Australia’s ‘regional hub’ dream stymied by tax system

Australia’s vast distance from the world’s financial centres and its complicated taxation system are strong barriers to offshore fund managers setting up an office here to pursue their growth strategies in Asia-Pacific markets. Surveying managers attending the Opportunity Australia conferences in London, New York and San Francisco, law firm Henry Davis York (HDY) found that 36 per cent of respondents planning to set up an Asia-Pacific office were undecided as whether they would choose Australia as a regional base. Asked about the barriers to doing business in Australia, respondents said the distance from major financial centres, its time zone, complicated tax system, high tax rates and the costs of setting up a business were influential factors.

Compared to the tax regimes in offshore markets, it was “no surprise” that Australia’s tax system and rates were considered to be a key barrier for managers, HDY commented. “We need a competitive tax system in order to develop Australia as a financial services hub.” HDY hoped that taxation system reviews being conducted by Ken Henry and the Australian Financial Centre Forum would simplify the taxation complexities deterring foreign managers. Respondents also perceived that the costs of doing business in Australia were inappropriately high, despite evidence in Austrade’s 2009 Benchmark Report showing that Australia’s business infrastructure was competitively priced with that of international peers.

“This suggests that there is work to be done by Government and the industry to better inform foreign fund managers as to Australia’s comparative strengths,” HDY stated. In addition, the industry should work with government to develop a “national brand” to inform the international market of the comparative strengths of the Australian industry, HDY stated. The survey aimed to gauge perceptions of Australia’s comparative strength and weaknesses as an Asia-Pacific hub for funds management operations. Given the theme of the conferences and the offshore ambitions of delegates, it was unsurprising that most respondents identified convincing growth opportunities in the region and viewed Australia as a suitable base from which to pursue them.

Among the respondents, 94 per cent of managers saw growth opportunities for their businesses in Australia, and of these, 59 per cent would seriously consider Australia as a base for an Asia- Pacific funds management operation. Australia was a more popular jurisdiction in which to base an Asia- Pacific funds management operation than other regional markets. Among the managers planning to run an Asia-Pacific office, Australia was viewed as the most popular destination, gaining the approval of 39 per cent of respondents, followed by Hong Kong with 16 per cent, China and Singapore with 11 per cent in each and Japan with 9 per cent.

Managers were attracted to Australia by the size of the domestic investment market, its stable economy and political system, the sophistication of the funds management industry and its accommodating business environment. The size of the investment market, and the skills demonstrated by its participants, were the strongest drawcards. Interestingly, lifestyle was not a major attraction. Other countries in the region also held strong drawcards, chiefly the size of their investment pools, their tax system and rates, and legal and regulatory frameworks. Despite the offers of government assistance being made by other Asia- Pacific jurisdictions, respondents said such help would not be a key factor in their decisions. Opportunity Australia is run by Conexus Financial, publisher of Investment & Technology, and is supported by Austrade.