The World Economic Forum recently awarded Australia’s financial systems and capital markets their number two ranking.
Here’s a couple more interesting facts:
- Our equities market is the eighth largest in the world.
- We manage the fourth largest pool of investment funds – that’s in raw dollar terms, by the way, we’re usually number one on a per capita basis.
In other words, Australians are world-class fund managers.
So, here’s the strange bit ...
Only 4 percent of all our funds under management come from overseas, yet more than 50 percent of our debt is foreign sourced.
One lesson from the GFC must be to persuade the world to give us more equity to manage and maybe a little less debt to pay back.
To do this we need to:
- Reform our investment taxes, including all property taxes
- Modernise our fund management rules
- Set a goal to make Australia the number one long-term capital markets player in the Asia Pacific – Singapore, Tokyo, Hong Kong and Shanghai can fight it out for number two
- Improve the quality of Australia’s regulators
- Further improve the quality of governance and of company performance reporting.
The Rudd Government has pledged to transform Australia into a global financial hub. In February this year it announced a review of managed investment trusts by the Board of Taxation (the BOT MIT Review).
The Government has also delivered reform down payments – radically reducing withholding tax from 30 percent to 7.5 percent and fixing some arcane controls (commonly known as the FIF and CFC rules).
The Government also agrees their reform program must include Australia’s globally successful real estate investment trusts (REITs).
Australia is renowned for its REITs, with about 70 percent of Australia’s investment grade property securitised through listed and wholesale trusts. However, our REIT rules are more than a quarter of a century old and looking ragged – particularly as 18 other countries are now nipping at our heels with their own REIT regimes (usually copied from ours).
REITS are meant to place ordinary Australians who invest in property collectively on the same footing as wealthy direct property owners. However, the current REIT rules were designed for a less complex era and often act more as anti-avoidance rules that block innovation.
Many of today’s commonplace property investment opportunities simply didn’t exist when the REIT rules were first drafted. This blocks ordinary Australians from the benefits of modern property investment opportunities.
In the future, green buildings will generate their own power and sell any surplus back into the traditional electricity grid. Today’s REIT rules would treat such earnings as active (bad) income.
Governments want investors to develop more retirement villages and affordable housing portfolios. In fact, society would benefit from socially-oriented investment asset classes. However, current REIT rules discourage this investment.
Here’s our plan for modernising managed fund and REIT regulations:
- Establish a dedicated MIT tax regime. Include REITs within this regime. Exclude discretionary trusts.
- Retain the classic features of a collective investment vehicles system, such as flow-through tax status, tax-deferred income and CGT concessions.
- Allow MITs to undertake all forms of investment in property, thereby encouraging the birth of new property asset classes that will deliver social dividends, such as affordable housing, retirement and aged care facilities. Allow MITs to control taxable companies.
- Scrap the outmoded ‘active/passive’ rules by clearly defining ineligible investment activities.
- Create a statutory rule to tax gains or losses on disposals by MITs as capital rather than income.
- Allow fund trustees to effectively manage capital by retaining a portion of earned income. Modernise the attribution rules to better serve the long-term interests of collective investors.
- Enable Australian MITs to provide their unit holders with the tax treaty benefits applicable to inbound income.
- Allow any widely held entity to elect into the proposed MIT regime.
- Deem sovereign wealth funds to be widely held as they represent the collective wealth of nations.
- Retain the current Division 6 trust income provisions as a fall-back regime for trusts that do not qualify (or elect not to enter) the MIT regime.
These proposals, along with our long-term strategy for the capital markets, are contained in the Property Council’s Blueprint for the Property Investment Industry.
The Government will announce its reform plans early next year.
Peter Verwer |
Monday, 2 November 2009 12:01 AM |
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