Andrew Bragg (NSW, Liberal Party) Share this | Hansard source

I rise tonight to make some comments about the Treasury Laws Amendment (2021 Measures No. 2) Bill 2021, and I want to speak about the offshore banking unit policy. The offshore banking unit policy was introduced in 1987 by the then Treasurer, Mr Keating, with the view that Australia would be an open, dynamic economy that wanted to have a tech and finance sector and wanted to attract the sort of business where an Australian domiciled company could be providing financial services to organisations and to people who were not necessarily residents onshore. The principle was that you would conduct your business through an Australian organisation but conduct it to an offshore consumer. In 1982, a 10 per cent tax policy was applied to the offshore banking unit. That was a significant discount on the overall corporate tax rate, which today sits at 30 per cent; so offshore banking unit organisations, subject to the law of Australia, have a 20 per cent discount on eligible activities. Again, it is designed for offshore transactions and is not available to Australians.

This concept is not unique to Australia. It was put in place, wisely, by that Labor government because we do have an ambition to be a clever country, an economy which has a large and growing tech and finance sector, and one which is able to attract offshore investment in order to create more jobs in Australia in that services sector. And that need hasn't gone away since 1987. In fact, that need is more pronounced than ever. The reason we're here looking at the repeal and the closing of the offshore banking unit is that there have been judgements made by the OECD that the offshore banking unit, as put in place by the former Labor government, was a harmful tax practice. On that basis, there are many, many countries which have harmful tax practices—for example, Luxembourg, Ireland and Singapore—because they operate at significant discounts to the headline tax rates of those countries when they provide services to companies that are, in effect, doing business offshore. So we need to tread very carefully in the removal of the offshore banking unit, and that's what this bill does. It effectively closes the offshore banking unit to new entrants, with a view to grandfathering out the existing users of the offshore banking unit by the end of the 2022 financial year. But that can't be the end of the story. We still want to provide those sorts of services, in a tax preferred environment, because our competitors would continue to do so. The Treasurer's statement on closing down the offshore banking unit refers to the need to replace the offshore banking unit. We should be looking to do that over the next 12 months, because there are at least 1,000 jobs on the line—mainly in Melbourne and Sydney—which rely upon having some sort of policy certainty here.

Last year I commissioned a group of people in the tech and finance sectors to give advice to me, in my role as a senator for New South Wales, about what we could do to improve the competitive position of the country in this tech and finance space. This report, chaired by former Macquarie banker Mr Andrew Low, has provided a number of options. One of the options that the committee came up with could actually be used to replace the offshore banking unit. The Low committee proposed having an incremental business activity regime, which is an interesting idea. It would effectively be a system that would come into place when companies were relocating to Australia and bringing those jobs onshore from places like Hong Kong. I think it would be remiss of the Senate to ignore the geopolitical and economic changes happening in our region, especially Hong Kong. Hong Kong is going through the greatest disruption in terms of its legal stability, given it now has the draconian national security law from Beijing applying in Hong Kong. I think, in the long run, this is going to chill foreign investment in that jurisdiction.

When you look around our region, you think of Singapore and Hong Kong as strong tech and finance hubs. The instability of Hong Kong should be an opportunity for Australia to try to capture some of the growth. What we shouldn't be doing is trying to close down avenues where Australia can attract that growth and investment in jobs from places like Hong Kong. So the timing of the removal and the closing down of the offshore banking unit at the behest of the OECD, where you would think we'd perhaps have a bit more purchase now, really does need to come with the strong commitment that the Treasurer has made to replace the OBU. The Low committee came up with one option, an incremental business activity regime. The Senate committee that I'm chairing will also look at options. But it is a very important principle that we don't get bashed up by multilateral institutions that take away our capacity to be competitive and leave the capacity to be competitive in other countries, largely in Europe. This is a very important principle: for Australia to be committed to dynamic policies like the offshore banking unit, which was put in place—and all credit to Mr Keating for doing it—some 30 years ago. The way forward on the offshore banking unit has to be that we are going to be at least as competitive as Singapore, Ireland and the UK in relation to finance and banking services.

I make one final point, and that is that there has been much discussion through the OECD recently about the new global commitment amongst OECD member nations to a minimum corporate tax rate of 15 per cent. If we had a minimum global tax rate of 15 per cent, which would be half the Australian statutory rate, and that were applying to the offshore banking unit regime, which is to be abolished in the next two years, I don't think that would be a great problem. You would find that those 1,000 jobs that are hanging off offshore banking units today would be there tomorrow if you were to ratchet up the tax rate by five per cent. What I'm very anxious that we do over the next six to 12 months is to look at the options to replace the offshore banking unit regime, because, as this bill goes through—and I expect it will go through both chambers—the offshore banking unit regime will be closed. It is due to close in 2023, so it is critical that we provide a commitment to the people who are employing these 1,000 Australians—mainly in Sydney and some in Melbourne—that there will be an arrangement that retains the competitiveness that they enjoy today in some form.

We need to look at the options that were flagged by Mr Lowe, and we need to look at the options that may fall out of having the minimum global tax rate that is being flagged by the OECD, and we need to do that over the six to 12 months, because the clock will run down very quickly. There will be many other distractions over the next six to nine months, I'm sure, and it's very important that we value these jobs in services just as much as we value the jobs in coalmining and other parts of the economy.