One way to create more Australian jobs is right in front of our eyes. The political upheaval in Hong Kong has created an opportunity for Australia and Sydney to become a stronger regional financial centre.
This would deliver more jobs during the first recession in 30 years.
But there is a limited window for Australia to look at our current taxation and regulatory settings.
It is clear that Hong Kong’s standing as a global financial centre has been destroyed by China's erosion of the “one country, two systems” principle.
It is not only a humanitarian issue, but also an economic opportunity for Australia at a time where it is greatly needed.
I have written to the Treasurer to set out a way for Australia to capitalise on the disintegration of Hong Kong as a financial centre; by attracting businesses to Sydney. My submission contains practical policy options to be considered in the October Budget process.
This agenda is not about subsidies - it is about bedding down internationally competitive policy settings.
Relocations from Hong Kong to Sydney will not only benefit the financial sector but a range of sectors that service or otherwise support global and regional headquarters, treasury, marketing, procurement and R&D functions.
In short, there is a new urgency to look again at the issues raised in the 2010 Australia as a Financial Centre (Johnson Review) - and our general approach to taxation. It has taken too long to advance this agenda. While the Australian kangaroo sleeps, the Singaporean tiger moves with stealth.
It is a significant opportunity. The 2018 Hong Kong census reports the financial services sector as employing 263,000 people, with a value add of over HK$530billion (nearly A$100 billion).
If Australia were to capture only a fraction of these employees who expect their employers to withdraw from Hong Kong, we would be poised for a stronger economic recovery from the recession.
We face stiff competition. Singapore is the biggest competitor to Australia in attracting capital and talent from Hong Kong in our time zone.
Singapore is a friendly country which often operates as a business - we should do the same and operate as “Australia Inc”.
Singapore is also a leader in FinTech within the South-East Asia region, which is of interest to me as Chair of the Senate Select Committee on Financial Technology and Regulatory Technology.
The agenda to improve our competitive position in financial services was well ventilated by a key 2010 report by former Macquarie Deputy Chairman Mark Johnson.
This has not been a fast process. In my experience, it has been so difficult because there has been resistance from parts of the bureaucracy with limited commercial experience.
The outstanding issues include the type of investment structures permitted in Australia and their taxation treatment.
To win in Asia, there are four things we can do to capitalise on the collapse of Hong Kong as a financial centre: tax reform, provide tax incentives / certainty, offer welcoming administrative arrangements and conclude the Johnson recommendations.
Firstly, on tax reform, Australia should pursue a company income tax rate equivalent to theAsian average, a region we are seeking to lead, of 21 per cent. We should immediately move to 25 per cent with a plan to hit 21 per cent within five years.
Secondly, on tax incentives, the ATO should be asked to confirm that, under the existing law, fund managers and other entities, looking to manage significant foreign asset (i.e. non-Australian) portfolios from Australia can do so without subjecting the foreign income derived on those assets to Australian tax.
If this cannot be done expeditiously, Commonwealth income tax laws should be amended to achieve this. Otherwise, fund managers and other entities owning or controlling foreign assets will be reluctant to relocate to Australia for fear that doing so may subject what is currently non-Australian income on foreign assets to Australian tax. Australia’s competitors already provide such assurances.
We should also consider legislating or issuing guidance which ensure executives are not taxed on employee shares or options already issued and consider a three year rule which halves taxable profits for the first three years.
And we should issue exemptions from FBT for reasonable relocation expenses paid for by employers.
Thirdly, on administration, we should establish a special unit with the ATO to issue private and public binding rulings, guidance on interpretative matters as well as operate as a facilitation point. The unit could be a touch point for entities, executives and individuals that wish to relocate.
This unit may also need to liaise closely with the Foreign Investment Review Board to assist FIRB with any tax-related issues arising as part of an entity’s relocation process.
Licences issued by the Hong Kong Securities and Futures Commission should also be considered for equivalence by Australian regulators. Applications from Hong Kong’s SFC licensees will be fast-tracked.
Fourthly, we should deliver the remaining parts of the Johnson Review to ensure the investment vehicles which are available in Singapore are available in Sydney. It’s that simple. New financial and technology jobs depend on it.