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Australia’s economic future lies to the north

By Angela Mentis | August 31st, 2015

It’s time all of Australia realised our playing field is much bigger than we believe. The reality is it is global, but increasingly centred on Asia and its growing middle class. Every day Australian businesses find more ways to move up the value chain and export our products, professional services and expertise.

Our proximity to Asia provides the Australian economy and Australian business with huge opportunities. Today there are an estimated 500 million middle-class people in Asia. That figure is expected to rise to 1.7 billion by 2020 and to more than 3.2 billion by 2030 when they will account for 66 per cent of the global middle class.

By 2050 it is estimated Asian food imports alone will grow by $US470 billion ($655bn), offering opportunities for huge growth in our agricultural exports. Asia’s share of global output has risen from around 15 per cent in 1952 to almost 30 per cent in 2010, and it is forecast to exceed 50 per cent by 2050.

Volatility in sharemarkets globally in the past week illustrates just how important China’s economy is. Investors are right to be watchful, but it is important we take a long-term view. That’s because the potential is enormous. Are we doing our best as a nation to realise that potential? Are we giving Brand Australia every chance to succeed? Free-trade agreements are opening doors in the region, the falling dollar is making Australian business more competitive, and technology can enable a small business to compete with a big one.

As Australia’s biggest business bank, NAB knows well the opportunity for our customers who are facing north. About half of our institutional banking clients, a third of our corporate clients and one in 10 of our SME clients currently trade with Asia because of the opportunities to grow. Australia is uniquely positioned as more of Asia shifts from “build” to “grow and consume”. While resources remain critical to our future, the burgeoning Asian middle-class wants our services — our expertise in health, education, governance and business, financial and professional services. The demand for agriculture grows daily because in Asia, where food security is paramount, Brand Australia means clean, green and fresh.

Australian businesses growing north include Shepparton-based Pactum Dairy Group which NAB helped introduce to then develop a relationship with China’s Bright Foods and New Hope Group, resulting in a supply agreement for high-quality milk. And then there’s Skybury Tropical Plantation from far north Queensland. Skybury is experiencing growing demand for its single-origin Arabica coffee among coffee lovers in Asia. These are just two of many Australian companies whose futures are being propelled by the Asian demand for Australian produce and expertise.

The opportunity in Asia is not limited to exports. We also see our role for Australian business and the economy as the bridge that extends both ways. Just as the trade flows shift north, increasingly the investment flows are coming south from Asia. I was recently in Hong Kong and Singapore with major clients and institutions who are hungry for opportunities in Australia because of the long-term value. They have the capital to invest and are attracted by our natural resources, stability as a nation and economy; and in particular the huge potential pipeline of infrastructure ripe for investment.

This long-term approach our Asian clients take is something Australia’s political and business leaders must heed, and the National Reform Summit co-hosted by The Australian and The Australian Financial Review last Wednesday is a show of intent. But the hard work is ahead of us. We must think and act long-term if we are to not just talk and plan for the next phase of nation-building but deliver it.

In these pages two weekends ago, The Australian foreign editor Greg Sheridan warned of the risk to Australia’s business reputation posed by the mixed signals sent to investors through decisions such as the cancellation of contracts for the East West Link in Melbourne and campaigns against the China free-trade agreement. My meetings in Asia tell me these investor concerns are real.

The nation must recognise and remember that foreign investment brings new wealth, new opportunity and jobs. That’s why NAB’s submission to Infrastructure Australia’s first national infrastructure audit advocates for certainty over which projects will be developed. NAB argues government policy needs to be formed on the back of an agreed plan of infrastructure priorities, based on transparent cost-benefit analysis. This will help realise priority projects by assuring investor confidence — confidence vital at a time when Australia is competing with other markets for investment.

Corporate Australia has a significant role to play in advocating for reforms to ensure Australia’s long-term infrastructure requirements are met, but this leadership must extend to our elected representatives. A bipartisan and depoliticised long-term approach has the capacity to deliver greater confidence in the infrastructure pipeline, thereby elevating Australia as a preferred destination for offshore capital.

Our future is in facing north. The potential and possibility is there for enduring growth for the prosperity of generations to come. Build Brand Australia and build our nation.

This article was originally published at The Australian.

Sectors: Business, Finance

Around the world, regulators are realising Bitcoin is money

By Professor Miranda Stewart | August 13th, 2015

The tax treatment of digital currencies is a challenge for governments around the world, as it is for other aspects of the “disruptive” digital economy.

In October 2014, the Commonwealth Senate Economics Committee launched an inquiry into digital currencies. The Committee released its report last week, with a particular focus on tax.

Last year, the ATO published several rulings outlining how bitcoin and similar cryptocurrencies should be treated under the Australian income tax and GST regimes.

The rulings provided useful clarity on bitcoin’s tax treatment, but the ATO’s approach received widespread criticism.

Bitcoin purportedly functions as money, but the ATO rulings treat bitcoin as a commodity for tax purposes. This disparity creates a number of tax inconsistencies.

The impact is particularly acute under the GST regime, where bitcoin transactions are taxed as barter transactions. Australia’s GST regime applies somewhat clumsily to barter transactions, which may cause double taxation, or at least double tax administration, as we emphasised in our submission.

Why should the law be changed?

Imposing 10% GST on bitcoin transactions increases the price of purchasing bitcoin from Australian vendors, affecting the commercial viability of operating a digital currency business in Australia, as we have highlighted before. Submissions to the inquiry outlined the potential benefits the industry could offer Australia, but many argued the GST treatment stood in the way of success.

From a regulatory perspective, supporting Australian digital currency intermediaries to establish an industry here is likely to make financial supervision and taxation easier for government.

The ATO’s characterisation of digital currencies as a commodity is probably the best interpretation of the current law, which emphasises wide use and sovereign backing for currencies. But it’s not clear cut. There is a legal basis to treat digital currencies as money based on their function as a medium of exchange, especially as this becomes more widespread.

Digital currency and GST

The Senate report identified the GST anomalies arising from the ATO’s characterisation of digital currencies and recommends the government amend the GST regime to treat digital currencies as money. This would promote fairness and neutrality in the taxation of both modern and traditional forms of money.

Implementing the necessary changes to the GST Act and Regulations will ultimately require approval from the Commonwealth and all State governments, as it affects the GST base.

Adopting the report’s GST recommendation would bring Australia’s GST treatment in line with the UK, and some other EU nations. Last year, the UK changed its VAT laws (the UK’s GST) to exclude digital currenciesfrom taxation as a commodity.

When the UK first introduced this approach, it was praised for supporting the local digital currency industry, although there is little empirical evidence at this early stage.

Digital currencies are also treated by the ATO as commodities for income tax. The evidence before the Committee, although limited, suggests most bitcoin holders are investors not traders.

The report did not recommend any alterations to the income tax treatment at this stage – and we agree that caution is needed before altering income tax treatment. The report recommended further research to determine whether change is needed.

The regulatory future of digital currencies

The Committee concluded that digital currencies fall outside the scope of many of Australia’s financial, banking, and consumer protection regulations. It recommended that Australia’s anti-terror and anti-money laundering regimes should be extended to ensure they encompass digital currency activity.

However, the report does relatively little to address the longer-term regulatory concerns surrounding digital currencies. At this early stage, the report proposes to allow the industry to self-regulate, with oversight from a proposed “Digital Economy Taskforce”, rather than introducing a specific regulatory framework.

The Committee accepted that extensive regulations might stifle the growth of the digital currency industry. Although digital currencies’ utility has been emphasised recently, their future remains uncertain. Bitcoin, the largest digital currency, has seen a steady, significant price decline over the past two years. Further, much of the industry’s innovation comes from small start-ups, which have relatively few resources to comply with regulations. Regulatory simplicity seems proportionate at this stage.

It will be interesting to see how effective the self-regulation approach is, particularly given digital currencies’ historic involvement in illicit activities and the regulatory concerns voiced by other governments and the OECD.

The combination of introducing a more favourable GST treatment, and a relatively simple regulatory framework will hopefully foster this nascent industry’s development. If the industry experiences any major growth in Australia, the greater number of users (and more tax dollars at stake) may heighten regulatory attention surrounding the technology.

Ultimately, the self regulatory approach and Digital Economy Taskforce is the beginning, not the end, of the government’s involvement in regulating and taxing this new technology.

This article was originally published at The Conversation. Co-author is Joel Emery.

Sectors: Government