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Wednesday, 2 November 2011
Page: 12543


Dr LEIGH (Fraser) (17:38): I rise to speak on the Corporations (Fees) Amendment Bill 2011, an important piece of legislation that accompanies the shift to exchange competition. As things currently stand, only market operators can be charged fees for the performance by ASIC of its functions under part 7.2 of the Corporations Act. This legislation puts in place amendments that will allow for the government to recover the costs incurred by ASIC in performing market supervisory functions in a way that places the costs as directly as possible on the beneficiaries of independently supervised financial markets. That cost spread will, as it is envisaged, involve 16 per cent of the costs being recovered from operators and 84 per cent from market participants. This is a complicated issue but an important one for the wellbeing of Australian households.

The House Standing Committee on Economics, of which I am privileged to be a member, held an inquiry into the bill on 12 September 2011. We heard witnesses from the Treasury, ASIC, the Australian Securities Exchange, Chi-X, the Stockbrokers Association of Australia, RBS Morgans, the Australian Shareholders Association and the Australian Financial Markets Association. The inquiry was a comprehensive one and went to the overall goal, which is to make Australia a financial centre.

A report conducted by the Australian Financial Centre Forum reported in November 2009:

The Forum’s general position with respect to exchange traded products—as with all other aspects of the financial markets—is that openness to new entrants is an essential condition for competition, efficiency and innovation. Evidence from other countries where traditional exchanges are now competing with new trading platforms suggests that competition has resulted in innovation and generally lower transaction costs.

The Forum thus strongly supports the Government’s announcement and the introduction of competition between market operators.

Another report looked internationally at the trading costs in Australia relative to other countries. Treasury's consultation paper concluded, in figure 1.1, that the total costs of trading for institutional investors, expressed as basis points in the average trade size, in Australia were around 20 basis points. That is certainly cheaper than the costs in a range of developed countries, such as Indonesia, Brazil and China, but it is more expensive than the trading costs in most developed countries, such as France, Sweden, Denmark, Italy, New Zealand and Canada. A similar result comes if one compares the brokerage and exchange fee costs faced by institutional investors. Again, Australia's performance is better than that of the average developing country in the comparison but not better than that of the average developed country.

The Treasury consultation paper estimated the potential benefits from reductions in exchange fees. It estimated that, if there were no growth in turnover in the Australian exchanges, that benefit would be around $100 million from financial year 2011 to financial year 2015. With growth in turnover, that benefit would rise to $160 million. A reduction in bid-ask spreads is another substantial benefit of exchange competition. The same report estimated that a reduction in bid-ask spreads, if there were no growth in turnover—a pretty extreme assumption—would be in the order of $166 million, but, if there were growth in turnover, that reduction in bid-ask spreads would see a benefit to the Australian economy of $265 million.

Those are substantial benefits, and they accrue to market participants. Those market participants include, of course, mums and dads who indirectly are market participants through their superannuation funds. Reducing the amount of superannuation that is lost through high bid-ask spreads or through trading costs flows through to higher retirement savings for Australian mums and dads and flows through to benefits for individual shareholders. It ensures that there is more investment in the Australian economy.

My friends in the financial markets might not like this, but the trading costs and bid-ask spreads are what economists would regard as deadweight costs. That is money that is not available to be invested in new businesses. It is money that is not available to create new jobs. So reducing those transaction costs and reducing those bid-ask spreads puts in place big benefits for the Australian economy.

There are four chief reasons why we are imposing the costs in the way in which we are in this bill. The first is fairness. Opening Australia's financial markets to competition carries the challenge of supervising multiple markets in an environment of high-speed and complex trading. To recover the fees in this way is in line with the government's cost recovery framework, in which costs are recovered from those entities that create the need for the supervision.

The second reason is that the benefits of competition significantly outweigh the costs imposed under the cost recovery regime. I have spoken about the reductions in trading fees and the narrowing of the bid-ask spreads. That benefit flows through to all Australian shareholders, and in turn to Australian companies which create many of the jobs in the economy.

The third reason for the bill being structured in this way is the expressed preference. Brokers have not been charged fees for supervision in the past, but they paid indirectly through the fees charged by market operators. In previous submissions and in their consultations, industry groups such as the Stockbrokers Association of Australia have expressed preference for the more transparent model of cost recovery by ASIC as opposed to monopoly charging for supervision through higher fees. Competition is expected to increase the pressure on the ASX to pass through cost savings in the transfer of supervision.

The fourth rationale is lower barriers for entry. If we charge only market operators for the increased costs of supervising a multi-operator environment, that would decrease the incentives for participants to sign up to new trading venues. It would lock in an advantage for the incumbent ASX, since that exchange is larger and might be better able to absorb supervision fees than a new entrant such as Chi-X. This is consistent with evidence that was put to the House of Representatives Standing Committee on Economics on this issue.

Where do the coalition stand on this issue? They appear to stand in the same place that they do on so many economic questions today. It is not clear whether they are supporting or opposing—whether they are in favour of delaying or putting off. But the consistent economic message from the coalition is 'just say no'. When economists suggest that the most efficient way of dealing with the dangerous scourge of climate change is to put a price on carbon pollution, the response of those opposite is to abuse academics. The Leader of the Opposition, when asked why he could not find a single economist to back his direct action plan, responded that that said something about the quality of Australian economists. What a disgrace!

On the minerals resource rent tax we have clear economic evidence flowing from the Henry review, and many studies before that, that higher taxes on immobile tax bases are the right thing to do—that a profits based tax is more efficient than a royalty regime. Of course we have seen this historically through the petroleum resource rent tax, which has allowed that sector to grow so rapidly over the recent decades. This is why market operators such as Esso were so keen in the early 1990s to move from royalties to a profits based petroleum tax. I cannot help mentioning that even Sarah Palin supports profit-based petroleum and minerals taxation, yet those opposite do not. This puts them in the unusual position of being less economically literate than Sarah Palin.

We held a tax forum recently in which there was a deep and substantive debate and which included representatives from the government, from unions, from business and from the academic sector. That was an important discussion of the big tax issues facing Australia. There were discussions around an allowance for corporate equity, discussions around mineral taxation and discussions around carbon pricing. The coalition, as with so many economic reforms, were missing in action. They had an invitation to attend the tax forum if they were willing to contribute constructively, but they were—not surprisingly—unwilling to make that contribution.

Of course, though, we have seen from time to time thought bubbles being floated on tax reform by those opposite. The members for Wentworth and Kooyong apparently want a sovereign wealth fund—that is their new tax reform idea. A sovereign wealth fund, of course, is really a piggy bank held in overseas currency. So if you want a sovereign wealth fund the natural question is: what are you planning to put in your piggy bank? Unfortunately, the members for Wentworth and Kooyong have been—

Opposition members interjecting

The DEPUTY SPEAKER ( Mr S Sidebottom ): Order! There is a lot of noise going on at the table, and I think they are concerned that you are straying a little bit from the topic of the legislation. I am too, and I do admire your knowledge; but would you mind sticking to the legislation. And can I please hear the speaker?

Dr LEIGH: I was speaking about the broad context of economic reform in which this legislation is being debated. This is a context in which we on this side of the House are keen to bring market discipline to the area of stock exchanges. We on this side of the House recognise that competition is important. We recognise that markets work well. Those on the opposite side of the House, however, are unable to grapple with markets in so many areas. They are running away from big economic reforms such as carbon pricing, minerals resource rent taxation and even the fuel tax reforms introduced into this place by then Treasurer Peter Costello in 2003, which are now opposed by the Liberal and National parties.

This legislation is important for Australian families. It will boost investment; it will boost superannuation returns; and it recognises that exchange competition has benefits that will flow onto Australian households. Even though this is complicated financial legislation, it is underpinned by the straightforward concept that competition at the exchange level brings benefits to households, just as competition does in other markets. I commend the legislation to the House.