Regulatory change to entice offshore funds

Date: Friday, January 15, 2010
Author: Andrew Main, The Australian

The Australian Financial Centre Forum found today that although Australia's funds management industry is one of the most sophisticated in the world because of the superannuation system, uncertainty over tax treatment and outmoded tax rules meant that there were almost no overseas funds run out of Australia.

To make Australia a financial centre, the forum - chaired by former Macquarie Bank director Mark Johnson, recommends changes to the way Australian corporates set up Overseas Banking Units, the creation of a system of Investment Manager Regimes that are used overseas to make cross border funds management more tax efficient, upgrading the withholding tax regime to make it cheaper for companies to borrow offshore, and to reduce the state tax burden on insurers.

The panel also recommends the establishment of a permanent secretariat to make sure policy recommendations are properly executed adter finding that previous attempts to make Australia a stronger global financial centre had suffered through the lack of Canberra-based steering body.

Launching the report in Canberra today, Financial Services Minister Chris Bowen said that although the government had reduced Australia's withholding tax rate, ``this report is all about the next steps; what's necessary to drive this ambition further''

Overseas Banking Units already exist in Australia - there are reportedly 132 of them - but they are ``far too complex, unclear and not user-friendly'', as one expert put it. Another said that the current application process, via the ATO, was too time consuming

The panel comprises former international hedge fund manager Geoff Weir, AMP CEO Craig Dunn, Suncorp chairman John Story, Vanguard Australia CEO Jeremy Duffield, NAB director Patricia Cross, Ernst & Young tax partner Alf Capito and veteran investment banker Paul Binsted.

The panel concluded that although Australia offers a wider range of financial services than some established centres like Tokyo and Singapore, there's an ``inward focus'' about our services that needs to be overcome to make Australia a more attractive base for international financial services companies.

``Our financial sector ranks highly in international surveys on many of the key requirements for a successful financial centre,'' the report sayss ```yet our exports and imports of financial services are low by international standards.''

The report was compiled before the recent offshore clampdown on bankers' bonuses, but the report takes the same line as the recent Productivity Commission view that it's better to give shareholders more power to rule on such matters than to bring down formal legislation capping payments.

A long term aim of the report is to establish what it calls the ``Asian passport'', a set of international financial services regulations that would allow Australian products to be more easily sold offshore and vice versa. Currently the two markets are almost mutually exclusive.

Mr Bowen said: ``We'll consider this Report over coming months very seriously. Some of the recommendations have a budgetary context and will need to be considered in that context, against other competing priorities. Some of the recommendations, of course, will also need to be considered in the light of the independent tax review being chaired by Ken Henry and its other members. We'll be considering those recommendations in conjunction with our consideration of the independent tax review.''