Taxation impedes Johnson Report objectives: Macquarie
Australian tax laws are inhibiting the export of financial services and the nation’s development as an “international financial centre”, according to Macquarie Group.
In its submission to the Financial System Inquiry, Macquarie said Australia’s tax provisions are becoming “increasingly detailed, complex and hard to interpret, making it difficult for businesses to make good decisions and for the Australian Tax[ation] Office to administer the tax law”.
The submission said this increases the “perception of risk in relation to conducting business in Australia” and strongly disadvantages Australian businesses at an international level.
In addressing these issues relating to taxation policy, Macquarie has endorsed a number of recommendations made in the Johnson Report, including a commitment by the government towards the Offshore Banking Unit (OBU) regime and the removal of withholding tax for offshore borrowing by financial institutions.
The document said the existing OBU expense allocation rules are “imprecise, overly complex and can deliver distorted outcomes”.
“In particular, the rules that allocate indirect expenses against OBU income should be modified to operate on a fair and reasonable basis, in place of the complex and prescriptive rules currently in place,” Macquarie argued in its submission.
The submission also argued the withholding tax for offshore borrowings conflicted with Australia’s need to “access a diverse range of funding sources”.
Macquarie also supported a number of recommendations made in the Henry Review in its submission.
These include reducing the corporate tax rate to 25 per cent in the medium term in line with the Singapore rate of 17 per cent and the UK rate, currently at 23 per cent, and encouraging savings by implementing a 40 per cent discount for personal savings income.
Macquarie also argued the controlled foreign companies regime imposing Australian tax rates on Australian entities operating financial services businesses in offshore countries places Australian business at a “distinct competitive disadvantage against non-resident competitors”.
Regulatory reforms such as the Basel III reforms Macquarie Bank believes have also had a negative impact on the competiveness of Australian authorised deposit-taking institutions.
The Bank said that the Basel III reforms “emerged from reviews of global bank requirements undertaken at an international level”.
According to Macquarie these Basel III reforms were implemented in Australia without amendment despite many of them III stemming from circumstances occurring overseas rather than in Australia.
The additional requirements overlaid by APRA Macquarie believes have further disadvantaged Australian authorised deposit-taking institutions from their international competitors.
Macquarie noted the minimum capital adequacy requirements in particular, which are 100 basis points higher for internationally active ADIs in Australia compared to any other international Bank under the Basel framework.