Chris Hayes (Werriwa, Australian Labor Party) Share this | Hansard source

Before I commence to speak on the Tax Laws Amendment (Election Commitments No. 1) Bill 2008 and related bills, let me compliment the member for Solomon on his contribution. From what I have seen on the paddock so far, I can attest that he has gone out to play football on more than one occasion.

This bill delivers on a very important election commitment, one that will slash the withholding tax rate that applies to non-resident investors. Schedule 1 of this bill will replace the existing 30 per cent non-final withholding tax regime applying to certain distributions from Australian managed investment trusts to foreign investors with a new final withholding tax regime. It is the final stage in the implementation of an election commitment first announced in last year’s budget reply by the now Prime Minister. This is the final stage in implementing what was then discussed as being a positive development of sound industry within this country.

The importance of this measure to Australia’s future prosperity should not be underestimated. This measure aims to help Australia become a funds management hub in the Asia-Pacific region. It will certainly do a wonderful job in boosting our export earnings and in further developing an industry that we are excelling in at the present time. It will ensure that Australia remains a world leader and at the cutting edge of funds management. The financial services industry makes a large contribution to Australia’s wealth and has the potential to contribute even more to our economy.

I recall that back in 1992 there was a hue and cry—and you will recall it too, Mr Deputy Speaker—when negotiations took place between the Keating government and the ACTU associated with the introduction of compulsory superannuation. You will recall, Mr Deputy Speaker, that that was based on a trade-off of a three per cent gain in lieu of a four per cent productivity rise. I know there was a hue and cry about that and I know the now opposition—and they were in opposition then, too, by the way—opposed it every step of the way. They thought it was huge impost on the economy. We have heard the doom and gloom speeches before, but they resounded back in 1992.

Let me tell you what has occurred since then. By 2007 this country had amassed almost $1.4 trillion in consolidated funds under management, including around $128 billion in Australian property trusts due to the compulsory superannuation which was introduced by the Keating government. Much of our economy—much of our future and our kids’ futures—was very much built on those decisions back in 1992 to go forward in this country; not to simply be a country built on mining and on resources but to be a country built on the intelligence of being able to manage funds, develop our infrastructure as a consequence and provide well-paying jobs, professional positions in many cases, for our kids. Australia has built up a fantastic reputation in funds management with a well-respected and experienced regulatory regime. We have certainly developed a skilled and professional workforce. Australia is geographically very well strategically placed in the Asian time zone to capitalise on this for the benefit of this industry.

Amazingly for a country of its size, Australia has a number of natural advantages in funds management. We are the fourth largest onshore managed fund market in the world. This puts us in a reasonably unique position due to the huge size of funds under management. However, regrettably, less than three per cent of funds derived from Australian managed funds are attributable to foreign investment. This small amount is mostly derived from investors from a very narrow base of funds, particularly from the United States and the United Kingdom. The current high 30 per cent withholding tax, which was imposed by the former government, is one of the reasons why Australian managed funds struggle to attract foreign investment. It very much acts as a disincentive for using the professional facilities of our funds management. It is ‘lead in the saddle’ when it comes to developing this industry to truly international proportions.

The financial services sector has an immense untapped potential for growth, particularly in the Asian region. Just consider that we have many Asian economies which are booming at the moment. Many of their industries and certainly many of their people are looking for investment opportunities. Australia sits well to receive those funds and manage their money. This measure will make our managed funds more competitive by giving Australia one of the lowest withholding tax rates in the world and by boosting foreign funds under management in this country. Apart from creating professional accounting and legal jobs in this country, managing these funds will also create downstream investment opportunities and property based infrastructure.

This new regime applies to funds payments—broadly, the distribution of finances sourced as income in this country, other than the dividends, interest and royalties—and will be managed by Australian based and operated funds. It will primarily apply to the distribution of Australian sourced rental income and capital gains, ostensibly from Australian property trusts. The rate of withholding tax under this new regime will depend on the residency of the foreign investor. Where a foreign investor is a resident of a country with which Australia has an effective exchange of information on tax matters, the tax rates will be 22.5 per cent for funds payments for the first income year following royal assent, 15 per cent for funds payments for the second year of income and 7.5 per cent for funds payments in the third and later years of income. For the first income year, as a transitional measure of this arrangement, foreign investors resident in EOI countries will be eligible to claim deductions for expenses associated with deriving their income.

Residents of countries with which Australia does not have effective exchange of information will be subject to the 30 per cent withholding tax. That is designed to ensure and encourage integrity of the measures of taxation and, quite frankly, it sends a very clear message to those governments that we will not tolerate tax evasion and avoidance and we will not be a centre for that. However, we will move to build up our industries to a proportion where they justifiably have the reputation of being internationally competitive and are also internationally renowned as the best fund managers.

Restricting the reduced withholding tax to countries with which Australia has an exchange of information agreement really does ensure that funds invested in Australian managed funds will not be abused. It ensures that there are appropriate compliance regimes for the management of these funds and it opens us up to be internationally competitive in a part of the world in which we think we can make a very solid contribution in funds management.

This week I had the opportunity to visit a number of the schools in my electorate to talk about another part of opening up the future for young people. The Rudd Labor government has committed $1.2 billion for computers in our schools as part of the digital education revolution. This is about providing students with the appropriate technologies they need to use as learning tools to equip them to go into the modern workplace in a vastly modern world. As a matter of fact, today the student leaders from Macquarie Fields High School, James Meehan High School and the Lurnea High School are visiting me and I hope to show them around Parliament House. But, more importantly, I hope to impress upon them that the decisions we are making in government are not just for the here and now but, like the decisions that Paul Keating made in 1992 in opening up the prospect of compulsory superannuation, for the future. We are making decisions with a view to giving this country a very clear future. In the case of the withholding tax, we are making a decision which will create an internationally based industry of massive proportion.

The position of funds management is crucial. As I said, it is the final stage of a commitment that was given in the budget reply in 2007. This now brings this matter to fruition. Unlike what was put up by the other side, this is about developing the unique characteristics of the Australian based funds management industry. We are well placed to extend that industry and we are well respected in that area. This bill will be responsible for the growth of many professional jobs into the future. This will see the Australian industry not only managing the $1.4 trillion that it has now as a result of compulsory superannuation but also growing astronomically based on the reputation that we have already established. I commend the bill to the House.

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