Singapore 1, Australia Nil.
The front page of Today’s Fin Review reports that Australia is losing ground against Asian competitors in its plan to be a ‘financial hub’.
As many of you know I reported here back in July after my visit to Singapore that Australia has zero chance of being a financial hub. A “hub” must be at the centre of a wheel to work. Geographically Australia is about as much a hub as a cul de sac is a junction. Australia is geographically disadvantaged. Its is far from everywhere.
As a result Australia must do even more than its neighbours to encourage immigration of the best and brightest. Its must be more generous with its tax structure and it must do more than its neighbours in innovating the education system.
But the fact that Australia is losing the ‘financial hub’ race is a reflection of so much that is wrong with the management of our many amazing resources.
Australia lost its chance to be a financial hub and in fact advertised to the world that it didn’t want to be, years ago, when Deutsche Bank offered to set up its Asian Headquarters here but requested tax concessions. The government – in its typically big picture, long term thinking – was not forthcoming.
Australia cannot and and will not become a financial hub of Asia because it missed its chance.
Any visitor to Singapore can see why no large global and profit-motivated financial institution would leapfrog Singapore to set up in Australia. And its not just because their press is controlled and their political system stable. First, their tax structure is much more attractive (it can be), secondly; labour can be supplied at very cheap rates (another by-product of geographic proximity to cheap sources) allowing full time focus on more productive and higher value endeavours. Third, disincentives such as high taxes on motor vehicles (The COE renders a VW Polo ($19,000 in Oz) a $120,000 car in Singapore) and levies on locals visiting the two casinos has allowed the government to fund the build of one of the world’s most efficient and attractive mass transit systems and now serious dollars are being tipped into the development of an underground road network. Singapore will have built a complete underground road network, a secure, safe, attractive and expanding mass transit system while Sydney will still not have solved congestion on the spit bridge.
Singapore is getting things done and that’s the fourth thing that attracts competitively minded organisations.
This paragraph from Singapore’s Tax Portal tells the story of how they are encouraging new businesses to set up, to innovate and to create jobs.
“The tax exemption scheme for new start-up companies was introduced in Year of Assessment (YA) 2005 to support entrepreneurship and to help our local enterprises grow.
Under this scheme, a newly incorporated company that satisfies the qualifying conditions can claim for full tax exemption on the first $100,000 of normal chargeable income* (excluding Singapore franked dividends) for each of its first three consecutive YAs.
Starting from YA 2008, a further 50% exemption is given on the next $200,000 of the normal chargeable income* (excluding Singapore franked dividends) for each of the first three consecutive YAs.”
So a new business gets a tax holiday on the first $100,000 of profit for the first three years and the next $200,000 is taxed concessionally. Thats up to $900,000 of seriously low tax rates over three years.
Expats in Singapore enjoy cheap airfares to Thailand, Malaysia, Bali, Cambodia and many other exotic locations and this is an appealing benefit for large corporations to consider when relocating staff.
We need leaders in Canberra not politicians. We have so much to offer and yet we are dropping the ball. The 24-hour news cycle ensures that Canberra is distracted from the main game by things of vanity and childish pride rather than enduring changes of long term strategic significance. A hundred years ago our leaders didn’t have to worry about their every utterance being plastered on the front page or on that evening’s news, or if it was, not too many were going to see it or hear about it anyway. They could focus on managing the country and had the space to think strategically.
Today, both major parties send teams of researchers to America not to discover secrets of productivity or tax efficiency but to learn and import the latest smear techniques to apply against their opponents. With the media reporting every utterance, we are systematically destroying our global competitiveness and this will cost our children dearly. The 24-hour news cycle produces pandering and has resulted in the tail wagging the dog and I for one am tired of it. The main game has become managing the media image not managing the country.
The government talks of improving productivity but instead we ensure low productivity and woeful innovation will be entrenched for years. We only need to look beyond the tax structure to the education system, as well as the distraction of teachers by the online comparison of school performance (something Singapore is dismantling after 20 years), to see that not much will improve in the foreseeable future. Our tax system stifles innovation and entrepreneurship and ensures the best and brightest export their ideas, their job hires and their business and revenue growth to Silicon Valley or Asia. Our public education promotes mediocrity and offers few opportunities for the brightest kids. Pecking orders among trenched teachers crush the enthusiasm of the new system ensures there will be no innovation in the tax system.
If we are serious about the future of our country much needs to change. But it is not happening because our leaders are not leading. They’re wasting our time and theirs and undeserving of our trust. What parent would point to a politician and tell their child; “if you work hard and study, you could be one of them one day”. The reputation of the office has been tarnished because it is ineffective.
Singapore 1, Australia Nil.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Ruth Alvarado
:
Well Roger I have lived and travelled in countries where there is little or no tax system in place and this has not necessarily increased productivity, innovation or created more jobs for their citizens. Having had this experience I know where I rather live. I agree with you our political system does not encourage or foster good leadership. However part of this silly political games played by all sides of the political spectrum can be apportioned in part to the role of the media and you know quite well the media owners of this country have not interest in providing and promoting good public debate in Australia. I guess that the rationale behind this thinking is that with an educated political population who knows what may happen!
Mark
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Interesting observations.
I just finished a one year contract in Singapore and I feel qualified to make some comments on this topic.
I earned 350k Singapore and paid only 45k tax yet if I was in Australia on that income I would be paying triple that tax. Also I had a lot of colleagues who set up their own companies and paid effective tax rate of only 3percent on the same sort of income. So from a purely selfish point of view I really like Singapore.
One of the other great advantages of Singapore is how effiecient everything is done. They are really high tech and well organised in every way. There is also a culture of service and good manners in dealings with businesses. They want your money and are willing to give great service for it. Transport system is good as well.
There are of course some major issues with Singapore. For most people wages are relatively low and the lifestyle is quite stressful. Accommodation is outrageously priced and most people live in a shoe box.
Because there is low taxation there is not much in the way of government benefits so you can see very elderly people forced to work in the hawker centres because they dont have enough retirement savings. It is very much a dog eat dog society with a smalll minority of people making a lot money and the vast majority struggling along with very little quality of life.
Of course they also use cheap labour to help sustain their economy with Indians doing a lot of the construction work and many workers from the Phillipines doing housemaid jobs and retail jobs.
Australia has never taken the view of using cheap labour like Singapore does and in fact the entire Middle East and many other Asian countries do the same as well.
So while Singapore does have many advantages over Australia the vast majority of Australians would probably not want to trade their life in Australia for a life in Singapore unless of course they were in the high income bracket.
Roger Montgomery
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Great counterpoints Mark. I was hoping to see a few posted.
Ruth Alvarado
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I couldn’t agree with you more Mark. Last year my sister was travelling through Singapore and had an interesting experience while shopping. She is under no doubt that due to her olive skin colour she was often not taken seriously in the “expensive shops” although she had the money to spend. She was outraged when she entered the expensive retail shops and was closely followed by a staff member as if she was going to steal something from the shop. She said she was put off in such a way that deciced to give up shopping and is not likely to return again to this country. Yet she went on to visit Vietnam and can not speak highly of her experience in this country. So it would seem not everything is so good in Singapore.
Roger Montgomery
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Hi Ruth,
I don’t think that your sister’s experience was unique. The same thing happened to me in those stores. I thought at first that they suspected me but soon realised it was there way of being available the instant you had a question. Nevertheless it was disconcerting for me as I am used to walking into Myer and not being able to find anyone on the entire floor when I have had a question! The genesis of Myer One Card’s name is the busy Saturday morning, when there is just One staff member in the Myer Store.
Edward Vesely
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I can’t disagree with your sentiments Roger. I used to be one to support one party against the other, perhaps more out of blind faith but now realise that both the current government and opposition spend too little time doing what matters, encouraging exports and productivity, and raising the status of teachers (and pay) to reflect on the fact that (effective) teachers are some of the most important and undervalued workers in our economy.
Roger, you’re obviously very intelligent and insightful. After reading this article, I do wonder if you’re wasting your own personal and intellectual resources in funds management and you should devote yourself to bigger and more important issues, such as the ones you referred to in your article. Personally, I’d hate to see you change from being a funds manager/journalist/author/blogger as we now invest with you and follow you closely. But if I were to disregard my own selfish needs, I can’t help but think you have what it takes to add more value to our country in some capacity greater than what you’re doing now. These are just my thoughts and not necessarily an invitation for you to change! Thanks for your insights.
Paul
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Roger, spot on as usual.
I’ve grown sick and tired of the issues raised, so much so after owning and running a few relatively successful businesses in Australia, and under the ongoing burden of stifling red tape and nonsense ie. Tax System, decided once the total fiasco that was Juliar Gillard taking over the Lodge that I put my money where my mouth was and moved to Abu Dhabi, the other choice was of course Singapore for all the reasons you explained.
AD is however very similar in many ways as Singapore was described, except about ten years behind, fertile ground to achieve almost anything and of course there is zero tax. The cost of living is quite seriously about a fifth of Australia and that’s just the start. Anyway after a year it’s become very obvious that there is zero chance of my wife and I ever returning to our homeland for anything other than a holiday.
Keep up the great work.
rmassera
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Thank you for a pragmatic and well argued article. I completely agree and share your observations following a number of recent visits. As an entrepreneur in the medical field Singapore is a very attractive place in which to operate a business.
Patrick Greenfield
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I just hope the politicians read this and get their bloody heads out of the sand.Then again Roger its hard to put brains in statues.Great article
Greg Scott
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I agree totally with your comments regarding the media tail wagging the political dog, very much to the detriment of the electorate. Although I generally regard politicians bland utterances with some level of weary boredom and mistrust, I must admit to some feelings of occasional pity for the hapless politician whose statements are often sensationalised and taken out of context, all in the name of selling newspapers predominantly run by people with their own political agendas.
What is the answer?. It is very difficult to see this changing any time soon. Until a group of politicians have the guts to ignore the incessant harping of the media on issues that do not affect the betterment of public policy (as opposed to public titillation) I am afraid that the race to the bottom will continue. Unfortunately, under the current system this is not likely to occur, although I suspect that any leader who tells it as it is without “spin” would be received better by the electorate than many in the self serving sections of the media would have us believe. After all, you only need to convince the “marginal” or swinging voter to get re-elected, as most of the population is already “locked in” behind their preferred party.
Andrew Legget
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Wow Roger, that is some post and one i agree with pretty much entirely.
The issue with politics is that we (the general public) buy into it. It is like tabloid magazines, we know that it is low brow and not particularly intelligent but it sells and the easy way out in politics is to use the tabloid issues of politics to win votes and distort any arguement or fact to their particular line of attack.
For example:
Interest rates go up
The opposition goes thanks to you all families are now going to be struggling to keep their own home and if we were in charge they would be lower, the government says it is because our economy is going so well and anyway,w e have no control over interest rates it is the RBA.
The funny side is that if the opposition gets elected and the same things happened they would say the exact same thing they were attacking the previous government of saying.
I wonder if things would be different if we set a cap on how long people can be elected to a seat in parliament for. This would i think reduce the incentive for career politicians to simply do whatever it takes to win votes and focus on important issues that will help make the country a better place as we all know that sometimes what is best for us we don’t particularly like (at least in the beginning).
What you say about Singapore is very interesting, how many transport plans have NSW had in the time it has taken Singapore to think up and put into place the process for the development of the mass transit system.
Another thing i have talked about recently is that as a country i think we tend to be a bit conservative and afraid of change. But your point is right, the 24 hours news cycle has turned politics into a sport rather than a forum for progressing the nation.
Eric Holliday
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I totally agree with your comments Roger and you have hit the nail on the head. I am sick and tired of hearing the two supposedly “leaders” of this country criticizing each other all the time instead of focusing on how to make Australia more prosperous and improved job opportunities for all those out there now without work.