michael_bailey.jpgFinancial services is not the happiest place to be these days, and nobody’s mood would have been improved by a report last month from JPMorgan Australia chief economist, Stephen Walters. In it he predicts that a slowdown in China will lead to Australia’s unemployment rate doubling between now and late 2010, to a 9 per cent level not seen since Paul Keating’s days.

It’s fitting I suppose that JPMorgan deliver this news. At presstime at least, it had been doing less than many of its fellow American banks to add to unemployment. But the report got me thinking. How might Australia seize this most unlikely of moments to create jobs in what is presently the most unlikely of industries – ours? A few possibilities emerged at the roundtable we ran this month with RBC Dexia Investor Services, on the subject of ‘Building Better Investment Distribution’.

Australia’s government really should learn the history of UCITS, the 20-year old managed fund framework which from humble beginnings in Luxembourg and Dublin has become the closest thing our world has to a distribution ‘passport’. And not just across the countries of Europe, either. UCITS has become a managed fund ‘brand’ which investors increasingly ask for in Asia, supposedly the place where Australia’s ‘regional financial hub’ hopes are to be realised.

It’s all very well to export our expertise in portfolio management, financial planning and platform administration software. But it seems to me that most of the jobs, the lifeblood of the Dublins and Edinburghs and Singapores, come from encouraging more offshore financial services companies to set up a meaningful operation here – not just a sales office as has too often been the case.

One way to do that would be to create a sort of South Pacific UCITS, which sounds crazy until you consider how good the ‘Australia’ financial system brand is looking compared to most others at the moment. ( Joke of the month: What is the capital of Iceland? About $3.50.) True flow-through taxation treatment for all offshore investors seems to be a big part of the recipe.

The roundtable also hammered home just how much damage the Foreign Investment Funds tax regime continues to do. Get rid of FIF – revenue-wise I’m told Wayne Swan wouldn’t miss it – and you’d begin to address the overabundance of our top investment talent who work with Australian equities, a tiny niche by global standards. Bringing into line with the rest of the world our treatment of dividend imputation, another hallmark of a domestically focused industry, would speed up the globalisation process as offshore managers became less intimidated by setting up funds here.

Let’s not allow compulsory super to make us complacent. Remember, the expats returning jobless from New York and London will be looking for work here soon. It is only bold initiatives from industry, fully supported by Government, that have a chance of giving them somewhere in Australia to use their skills.

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