3 April 2014
Speech - #2014003, 2014

Financial Services Council Life Insurance Conference, Sydney

Check against delivery

Thank you for that introduction, John.

My father was a general agent with AMP for a number of years, and as a young teenage boy I went through the heady days of National Mutual and AMP trading blows in the eighties and the early nineties.

So I feel a certain affinity with, not necessarily all of you in terms of the big funds, but certainly in terms of those of you who are at the coalface in terms of the retail side as well.

It is indeed a pleasure to be here today.

I’m not going to be making any announcements about the tax system today, I regret to say, but I would like to start with an overview about the state of the Australian economy.

The December (2013) National Accounts saw the Australian economy grow by 0.8 per cent in the quarter, beating median market expectations, and 2.8 per cent through the year.

Quarterly growth was higher than the below-trend pace experienced over much of the past 18 months, reflecting a strong rise in export volumes and solid growth in household consumption.

Nominal GDP rose by 1.6 per cent in the quarter to be 4.8 per cent higher through the year. The quarterly outcome was the strongest rate of growth since the September quarter of 2011.

And labour productivity in the market sector rose 1.0 per cent in the quarter and 1.8 per cent through the year.

The composition of growth was consistent with the transitions underway in the Australian economy. With large resource projects coming to completion, new private business investment detracted 0.6 percentage points from growth, and net exports contributed 0.6 percentage points to growth.

With the mining capital stock nearly three times larger than it was at the start of the boom, currently sitting at around $500 billion, this should support production and export growth for years to come, and fill part of the gap left by falling investment.

Export volumes for resources are already growing strongly. For example, iron ore shipments have risen by about 85 per cent from their levels of five years ago, to around 1.5 million tonnes per day.

Outside of the resources sector, household consumption grew solidly, contributing 0.4 percentage points to growth.

The latest retail trade figures suggest signs of a recovery in consumption have so far continued into the New Year. Retail trade rose by 1.2 per cent in the month of January to be 6.2 per cent higher than a year ago. January’s retail trade result signified the ninth consecutive month of positive month on month growth – the longest period of consecutive growth since early 2007.

While the pick-up in dwelling investment remained modest in the latest National Accounts, it is expected to contribute more strongly to GDP growth this year, despite yesterday’s announcement that dwelling approvals fell by 5 per cent in February.

Prior to this announcement, approvals to build private dwellings were at the highest level for at least three decades.

It’s expected that a recovery across the economy more broadly will be supported by sustained low interest rates, particularly if they’re combined with further falls in the exchange rate.

So there is encouraging early evidence that the transition from resources-led demand growth to broader private demand growth is beginning.

National Australia Bank’s business confidence measure has increased considerably over the last six months and businesses have also reported an improvement in conditions.

This boost in confidence and business conditions is good news; and it’s the good news you’d expect given the declaration of the Prime Minister that Australia is ‘open for business’.

This declaration is backed by a comprehensive plan to get the country moving again, and that plan starts with cutting the red and green tape that has been holding our country back.

As a major step towards improving productivity, we have committed to a deregulation agenda that will lift the regulatory burden from business, individuals and the community.

In recent years, the rate of the regulatory burden accelerated.

A simple page count gives us an indication of what has been happening. Over the last ten years, around 60,000 pages of Commonwealth legislation were passed.

Those figures don’t include the many pages of quasi-regulation, guidance material, legal opinions and accounting advice you’d need to interpret all of this regulation.

And they don’t include the similarly large amount of state and local government regulation with which businesses, individuals and the community must contend.

Recent reports or surveys from the Australian Industry Group, the Business Council of Australia and the Australian Chamber of Commerce and Industry all reiterate strong concerns within the business community about the level of regulatory burden they endure and the need for regulatory reform.

The World Economic Forum’s Global Competitiveness Report showed Australia has fallen out of the top 20 countries for the first time since this measure has been compiled.

And on the “burden of government regulation” index ranking, Australia has now slipped to the 128th place.

We are overhauling the process for creating, implementing and reviewing new regulations, and driving cultural change about regulation throughout government, including the Cabinet and Parliament, as well as the public service, and the regulators themselves – for example, ASIC, APRA, the ACCC and ATO.

That’s why the Coalition has established a target for reducing regulation compliance costs by $1 billion per year, for individuals, businesses and the community.

Having this kind of hard target means there is a concrete benchmark for measuring our progress.

Senior public service executives’ salaries are being directly linked to how they perform in reducing red tape.

The Government is also setting aside at least two parliamentary sitting days each year for the repeal of counter-productive, unnecessary or redundant legislation.

On the 26th of March the Government held its first parliamentary repeal day.

The Government scrapped more than 9,500 unnecessary and counter-productive regulations and 1,000 redundant acts of Parliament. More than 50,000 pages will disappear from the statute books.

A new website has also been unveiled – cuttingredtape.gov.au – designed to monitor progress and allow people like you to suggest opportunities for deregulation.

You’ll have to forgive us for asking you to fill out a form to tell us what forms you want us to get rid of!

But I can assure you my colleague, Josh Frydenberg, who is the Prime Minister’s Parliamentary Secretary, takes these submissions very seriously.

As part of the broader deregulation agenda, the Coalition made an election commitment to amend the Future of Financial Advice (FOFA) laws.

Analysis by Treasury estimates the Government’s amendments would save the industry an average of approximately $190┬ámillion a year, with further savings of some $90┬ámillion in implementation costs.

The Government remains committed to making these improvements to FOFA as soon as possible.

We support the principles of FOFA; however, we believe the current law imposes unnecessary regulatory burdens on industry, reducing the availability of advice and increasing the costs consumers face.

The Government will restore the balance between appropriate levels of consumer protection and access to affordable high quality financial advice.

Under the changes, the best interests duty will remain and consumers and financial advisers will have certainty about the obligations that financial advisers have to act in the best interests of their clients.

Key changes to FOFA include:

  1. removing the opt-in requirements;
  2. removing the annual fee disclosure requirements for pre-1 July 2013 clients;
  3. removing the ‘catch-all’ provision from the best interests duty;
  4. explicitly allowing for the provision of scaled advice; and
  5. providing a targeted general advice exemption from the ban on conflicted remuneration.

I introduced the Bill implementing these changes into the House of Representatives on 19 March. The Bill has since been referred to the Senate Economics Committee, which is due to report in mid-June.

In the meantime, the Acting Assistant Treasurer, Senator Mathias Cormann, is engaging with all relevant stakeholders on the regulations and legislative amendments.

I’d like to turn now to the Financial System Inquiry, which is well underway, and very ably led by Mr David Murray AO, former CEO of the Commonwealth Bank, and former chair of the Future Fund’s Board of Guardians.

The last time a full-scale inquiry into the financial sector was held was over 15 years ago. And while the financial industry has served us very well over those years, much has changed since 1997.

The size of the financial industry has more than doubled since 1997. Today it employs around 422,000 people, and is around 9 per cent of the economy.

The ASX has grown since 1997 to be $1.5 trillion in market capitalisation

Our banking sector has $2.8 trillion in financial assets.

And Australia’s managed funds industry has $2.3 trillion in funds under management and ranked 3rd in the world.

Non-prudentially regulated financial institutions represent 14% of the financial system.

As Mr Murray noted in his first public address as the Inquiry’s chair, the global financial crisis in particular undermined a lot of our assumptions about how the financial system does and should work.

Given how important the finance industry is to Australia’s economic prosperity, it’s vital that we look closely at what has changed, and how it can continue to serve us well in the decade and more ahead of us.

That’s why this Inquiry is a very high priority for the Government.

The terms of reference are very broad, and the Inquiry has a large remit: that is, to examine how the financial system could best be positioned to meet Australia’s evolving needs and support Australia’s economic growth.

Because Australia’s financial system is so highly integrated with the global financial system, last week the Treasurer announced an International Advisory Panel to support the Inquiry, specifically on technological change, Australia's global competitiveness and offshore regulatory frameworks.

Earlier this year, the Inquiry invited initial submissions on the terms of reference, and the deadline for these was Monday just gone.

There’ll be another call for submissions around mid-year, following the release of the Inquiry’s interim report. The final report is due to be submitted by November this year.

The Treasurer has urged the Inquiry Panel to consult very widely, and I would urge all of you to stay involved, and make sure you have your say through the submissions and consultations processes.

Turning now to the international front, Australia is taking the lead on international economic policy through our presidency of the G20.

We have already made important progress on our G20 agenda at the finance ministers meeting in February.

In fact, it was right here at the Sofitel that we brought together the G20 finance ministers to agree to develop ambitious but realistic policies with the aim of lifting our collective GDP by more than 2 per cent above the trajectory implied by current policies over the coming 5 years.

As well as growth, another key priority for Australia’s G20 Presidency is improving the resilience of the international economy through reforms to international tax and financial regulation.

On international tax, the key priority this year is to begin the challenge of bringing the international tax system into the 21st century.

There are two separate but related pieces of work to address these changes:

  • First, reforming the international tax system to prevent certain taxpayers from artificially segregating their taxable income from the economic activity that creates that income; and
  • Second, improving the way that tax authorities exchange tax information, in a way that protects taxpayer privacy.

By its very nature the full extent and cost of international tax base erosion and profit shifting (or ‘BEPS’) is unclear. However there is a consistent view in the academic literature and official studies that the underlying sources of risk to the corporate tax base of countries from BEPS are increasing.

These risks arise from entrenched structural features of the corporate tax system, including tax treaties; globalisation and tax competition; and changes in the global economy, including the rise of the digital economy and the global reach of multinationals.

Given that Australia places a greater reliance on corporate tax relative to other OECD countries, we are more vulnerable to the effects of corporate tax base erosion.

Australia has a long history of protecting its tax base against BEPS through entering into double tax agreements; exchanging tax information; and enforcing transfer pricing, thin capitalisation, and general anti-avoidance rules.

The G20 tax agenda is intended to build on these national efforts, reflecting the genuinely global nature of the problems and challenges being raised by BEPS.

Since it declared the era of bank secrecy over at the London Summit in April 2009, the G20 has been at the forefront of efforts to establish a more effective, efficient and fair international tax system.

In Sydney in February, G20 Finance Ministers endorsed a new global standard for tax authorities to automatically exchange financial account information – similar to the arrangements Australia already has with over 40 of our tax treaty partners.

The new standard, called the Common Reporting Standard, will help tax authorities to address tax evasion. It will also align different countries’ reporting arrangements, with the aim of reducing compliance costs in the long term.

Both of the G20’s two tax priorities will require legislation to incorporate them into Australian law.

We will release a consultation paper on automatic exchange of information shortly that will focus on ways to streamline domestic reporting requirements, and minimise compliance costs for the financial sector.

And I highlight that point – and welcome your feedback on how we can minimise that compliance cost – because I am cognoscente of the impact this can have on financial services businesses.

The Government will be working with the business community in Australia to implement the G20 agenda over the next few years, in a way that limits red tape for business.

Now, turning to the financial regulation agenda, we are pursuing a tight and focused agenda through the G20 in our role as G20 Chair in 2014.

In the lead up to the Brisbane Summit, the G20 financial regulation agenda will be about finalising the regulatory response to the global financial crisis in core reform areas, including building resilient financial institutions and addressing shadow banking risks.

As you can see, the Government has a bold agenda for productivity and growth – one the reaches beyond our own borders.

The financial system is both large and complex, so it’s extremely important that we get our policy settings right. It’s vital that the ‘blueprint’ provided by the Financial System Inquiry’s ultimate report should set us up for financial health, strength and sustainability into the future.

There’s a role for the Government to play, but there’s also a role for you to play, as members of the industry, to make sure your expertise and ‘on-the-ground’ experience are brought to bear on any changes we make or reforms we pursue.

Once again, I encourage you to get involved in helping us make our financial system work for Australia’s future prosperity and stability, and I look forward to working with you on that great task.

Thank you.