Thanks for inviting me to speak at the G100 forum today.
I have always said the people in this place don’t hold a monopoly on policy ideas.
I welcome business putting innovative policy ideas on the table, and I’d like to acknowledge the valuable contribution you’ve made to various Parliamentary Committees in the past.
From a legislators’ perspective there’s a lot happening in this space.
We know that the environment for international competition is evolving from a ‘race to the bottom’ to a ‘race to the top’. We also know that, as Australia stands at this juncture, we have the ability to shape the agenda.
- The environment for international competitiveness isn’t ending, it’s changing.
Firstly, yes the ‘race to the bottom’ is over.
The increasingly globalised world combined with the distinct strains faced by all national governments has shifted international competitiveness into a new framework.
There are now minimum standards not only in the rates of taxation but also in the regulatory framework for tax collection.
This has been a long time coming: in the United States, the Foreign Accounts Tax Compliance Act was a game changer for multinational tax avoidance, in the European Union, the General Data Protection Regulation created standards for data security which many tech giants have to encode within company-wide compliance standards.
The world economy cannot be untangled. The technology in our pockets is integrated across platforms, formats, - and yes, jurisdictions. But the state still has the right to reassert its own interests.
The reducing level of tax competition means countries are still competing with one another - competing for capital, for investment, and for the world’s best and brightest. But the means of that competition is different:
a) First, countries may be inclined to agree on a level playing field: the same standards in tax, regulation, and transparency. Increasingly integrated businesses need workable standards that they can transport across jurisdictions. Simply lowering taxes or reducing standards will not be enough to attract the Google’s and the Amazon’s of the world to our shores.
b) Second, now that the world is evolving towards common standards, competitive advantage comes from achieving the same objectives in the most effective manner.
Take the recent G7 conference.
Countries representing the bulk of global GDP committed to a global minimum tax of at least 15% on a country by country basis.
Countries will be competing with one another about how to enforce that in a manner which is revenue effective but also economically efficient.
2. Australia has an opportunity to shape this environment.
Anyone who pays close attention to the international financial media will know that reforms such as the News Media Bargaining Code garnered worldwide attention.
One headline from the Wall Street Journal: Google and Facebook’s Trouble Down Under Will Spread: ‘The tussle between big Tech and a government Down Under is a preview of the battle to come globally’ ‘While Australia is a small market for the companies…. The new law could have big repercussions if other countries follow suit’.
We have a tendency to talk our country down. We shouldn’t. We are the 11th largest country, in terms of nominal GDP, in the world.
3. Australia must seize this unique opportunity and adjust to this environment, or risk being left behind.
The committee I chair has been rebadged as the Senate Select Committee into Australia as a Technology and Financial Centre.
We have put out a third issues paper with a revised terms of reference to reflect the changing challenges ahead.
We will focus on particular areas which must be dealt with swiftly for us to realistically compete:
- Crypto and digital assets
- Debanking of Australian finTechs
- Policy environment for neobanks
- Corporate law holding back investments
- Options to replace the Offshore Banking Unit
The Committee builds on two previous processes: the Low Report and the Select Committee on Financial Technology and Regulatory Technology.
So far, the Committee has handed down two interim reports containing over 50 concrete recommendations and issued three issues papers to guide submissions from government and the private sector. The Committee’s work has had a tangible impact on Australia’s policy settings. Pleasingly, the Committee’s recommendations were adopted by the Government in the 2021-22 Budget, including:
· A review for venture capital tax arrangements
· A scalable patent box for new technology
· Improvements to the tax treatment for Employee Share Schemes (ESSs).
Low Report (AFTCAG)
I also convened the Australia as a Financial and Technology Centre Advisory Group (AFTCAG).
AFTCAG is a roundtable of leaders from finance, business, and government focussed on improving Australia’s competitiveness as a hub for tech and finance. ATFCAG handed down the Low Report, which made 13 policy recommendations. The Government has taken the initiative, implementing a number of these recommendations in the 2021-22 Budget:
· Finalising the implementation of Corporate Collective Investment Vehicles.
· Simplifying the modernising the residency rules for offshore investors.
. Modernising tax residency rules
The Revised Terms of Reference Are A Consequence Of Two Things:
- That the FinTech Committee touched on areas which require further study - cryptocurrency is the classic example.
The terms of reference cover many areas that it was clear could not be sufficiently addressed within the parameters of the FinTech committee.
Now we are not just the Crypto Committee, but when the FinTech committee looked into Cryptocurrency and digital assets it was clear that what was needed was a comprehensive and substantive body of work.
In just the past couple of weeks we’ve seen the ASX strike a deal with Grow Inc providing capital for the $100 million startup.
Grow Inc’s Chief Executive has said that the firm will ‘work corroborately under a strategic development agreement to deliver key infrastructure for super funds to access a member sub-register”
ASX has said that they plan on “driving efficiency in financial services using distributed ledger technology”.
We also had a report from YouGov showing that 4 million Australians are likely to purchase digital currencies in the next 12 months, including a third of millennials.
This is a growing asset class. It’s especially telling that millennials are most enthusiastic, because they are set to be on the receiving end of part of a looming $3.5 trillion wealth transfer.
This is a new asset class, it’s a defining class.
Right now, regulators do not have the legislative tools to regulate it properly. It remains in the wild west.
Yet the Australian people have different ideas.
Despite the efforts of traditional financial institutions to discredit and even debank cryptocurrencies, Australians are viewing them as a stable and legitimate asset class. The consequences of this will be enormous.
This is an example of where we are going: to new frontiers, new ways of doing business. New products.
It is critical that we get the balance right to foster innovation. No regulation, and you leave startup founders in the void. Too much, and you smother them with punitive interventionism.
It’s a fine balance: between flexibility and predictability; between clarity and comprehensiveness.
2. We also need to move the Low Report process to the next level.
- Being a Senate Committee we have additional powers of discovery and investigation.
- We also bring the AFTCAG agenda into the next realm; the realm of government, where we have direct access to ministers and the legislative process.
- We have an opportunity to give the objectives of the Low Report: enhancing international competitiveness, a cross-partisan focus.
- We are in a prime position to drive the reform agenda - getting broad, bipartisan support and working closely with the Government.
- We are bringing this to Capital Hill.
Just like Australia in the new international environment, you can be either on the table or at it. You can either help to form the agenda or only encounter the agenda on the back end.
There’s one way you can help shape the agenda: make a submission.
We need your ideas - we’re a long way from market.