Mr ANDREW THOMSON (11:37 AM) —I have chosen to make some remarks on the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 2) 1999 because I think, in looking at the Wallis inquiry, that its purpose is to prepare Australia better to become one of the regional financial centres in the Asia-Pacific area. There are some interesting ramifications of that or perhaps necessary preconditions which, although not covered directly in this bill, are an essential part of achieving that policy outcome.

The bill deals with various transitional type measures such as sales tax exemption for purchases made by the Australian Prudential Regulation Authority and the demutualisation of authorised deposit taking institutions, to bear in mind their members' interests. Another measure deals with foreign authorised deposit taking institutions and their need to obtain a banking authority. But, as I said, the legislation all goes to the government's aim of fostering Sydney in particular as a regional financial centre.

I would like to pose a couple of questions along the way. For a start, how realistic is that as a policy aim? I think it is a realistic one, provided that certain steps in addition to what is in the Wallis report are taken. You can then ask what more has to be done to achieve this outcome and you can indeed ask if Australia is ready for this. Do we really want to be competitive enough to attract such large flows of capital into investment and broking institutions in Sydney that we would be genuinely regarded as a regional financial capital?

In asking those questions, I think of last weekend's result in the Victorian state election and I think back to what happened federally with the One Nation Party before that. It has to be said that there are some grave portents in rural and regional Australia which, in an indirect but nevertheless important way, bear on the whole question of whether or not we can get these further reforms up to make Australia competitive enough to attract that sort of capital.

This country was very broadly settled, perhaps more broadly so than any other part of the earth in human history. We came here as an immigrant people, spread out to an enormous degree and settled many small and medium sized country towns, villages and crossroads—and they are all still out there today. In doing so, many people staked their livelihood on agriculture and also on regional manufacturing enterprises. Sad to say, many of these are dying very quickly as sources of employment for people who remain in those parts of Australia. The electorate boundaries remain, and when it comes time for people to vote, quite naturally, their fears about what they see happening right in front of them translate into votes for Independent candidates in many cases and sometimes, it has to be said, for ludicrous candidates, some of whom were elected in the Queensland state election not so long ago.

So in many senses the further reforms that have to take place, especially in taxation, are often held back by the demands for funds, subsidies and so forth that people rightfully feel ought to be delivered to them to maintain their lifestyles in these parts of Australia. This is not a peculiarly Australian phenomenon at all; it happens in many parts of the world.

If you take a basic view of the economics of many our regional centres, you should look at the real prices of some of our commodities. Let us take beef. In the period from 1970 till now the real price of beef has followed a downward course. It has fallen nearly 60 per cent in that time. Likewise, sugar has fallen slightly more—61 or 62 per cent in real terms in 1998 dollars. Interestingly enough, grain prices are relatively the same and also, strangely enough, wool prices are not so different in real terms from what they were back in 1970-71. It is really the competition from other fibres that has caused such difficulty there.

But to become a properly said `large regional financial centre' we have to go further than the measures that were announced this week as part of the business tax reform package. They were wonderful measures—very big steps made along the way towards this goal—but I believe that we have to find a way of reducing our top rate of income tax to around 30 per cent or perhaps even slightly less. We also need a capital gains tax perhaps set at around 10 per cent, not simply at half of the current marginal tax rate—although that, as I say, is a very big step. Furthermore, we need a special immigration category for information technology skilled people.

Radical tax reform, such as I suppose you would describe these measures, can also serve to rejuvenate some of Australia's regional centres by the devolving of certain types of IT work via networks or intranets, whether they be call centres, which are really at the very low end of the food chain in information technology, through to slightly higher more value added tasks such as the clerical processing of financial transactions or even more higher value added work such as the design and making of graphics, database administration or even programming skills. These things can be devolved to people living in regional Australia.

Two weekends ago, whilst visiting some properties for sale along the South Coast of New South Wales, I saw a blueberry farm in some disrepair. When I went to the house to greet the man who was selling the blueberry farm, and to inspect the property, I found that he was a computer programmer. There in this little shack were a number of stand-alone workstations, with not just HTML on the screen but other kinds of programming languages. It was quite clear that he was performing that sort of work. He was so busy with his computer programming that he had neglected his blueberry farm and it was in a terrible mess. In fact, he was selling the property simply because he felt it was useless to try to maintain a blueberry farm while he could make a much higher income from his work as a computer programmer.

But, to use an agricultural metaphor, you have to till the earth before the plants will grow. There will have to be some, to use a hackneyed phrase, proactive measures taken to assist the devolving of these kinds of IT tasks to people who desire to live in wonderful parts of rural and regional Australia. For example, the government might think of intervening to locate extra computer processing capacity—what you would call the super computer, the sort of thing you can see at the Australian Technology Park in Redfern in Sydney—at a regional university and therefore give people who require that level of processing, to produce very high quality graphics, the opportunity to use that extra processing capacity to produce material very quickly. That is one such measure. To make life slightly easier for such people, to attract them to migrate not simply to Australia but out of our cities and to these places to establish their enterprises, you would have to do a little more about the transport links. There must of course be some reason to do that: you cannot go down the road of subsidising to too great a degree the cost of travel between regional parts of Australia and our cities.

In all of this, I talk a lot about both the investment sector and the information technology sector. As time passes, my guess is that that they will largely converge. Whilst the Wallis reforms are essential in building, if you like, a regulatory infrastructure to make it easier and more reliable to conduct such enterprises, you have to make available to these companies sufficient numbers of people who are skilled in things like database administration or construction and programming. The two keys to growth in a financial sector are information—the quality and access to it—and marginal rates of returns on capital invested. The less the regulatory burden, the better the marginal rate of return.

By making available large numbers of IT skilled people, you enable Australian financial enterprises—whether they are fund managers, brokers, insurance companies or other types of enterprises—to do more. For example, how would you go about optimising returns in the global sector in banking, transport, computer hardware or some sort of manufacturing? How would you compare the rates of return on individual listed companies in the many different equity markets in the world today? You can do it, but you need an enormous amount of IT resources. But, if you can do it, you can provide an edge for your clients and hence you are slightly more attractive for people choosing where to place their money to be invested.

As time passes, we will see a convergence between the taxation burdens, liabilities, that enterprises in our financial sector must bear and the availability of information technology in the form of people. Hence, our immigration policy must look ahead to how we attract larger numbers of people from countries in this region—people with surnames that the average Australian cabinet minister, frankly, could not pronounce. That is the kind of gold we should be mining out there. In trying to bring all of these things together, one must of course deal finally with our parliament. Measures pass through this House with debate, amendments are moved and the government accepts suggestions that are constructive.

It is said that all roads lead to Rome but in this town it seems that often all roads lead to the Senate. We have to acknowledge that we do not have a majority there and that, from time to time, we have some difficulty dealing with the parties there—the Democrats, who hold the balance of power, of course, and the ALP. We need to focus them less on the notion of envy and more on the notion of what Australia has to do to compete with its peer nations not simply now but 10 and 20 years down the track. As I said, it is not simply a question of dealing with, one by one, discrete areas of policy, such as taxation or financial regulation, but it is more how we tie together the different elements that these enterprises in Australia will need in order to compete.

These different elements include immigration, taxation, financial regulation and even, if you draw the bow a little further, transport and regional development. If reforms to the tax system—which we must persevere with to try to achieve later on—strike shoals or reefs of resentment in the electorate, people feeling neglected and voting against established parties or policies out of sheer frustration, we will not be able to achieve that convergence of policy. Hence, we will not be able to achieve our outcome of fostering Australia, particularly Sydney, as one of the Asia-Pacific's larger financial centres. One could talk in much more detail about these things, but perhaps it is better they are talked about less and actually done. I conclude my remarks there and pass the baton to the Minister for Financial Services and Regulation to give the government's view.