Australia is good at technology and good at financial services. We’re especially good at FinTech. So why aren’t more companies moving here or setting up here instead of in Singapore, Tokyo or London?
For that matter, why aren’t there more Asia-Pacific regional headquarters in Australia across all industries? Relocating Asia-Pacific regional businesses to Australia creates well-paid jobs for Australians, both directly and in the service sectors that support them.
Australia’s tech and finance sectors are sophisticated but they are very domestic. Insurance and financial services make up only one percent of our exports. Less than six percent of managed funds are held on behalf of foreign investors, compared to 40 percent in the UK and 75 percent in Singapore.
To create jobs and attract talent, the Morrison Government launched the Global Talent and Investment Taskforce led by Peter Verwer AO. To complement it’s work in the financial and tech sectors, Senator Bragg established the Australian Finance & Technology Centre Advisory Group. This Group, comprising senior people in Australian and global organisations, both large and small, has made fifteen recommendations to make Australia more competitive and create high-quality jobs with negligible cost to the Federal Budget.
Now is the right time for Australia to offer a more attractive environment, including because of the movement of some business out of Hong Kong. Attracting just 5% of HK’s finance activity here, rather than Singapore, could equate to 13,000 new jobs in Australia.
Australia has many obvious attractions as a base for regional activities: quality of life, our world-leading institutions and the depth of available talent. But potential investors tell us that these advantages are offset by the complexity of our tax and regulatory environment. We do not need to become a very low tax jurisdiction like Singapore, but we do need to rebalance the scales sufficiently to prompt ‘another look’ at Australia.
The first thing to do is to get rid of niggly impediments that stop people from basing business here. Withholding tax, for example, is complex and has so many exemptions that it raises little revenue, yet it discourages treasury and other activity from being based here and stops Aussie-based funds from selling to retail investors in places like Japan.
Foreign investors aren’t comfortable with our traditional unit trust structure, but it’s all we have to take to market. By contrast, in 2019 Singapore developed the Singapore Variable Capital Company which has already attracted substantial movement of Funds to Singapore from other centres. Australia can match this.
We should also make it clear, simple and unambiguous that investors who are not Australian Tax Residents will not be subject to any tax on earnings from Funds that are invested outside Australia. We need to scrape the barnacles off if we want to export more services like funds management.
Australia also needs to attract founders and senior managers to move here (once quarantine rules allow). Where the boss goes, so goes the business and all the jobs that go with it. We should have a days-in-days-out tax system for people with regional or global roles, like in the UK.
Other recommendations include an Incremental Business Activity Regime (IBAR) that allows designation of substantial businesses relocating in Australia to attract a tax rebate, for up to 7 years, to smooth their transition to our higher corporate tax rate. An IBAR is recognition that Australia must be more tax competitive if we are to win new investment and the jobs that move from Hong Kong.
The Report also recommends a concessional tax rate on royalties paid from overseas to an Australian entity for intellectual property. This will mean that more valuable IP (and the jobs that go with it) stays in Australia.
Australian regulation can also step up to ensure there is proper coordination, as too many businesses complain of slow process or mixed messages when working with Australian regulators.
The UK and Singapore have strong regulation but also a complementary focus on promoting investment and international competitiveness. A country trying to encourage dynamic and innovative activity in new parts of the technology sector should have a ‘bias to yes’ and culture of quick decision-making.
ASIC should fast-track licensing for those who have had a clean regulatory record for three years in a comparable jurisdiction.
Finally, we need to tell our story better. The confluence of events is in our favour. Australia’s world-leading pandemic response and geopolitical change present a once-in-a-generation opportunity.
We can end the narrative that Australia is too expensive and complex and make Australia a real choice for regional head offices and finance and tech investment. Jobs in the recovery will be the dividend.
Andrew Bragg is a Senator for NSW and Andrew Low is Chairman of the Australian Finance & Technology Centre Advisory Group
Please see the full Report to attract business from the Asia-Pacific here.