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Securing Australia's place as a financial hub fresh thinking to boost financial exports.



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FEDERAL LABOR LEADER KEVIN RUDD MP AND SHADOW ASSISTANT TREASURER

CHRIS BOWEN MP

SECURING AUSTRALIA’S PLACE AS A FINANCIAL HUB FRESH THINKING TO BOOST FINANCIAL EXPORTS

Kevin Rudd tonight announced Federal Labor’s plans to secure Australia’s place as a financial hub in the Asia-Pacific.

Federal Labor’s initiaitive will see the current 30 per cent withholding tax on distributions from Australian managed funds to non-resident investors, halved to 15 per cent.

Australia’s funds management industry is the biggest in Asia and the fourth largest savings pool in the world.

Australia has more than a trillion dollars under management, but attracts only a small proportion of the funds available to be managed internationally.

This aligns Australia’s tax rate with the United States and Hong Kong.

Federal Labor has also announced it will abolish the need for overseas investors paying withholding tax to lodge a tax return and claim debt as a deduction.

By removing this uncompetitive tax burden, Australia will be in a much better position to compete in the global managed funds industry, which is estimated to top $US60 trillion over the next three years.

Australia’s fund management industry is well regarded across the globe and is well placed geographically to become the financial hub for the region.

This tax reform is part of a simple, crucial equation for enhancing Australia’s reputation and improving Australia’s export performance.

More funds under management in Australia mean more export dollars for Australia.

This is the sort of measure the Howard Government has had plenty of time to introduce, but it is simply not capable of fresh thinking for the future.

Funds under management in Asia are expected to grow by 14 per cent per year over the next decade.

Australia is well placed to capitalise on this growth, but only if we remove the competitive shackles of our funds management industry.

If we are to prepare ourselves for the future, beyond the mining boom, we need to remove the impediments to the growth of services exports.

CANBERRA MAY 10, 2007

LACHLAN HARRIS (RUDD) 0417 592 338

JAMES CULLEN (BOWEN) 0409 719 879

A Smarter Approach: Securing Australia as the Financial Hub of Asia

Background

If Australia is to prosper, we must build on our economic strengths and remove impediments which make us a less attractive destination for investment.

One of Australia’s great economic strengths is the robustness of our funds management sector. Thanks to the superannuation guarantee established by the Hawke and Keating Governments, Australia has one of the most developed funds management sectors in the world.

In fact Australia’s funds management industry is the biggest in Asia and the largest savings pool in the world.

The Australian economy has other advantages which help when it comes to attracting overseas investors to place their funds with Australian funds managers. We have a well developed prudential regulation regime and well respected reputation for a lack of corporate corruption. Our location in the world also means we are close to the fastest growing sector of the world’s economy, Asia, and we are in the same time zone as the Asian financial markets.

However, as a nation we are not capitalising on these huge strengths.

We have over a trillion dollars under management, but attract only a small proportion of the funds available to be managed internationally.

There are currently $US50 trillion of funds under management internationally. This is expected to reach $US60 trillion in just three years.

Close to home, funds under management in Asia are expected to grow by 14 per cent over the next decade.

The advantages to Australia of attracting more of these funds to be invested in Australia are significant.

More funds under management in Australia simply means more export earnings for Australia.

However, Australia’s funds managers are held back by an uncompetitive tax regime.

Australia imposes a 30% withholding tax on distributions from managed funds to overseas residents. Overseas individuals continue to be taxed at a higher rate. This tax regime is uncompetitive.

The most competitive tax regimes in the world have a flat and final tax rate, which is significantly lower than Australia’s. For example: Japan’s rate is 7%, Singapore’s is 10% (0% for individuals) and the rate for the US and Hong Kong is 15%.

Labor’s Proposal

A Rudd Labor Government will remove the uncompetitive tax burden on Australia’s managed funds.

Labor will cut in half the withholding tax on distributions from Australian managed funds to non-resident investors. The new rate of 15% would be final, and the need to lodge a tax return and claim debt as a deduction would be abolished. This new tax regime would apply to Australian sourced net taxable income of the trusts (excluding dividend, royalties and interest), eg rental income, foreign exchange gains, income from financial transactions, capital gains on taxable Australian property. The new flat 15% tax will apply to non resident trustees and companies.

This would apply from 1 July 2008.

Costing

Labor has costed this measure at $15 million a year.

There is considerable evidence, based on independent analysis, that the measure will be revenue neutral. Under thin capitalisation rules, gearing ratios of up to 75% are allowed, and a revenue neutral cost assumes a gearing ratio of 60%.

However, for the purpose of the costing Labor has assumed a conservative gearing rate of 45%.