Last month, a Bill passed the Senate to progressively reduce the withholding tax rate on specified distributions from Australian managed funds from 30 per cent to 7.5 per cent. BRUCE RUSSELL of Morse Consulting says a lot more than this needs to be done if Australia is to fulfil it’s dream of becoming a regional financial services hub. With the likes of Luxembourg and Dublin threatening to open up to direct investment from Australians, potentially undermining the captive market for Australian-domiciled funds which has underpinned the local industry until now, Russell argues the country should be exporting its true innovations, such as wrap accounts.
Australia must move now to become a Financial Services Hub or risk losing a viable industry to already established markets. Australia must play to its strengths in the investment management industry to supplement changes to the tax treatment of investment vehicles. Morse Consulting supports the changes as being a necessary pre-condition for the development of Australia as a financial services hub.
But the withholding tax reduction alone does not fully address the urgency of Australia’s current situation. Looking at in a cold blooded way, Australia can’t beat the major finance centres in a head-on battle but the skills and technology developed locally can be successfully exported if the industry marshals these strengths. Furthermore, it may only be a matter of time until markets such as Luxembourg and Dublin are opened up to direct investment from Australian Investors. This poses a real threat to the local funds management business on the basis that regulatory requirements have forced Australian investors to use local investment products for access to offshore investments and this has, to some degree, supported the local industry. On the flip side, the current regulatory landscape also requires local managers to use offshore funds such as Dublin or Luxembourg funds to sell investment products non resident investors. Removal of this restriction will enable managers to export local investment products to offshore markets.
Playing to Australia’s strengths
It is a well known fact that Australia is a leader in the development of compulsory superannuation. Not only has this provided Australia with an industry that operates at a large scale when measured against other developed economies but the nature of our superannuation model has left Australia with specific areas of expertise that are in high demand by other markets as they also start to roll out similar pension models. For example, due to the prevalence of defined contribution schemes, Australia has developed a well regarded competency in the administration of unitised superannuation funds and has adopted world leading practices in areas such as unit pricing and member reporting. This is evidenced by the fact that Australian funds have adopted significantly lower tolerance levels for unit pricing errors when compared to markets such as Dublin and Luxembourg.