Are these the greatest opportunities in Asia right now?

As a privileged part of the Australian delegation to the Asian Financial Forum in Hong Kong last month, Luke Malone, the head of our Asian Business Desk, has his eye on Asia. 

The Asian Financial Forum last month brought together 1200 business leaders from throughout the Asia Pacific region and addressed many of the economic opportunities and issues that matter. 

Over coming months I plan to provide you with articles that give you an insight to these, so you can take advantage of our learnings as we navigate the Asian Century.

This week I want to talk about the three biggest areas of focus at the conference, and highlight what could be the most exciting opportunities for Australia in coming years:

1.  Food security and production for a growing Asian population

Food security in Asia is a large opportunity for Australian food businesses looking to produce and export into the region.  Recent data shows that we have the capacity and ability to produce food for over 500 million people here in Australia.  With growing population density throughout Asia and land shortage in many countries, the ability to produce the quantities of food for the emerging middle class in these countries seeks is becoming more and more difficult.  The changing socio-economic position of many has increased their desire to eat well, and their ability to afford high quality produce for which Australia is most renowned.  This is a trend that may change the allure of farming and food production investment in Australia in coming years.

2.  China and the ASEAN+6 Relationship will lower tariffs and build trust

This year, the 10 ASEAN Countries plus China, Japan, South Korea, India and Australia and New Zealand will start negotiating a Regional Comprehensive Economic Partnership.  The plan is to have a deal in place by 2015 creating a free trade zone that will encompass almost two thirds of the world’s population.  Lower trade barriers and greater trade integration should lower the tariff costs for businesses working across borders in these 16 countries.

3.  Chinese capital is freely flowing out of China seeking a return  

Recent figures on China’s foreign direct investment (FDI) shows two very interesting trends.  Outgoing FDI rose almost twelvefold from $5.5 billion a year to more than $65 billion per year from 2004 to 2011 and is expected to reach approximately $150 billion per year by 2015. In contrast, inward FDI fell 0.2 percent in October 2012 from a year earlier to $8.3 billion, the 11th fall in 12 months.  (Source: China Daily Jan 18-24 2013).  The sentiment of Chinese investors and businesses is strong despite some of the portrayed ‘slow down’ of the Chinese economy portrayed by the Western media.  My discussions with many prominent investors and high net wealth family groups during the Asian Financial Forum indicated that the desire for investments in Australian agricultural assets, resources, real estate and education remains strong.

Each of these issues presents terrific opportunities for Australia in an Asian context.  We are watching the trends closely with many of our Asian Business Desk clients, looking for ways that business and investment can benefit from the changes.

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About our Asian Business Desk

At Prosperity Advisers we have a dedicated Asian and Chinese business desk that understands the culture of doing business in China.

Our team includes Tax, Accounting, Corporate Advisory, Audit, Wealth Management and Mergers & Acquisitions Specialists who speak the language and have extensive Chinese and Asian business experience.  We currently act for a number of high net wealth Chinese investors and we help guide them on the transaction and regulatory path to both source investment opportunities in Australia by connecting them with the right people, while at the same time managing tax and other compliance objections.

For outbound investment into China, Luke and his team spend significant time in China and the Asian region and our connections in the region allow us to advise outbound Australian investors on the complex path of investing in China and Asia.  We are also a member of the Leading Edge Alliance, an accounting firm affiliation of some 4,000 members throughout the world and a strong presence in China and Asia.

 

Superannuation: Moving the goal posts halfway through the game

Feeling frustrated that the Government has put playing with super rules back on the table?  I have been inundated with calls from concerned clients over the last week asking me what to do.  In particular, one theme of exasperation has come through resoundingly:

“That’s the end for super for me – the Government is playing with the rules to basically take back any advantage when I eventually retire.  I don’t trust this or future Governments to treat me fairly.  Super is a honey pot they will go after.  Why would I lock my money away when the Government will keep changing the rules, keep raising the tax rates.  If they don’t get me now, they will get me by the time I’m 60.”I feel the same way too.  Cheated.  But my advice is not to run for the exits yet.  It is a fact of the superannuation system of the last 30+ years that it consistently outperforms other platforms for passive wealth generation for the risks involved.

The proposed new rules produce unequal results for different citizens based on “wealth”, they are manifestly unjust and frustrating because they fly in the face of the policy platform the Government took to the last election.  But hang in there.  Emotional decisions are rarely the best ones.  The law is not changing yet, may affect only a few, and there should be opportunity to take protective steps before any change if necessary.The most important announcement to be aware of is Prime Minister Julia Gillard’s announcement on 6 February 2013 that she wishes to increase the tax rate on superannuation earnings of the top 1% to a tax rate that could be as high as 30%.  Common sense suggests that ultimately it is unlikely to be that high given this is a change that would cripple people’s long term retirement savings plans.  “Absolutes” such as “top 1%” also tend to produce unintended winners and losers – leaving inequities at the margins.  For example, if my fund balance is $X my tax rate might be 15%, but if I have $X + $1 it might be 30%.  Manifestly unjust.

If the announcement is carried through, there may be no more than 100,000 retirees affected.  However the policy dilemma the Government faces is that taxing so few funds is unlikely to deliver the material revenue increases the Government is looking for.  It will involve great pain for modest gain.  For the tax to really deliver solid revenue outcomes, it would need to apply to a wider range of taxpayers.

From 1 July 2012, the Government increased the contributions tax rate to 30% for people with “adjusted incomes” of $300,000+.  That would be one option.  But the number of these taxpayers still remains limited.  So to really raise decent revenue you would need to tax people around or below $200,000 in income.

So where does that leave Prime Minister Gillard’s policy in terms of its value to society?  Are there now a group of ordinary Australians out there who are distrustful of the superannuation system as a result of the Government’s media campaign? Absolutely.  Certainly, if you want to give the rich a kick in the guts, this is a great way to do it.  But what will those top 1% of retirement earners do?  Increasingly they will look offshore at neighbouring jurisdictions that have more reasonable tax rates and take their earnings out of this country with them.  If they don’t leave, their children certainly might.  You only have to pick up the newspaper to read of people such as Gina Rinehart and Nathan Tinkler shifting their footprint to Singapore to realise that punitive taxation of the rich (or even the threat of it) simply motivates the rich to relocate their wealth to friendlier shores.  Take the example of France, which is far more advanced with draconian taxation rules for the rich.  The country is being crippled in part by investment wealth fleeing the country.  There is presently a generation of French patriots who are leaving France because of these rules.  Gerard Depardieu’s much publicised migration to Russia is an illustration.

Sadly, this is just the type of measure that could gain the support of the Greens and Independents. The Liberals will oppose it. So despite the fact we may have a Liberal government on September 15 2013, there is a fair chance that by budget night such a change might be law. This would then require Tony Abbott to repeal the law ab initio which it appears he is prepared to do. It increases the line of division between the Liberals and Labor.  It sets up the election campaign on terms that will increase Labor’s prospects in its marginal electorates in a campaign of class warfare which in my view ultimately damages Australia’s national interest.

If the Government wants revenue, the best way to do it is to either expand the tax base of the GST or raise the rate.  It is the blatantly obvious thing to do.  The Government must expand its review of the taxation system to include GST.  By the way – wasn’t the mining tax supposed to fill this revenue gap? … Oops.

Stephen Cribb is a Director of Prosperity Advisers
photo credit: betta design via photopin cc