But what is interesting is this report suggests that and Australia is among the 10 most attractive centres for financial stakeholders.
Australia benefits from having an open and transparent market, a sound regulatory regime, a reasonably dynamic domestic economy and low sovereign risk.
But there’s one other major advantage of doing business in Australia; the legal system.
I was the minister responsible for the aid program for nearly a dozen years and often wondered why some countries are rich and others poor. There are several answers but a strong, independent judiciary backed by a sophisticated legal profession is axiomatic. Above all, a strong legal system protects property rights and that includes the rights of investors and traders in the financial sector.
Nothing is static
This the Asian century. The centre of global economic gravity is gradually shifting from America and Europe to the Asia-Pacific region. In Asia, the dominant financial centres are Singapore, Tokyo and Hong Kong. There’s good reason for that. Japan is the world’s third largest economy so the Japanese multinationals listed in Tokyo give the market substantial gravitas. As for Hong Kong, it has for generations been the free market gateway to China; low taxes, sound regulation and a legal system renowned for its impartiality. And Singapore likewise has a strong legal system and keeps taxes low.
Nothing, though, is static. It is not an eternal given that Singapore, Hong Kong and Tokyo will reign supreme as financial centres in Asia. For a start, let’s look at Hong Kong. Its tradition of being a politics-free territory has been fractured by the upheavals of recent months. It’s not that demonstrations themselves will damage Hong Kong as a financial centre, it’s the cause of the demonstrations that is the problem. Above all, Hong Kongers fear that Beijing’s tentacles are gradually subsuming it.
Tokyo as a financial centre also has its disadvantages. Most international business is transacted in the English language. That’s not Tokyo’s strength. And the Japanese legal system isn’t as investor-friendly as Singapore, Hong Kong and Australia.
So Australia suddenly has a great moment in history to accelerate its role as an Asian and even a global financial centre.
We have the advantages of language, our legal system, our sound economy and – for a change – our location in the Asia-Pacific region.
We need to do a couple of things to take advantage of these fair winds.
First, Treasury and the Parliament need to have an open mind about continuing reforms of our tax system. In 2015, Parliament legislated some changes to the taxation of Offshore Banking Units. The question is, were these reforms sufficient or is Australia still being held back by a tax system that isn’t designed to maximise our potential as a financial centre.
Secondly, there are a handful of Australian companies that are so-called dual-listed. That is, they are listed in Australia but also elsewhere, typically in London. By doing that, they are keeping our equities market smaller than it could be. What is more, they are taking out of Australia some of the market value of their firms.
Let’s take one example; BHP. BHP is totemic. It’s the Big Australian. It’s a global symbol of the economic dynamism of our country. It is, to use a phrase, an Australian champion. The problem is, it isn’t all that Australian at all. It’s listed in London as well as in Australia. It is, in effect, two companies; BHP Ltd – that’s Australian – and BHP PLC – that’s British. Thirty-eight per cent of BHP’s value is BHP PLC. Less than half, for sure, but still a big chunk of BHP.
Now I know the BHP management are keen to telegraph appropriate messages about corporate responsibility and the like. Fair enough, their investors demand that. But one thing BHP could do to win the hearts and minds of the Quiet Australians is to unitise the company. That is, the whole of BHP should be transferred to the Australian stock exchange.
At the moment, BHP is about 6 per cent of the Australian market. Unitisation would take that up to about 10 per cent. Those figures alone tell the story. Bringing BHP home would make a solid contribution to making Australia a global financial centre.