In its submission to this week’s Economic Reform Roundtable, the Financial Services Council (FSC) argued that the Australian financial services sector’s potential to drive economic growth and productivity is currently being under-utilised.
Despite a $3 trillion funds management pool, Australia exports just 6.5 per cent of funds under management compared with Singapore’s 78 per cent, with the FSC arguing that this gap highlights “the substantial benefits” that could flow from reforms to simplify tax and regulatory settings, including changes to withholding tax, rules for foreign exchange hedging and barriers for global asset managers.
“An important component to enhancing productivity in our economy is by attracting investment to Australia, for which improving our international competitiveness as a destination for capital by reducing barriers to investment is essential,” the FSC said.
“The significant potential for Australia to grow its role as a regional and global financial services centre has been long recognised and has been a bipartisan aspiration, but reform is required to achieve this potential,” the council added.
The FSC has outlined 12 priority reforms, ranging from a comprehensive tax review and rationalisation of legacy investment products to stable superannuation tax settings. It is also pushing measures to position Australia as a regional financial centre, including extending the qualification period for start-up funds to be recognised as managed investment trusts from two to five years, and modernising tax rules for foreign exchange hedging.
Moreover, the council called for a more balanced approach to regulation, arguing that duplication between ASIC and APRA, burdensome reporting frameworks and excessive reliance on enforcement actions are deterring foreign capital.
According to the body, if these targeted reforms to tax and regulation are implemented, they could deliver a $19 billion lift to gross domestic product, $2 billion a year in extra export revenue, and $800 million in annual productivity gains through lower costs and higher returns for consumers.
But UNSW professor Kevin Fox has cast doubt on the FSC’s claims, arguing the submission failed to provide a convincing case that Australia faces a serious competitiveness problem.
“The case isn’t really made in the submission that Australia’s got a serious problem and I don’t know what to make of their modelling about what would happen if all their recommendations are followed through with,” Fox told InvestorDaily.
Fox noted that finance and insurance have long been strong contributors to Australia’s productivity, “not one of the sectors of concern like construction and manufacturing”.
Moreover, he criticised the FSC’s comparison with Singapore as “cherry picking”, arguing Canada would be a more appropriate benchmark.
While the FSC said boosting financial services productivity would help channel private capital into housing, infrastructure and the net zero transition, Fox countered that capital is not the constraint in Australia’s housing crisis.
“There seems to be plenty of capital to buy housing and therefore drive up house prices”, Fox said. “Supply is the real issue there and that’s got to do with other sorts of regulations, not financial regulation.”
Overall, he argued that many of the regulations the FSC said need reform are there to protect consumers, and while some might be excessive or revisitable, he said the council failed to present a compelling case for government prioritisation at the economic roundtable.
“At the moment, it just seems like a shopping list of proposals or grievances about the way they are regulated,” Fox said.
Late last week, AMP’s chief economist, Shane Oliver, welcomed the Treasurer’s Economic Reform Roundtable as a long overdue national debate on productivity, the “secret sauce” for lifting wages, living standards and profits while keeping inflation low.
Oliver tabled a 10-point wish list but warned expectations were too high, arguing that without a crisis, radical reform on tax or labour laws is unlikely and any tax changes risk being confined to revenue-raising. Even so, he said there are real prospects for progress on deregulation, housing reform, stronger investment incentives and competition policy.
