The Australian Parliament is implored to veer away from its "populist approach on economic and other business policies especially on taxation that have been discouraging to both local businesses and foreign investors alike.

According to ANZ Bank CEO Mike Smith, Australia's government leaders need more consistency in their approach to economic and business policies and should not easily be persuaded by populist sentiments.

One of Australia's banking giant ANZ Bank reported an increase in underlying profit for the first quarter of its current financial year today at $1.4 billion, up 27 per cent on the same time last year.

Nevertheless, Mr Smith said local banks are now operating on a difficult environment as regulation and other banking investment rules are currently being reviewed due to public criticisms.

"We also need a sensible debate on banks and consistency in the approach to economic and business policy which must include taxation," he said in a press briefing.

He noted: Australia simply cannot afford to frighten off foreign investors by giving oxygen to populist policy proposal."

In a separate statement, authorities are trying to reach out to foreign investors with the streamlining of a piece of legislation that targets more investments in the country.

Government Policy on Foreign Investments

The Gillard administration will attract more investment by encouraging foreign-based companies to establish regional headquarters in Australia, as well as making Australian businesses with foreign operations more competitive, following the release of exposure draft legislation relating to Controlled Foreign Company (CFC) and Foreign Accumulation Fund (FAF) rules today.

The Assistant Treasurer, the Hon. Bill Shorten MP, today released the exposure draft legislation for public comment.

The rewrite and modernisation of the CFC rules, together with the proposed FAF rule, form part of a wider package of reforms to Australia's foreign-source income attribution rules that were announced in the 2009-10 Budget.

"This package of reforms will improve the competitiveness of Australian companies with offshore operations by reducing the costs of complying with the CFC rules. They will also encourage foreign groups to establish regional headquarters in Australia and improve Australia's attractiveness as a continuing base for our multinational companies," the Assistant Treasurer said.

"The exposure draft legislation takes into account submissions received in response to consultation papers released last year. This process illustrates how the Government will work with business to enhance Australia's tax competitiveness."

"Given the scale, complexity and importance of these rules, however, it is desirable that a further round of consultation occur in respect of the development of the enabling legislation before it is introduced into Parliament," the Assistant Treasurer said.

Key changes

The Government is providing a more modern approach, by incorporating an active business income exemption that reflects modern business practices and increasing globalisation.

  • Better targeting the CFC rules by:
    • Focusing the rules on single Australian controllers
    • Providing relief for intra-group transactions
    • Treating rent in respect of real property as being active income
    • Allowing royalty income to be treated as active where it has not originated from Australia
    • Removing the base company income rules
    • Retaining the existing listed country, active income de minimis, and AFI subsidiary exemptions.
  • Rewriting the CFC laws using coherent principles, resulting in more streamlined and simpler legislation.
    • The proposed rules reduce the number of pages of CFC law from 181 to around 35 operative pages
  • Providing more access to dividend exemptions as well as methods to prevent the double taxation of previously attributed income.
  • Improving the integrity of the Australian revenue base by:
    • Denying eligibility to dividend exemptions where they are paid in respect of debt interests
    • Introducing a FAF rule.

The Government welcomes submissions from interested parties on the legislative design of the proposed reforms. Interested parties should note that consultation on this exposure draft legislation will be done in the context of the Government's fiscal strategy, which would require any changes to the policy originally announced be broadly revenue neutral. Copies of the draft legislation are available at the Treasury website. Submissions close on 18 March 2011.