The Financial Services Council (FSC) has outlined 15 priority reforms in its pre-election policy document, with a majority directly linked to the financial services sector, which the council labelled “vital” for Australia’s economic wellbeing.
“The financial services industry encourages the next Parliament to embrace a reform agenda to promote investment and economic growth, make Australia’s tax system more efficient and reduce and streamline regulation,” CEO Blake Briggs said.
The FSC called for a mature tax reform debate, acknowledging that all options, including superannuation taxes, should be considered, but criticised the history of "tinkering" by both major parties, which, it said, has eroded confidence in the system.
“If the major parties do not commit to a holistic tax review, the FSC calls on them to rule out changes to superannuation taxes,” Briggs said.
As such, the council called on the incoming government to commit to a holistic review of the design of the current tax system, a review that ensures “fairness and certainty” in super tax settings.
“Confidence in the [super] system is being eroded by frequent changes to its tax settings,” the FSC said.
“Tax increases by successive governments, including the introduction of the transfer balance cap, Division 293 tax on high-income earners, regular changes to contribution caps, and more recently, the proposed Division 296 tax on high balances, have created uncertainty for consumers and cost and complexity for the industry,” it said.
The council reiterated its disapproval of Div 296, calling it a “piecemeal” tax change that has generated a poor policy design.
Aside from tax, the FSC also took a shot at the “inappropriate expansion” of the Your Future, Your Super performance test and demanded the “appropriate application” of retirement phase policy to choice products and super platforms.
Moreover, the council called on the incoming government to ensure the preservation of competition and choice for consumers in retirement products to support the growth of innovative retirement income solutions.
The FSC also said it would like to see the introduction of a product modernisation mechanism that provides Capital Gains Tax (CGT) rollover relief and ensures the continuation of social benefit entitlements.
The council argued that super funds and fund managers face significant barriers when transitioning consumers from legacy investment products to more modern, efficient alternatives, as a result tax implications, particularly CGT.
It said implementing a product modernisation regime that mitigates these consequences would significantly enhance consumer outcomes.
“By 2050, such a regime is projected to deliver an additional $16 billion to consumers’ retirement savings, increasing collective retirement incomes by $22 billion. The framework would also yield fiscal benefits for the government, including increased tax revenues from higher net investment returns and a reduction in social benefit payments,” the FSC said.
Overall, the FSC would like to see both sides of politics commit to cutting down “inefficient regulation”. The council cited its economic modelling which shows that a growth-focused economic agenda would generate an additional $19 billion of gross domestic product (GDP) over the next decade and support a private sector-led economic recovery.
“The upcoming federal election is an opportunity to refocus on economic growth and allow the private sector to lead Australia out of its economic malaise,” Briggs said.
“As one of the largest contributors to the domestic economy, the financial services industry has an important role to play in achieving sustainable economic growth and higher living standards for Australians.
“The FSC has recommended policy proposals that would increase financial services exports by almost $2 billion a year and lift the sector’s productivity by $800 million a year through a combination of reducing regulatory costs and lowering fees and investing in new markets.
“Reforms to bolster the competitiveness and economic contribution of the financial services industry would contribute $19 billion to Australia’s GDP over the next decade.”
Revitalising fund management
Aside from calling for a product modernisation regime, the FSC also pushed for simplified breach reporting, equal footing in foreign investment, sustainable investment labelling and reduced DDO uncertainty.
Regarding product labelling, the FSC said a clear framework would provide regulatory certainty to product issuers and encourage the growth of investment products with sustainability-related or ethical-themed investment strategies.
The council also urged the government to level the field for Australian-domiciled global funds by exempting trusted fiduciaries under the Foreign Investment Review Board (FIRB), reversing doubled FIRB fees for low-risk investors to avoid stifling investment.
Lastly, the council argued Australia needs to improve its “attractiveness and competitiveness” as an investment destination in order to achieve the full benefit of its expertise in funds management services.
“Increasing the attractiveness of Australia as a destination for funds under management through tax reforms, amongst other initiatives, would allow Australia’s funds management sector to compete more effectively and grow into a major global financial services centre,” the FSC said.
“A doubling of FUM on behalf of overseas investors from $170 billion to $340 billion would result in an additional $1.9 billion a year in direct revenue for the sector and significant indirect benefits for Australia’s economy,” it said.
