation will one day rival its $8 billion-plus UK operations. Australia is one of the most multicultural and multilingual nations in the world, giving Australian based companies ready access to Asian languages services. Australia has strong legal and accounting regimes and a tax system that increasingly recognises the importance of Australia as a financial services hub.

A further interesting observation is that Asians—and Japanese people in particular—are much better savers than most Australians tend to be. For example, the Japanese place a higher preference on protecting their household assets rather than increasing returns, but I believe this could well change over time. Australia also has excellent relations with the nations of the Asia-Pacific region. We have very strong trading relationships with China and Japan, and we are working closely with South Korea, Indonesia and India. This is especially significant when you consider that the Asian market has enormous potential for growth.

When I recently chaired a conference in Hong Kong, I was astounded at the latent promise represented by the expanding Asian middle class and the growth of the pension market. According to data gathered by Axiss Australia, Australia has the most resilient economy in the world, significantly outscoring regional competitors such as Japan, Singapore and Korea. This is due in no small part to the fiscal responsibility and the steady hand of the Howard government. Australia is the most politically stable nation in the region, which gives investors a high degree of confidence in doing business with Australian companies. Another important reason Australia is so dominant in the Asia-Pacific region is that we were the second nation in the world to privatise pension fund management after Chile. I think five others have followed suit. We have had a lot of experience in the area of privatisation of pensions. This means that the Australian private sector has the most experience in pension fund management and that our regulatory framework is the most mature and well-developed. This is recognised as a fact in Asia.

It is by using this framework and experience that Australian private sector companies are able to sell their expertise to the Asia-Pacific region, even in competitive markets such as Singapore, Hong Kong and Japan. Australians are everywhere in financial markets in these areas. The AFG Global Funds Management Index shows that Australians have more money in managed funds per capita than any other developed nations. Australians have an average of $US45,300 invested in managed funds, compared with $US37,038 in the US.

I remind the Senate that the growth in superannuation fund contributions in the next decade will have a significant impact on the make-up of the ownership of securities on the Australian Stock Exchange. The returns from equities investment in the past two years have been quite phenomenal, and now we have the All Ordinaries Index passing the phenomenal 5,000 mark. The return of commodity prices to long-term average results over the next few years will see a pressure on yields as too much money from retirement savings and other sources is put into the equities market. It will not help Australia’s development if this money goes into overseas rather than Australian equities where some markets now appear quite attractive compared with investing in local infrastructure, particularly in an environment in which overseas countries are lifting their interest rates. Employers regard contributing to employees’ superannuation as a significant cost imposition. Friends from across the water in New Zealand are not surprised that they can compete successfully with Australia because of employee taxes, such as superannuation and payroll taxes. I remind the Senate that raising the current nine per cent, as some suggest, would severely punish business, particularly small business struggling with competition from low-cost Asian countries.

While an employer contributes nine per cent of ordinary time earnings to qualifying employees through their fund, this nine per cent of the employer’s reduces to 7.6 per cent for actual investment purposes after that terrible contributions tax. Hence, I support the idea of the Minister for Finance and Administration, Senator Minchin, of eliminating the contributions tax as that would encourage savings. In financial circles there is a lot of support for abolition of this tax. Why? Because it is non-inflationary and it will go a long way towards increasing the competitiveness of the Australian market and raising retirement savings very significantly—well in excess of the $A3 billion in contributions tax currently paid to government.

Significant advances have been made of late by the Australian government, including Senator Coonan’s generous co-contribution arrangements to boost retirement savings for low-income Australians. Other advances have included removing the work test and allowing Australians under 65 years of age to contribute to superannuation, the abolition of the surcharge, providing access to superannuation for those who are working and are over the retirement age and allowing those with spouses to split contributions. In all these areas Australia is really leading the world. When you look to the UK there is not the political will to do the sorts of things that we have been prepared to do in Australia. So it is not surprising that we are leaders and that Asians and others are looking to Australia because we have the skills. In the last 10 years, I remind the Senate, the volume of superannuation savings has increased threefold, while the number of funds has fallen from 5,000 to 1,200 and, because of the new licensing arrangements, is anticipated to reduce by 1 July this year to about 420 or maybe even 410.

To conclude, Australia has one of the most dynamic and sophisticated superannuation fund management frameworks in the world and is in an excellent position to secure the Asia-Pacific market and to secure our position as a regional financial services hub. Exciting times lie ahead as Australian firms continue to expand into Asia. It is my hope that our experience and innovation will ensure that Australia will be in a strong position in the future, as we are now.