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Hockey flags Asian financial services opportunities

Hockey flags Asian financial services opportunities

by Robin Christie | Nov 10, 2014
With Australia’s service industries representing 70 per cent of Australia’s economy, but just 17 per cent of its exports, the finance industry is missing a trick by not focusing more on the Asian export market.

According to Treasurer Joe Hockey, the ageing populations and fast growing middle classes in Asia’s largest economies present a golden opportunity for Australian businesses.

Speaking at the Australian Institute of Company Directors’ annual dinner in Adelaide last week, he said that China’s ageing population alone could, by 2050, see hundreds of millions line up to make use of Australia’s financial services.

“The opportunities for Australia, living on the doorstep of Asia, are enormous,” he said. “According to a recent report by Ernst & Young, two-thirds of the global middle class will be residents of the Asia-Pacific region by 2030.”

In addition, he claimed that China’s middle class is expected to rise from 150 million people to one billion in just 16 years, which is around the same time that over 30 per cent of India’s population will join the ranks of the middle classes.

“That, in particular, is an amazing transformation given that two thirds of India’s population currently has no access to basic services,” he said.

Innovation is key

This rising Asian middle class, he said, will need Australia’s financial sector to help manage its wealth and plan its retirement. And that’s in addition to the opportunities that China’s ageing demographic presents.

“The Chinese population is also ageing, with the pension industry expected to make a third of the country’s GDP in 2050,” he said. “That means an extra 330 million people could use our professional health services, fund managers, accountants and our insurance and superannuation industries.”

But Australia needs to banish the mindset that Asia is too far away for commerce, and wake up to the fact that “Asia is not waiting for us”.

“The entire region is opening up its services sector to a global market place,” he said. “That is why the Abbott government is working hard towards a free trade deal with China, as we have done with Korea and Japan, and hopefully we can announce some positive outcomes by the end of the year.”

Free trade agreements aside; Australia needs to be ready for action. And Hockey believes that requires digital technology, software innovation and “flexible but trustworthy regulation”, will be essential.

To that end, he pointed to the government’s recently released industry innovation and competitiveness agenda, which he said focused on Australia’s strengths and wouldn’t subsidise its comparative weaknesses.

Meanwhile, he said that start-up companies would also receive a helping hand.

“The government will go further for start-ups by allowing employee share scheme options or shares that are provided at a small discount by eligible start-up companies to be excluded from upfront taxation, so long as the shares or options are held by the employee for at least three years. This is a globally competitive initiative,” he said.

“Furthermore, to give start-ups more time to be competitive and succeed, the government will extend the maximum time for tax deferral from seven years to 15 years. This will help start-ups and encourage greater entrepreneurship so that good ideas can be commercialised in Australia.”

Tax avoidance targeted

Topically, given recent media coverage of complicated offshore corporate tax avoidance schemes, Hockey reiterated the government’s plans to use its G20 presidency to modernise international tax rules and “address tax avoidance by multinational companies”.

“Keeping our current taxation and compliance settings in a world of mobile capital is clearly unsustainable,” he said.

“The government has taken firm steps to manage this by further strengthening our corporate tax integrity rules, including by passing legislation to tighten our thin capitalisation laws.”

In addition, he pointed to the joint G20 and Organisation for Economic Cooperation and Development’s (OECD) base erosion and profit shifting action plan, which aims to ensure that international tax rules keep up with changing business models.

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