The closer integration of the US and Australia also encouraged two-way flows of institutional and other indirect portfolio investments. By 2011, Australian superannuation fund (pension) assets had reached US$1.5 trillion in value, constituting the fourth largest pension asset fund in the world. These funds BAE US outflows of FDI to Australia BAE Australian FDI in the US Exch rate accounted for 5 per cent of the global total, although most was invested in the domestic economy ± with around US$150 billion invested in US government bonds and other institutional assets (Australian Superannuation Funds Association, 2012).
US inflows of indirect investment have been significant, attracted by high interest rate returns and a stable investment climate. One reason is that Australia has been ranked AAA ratings by all three international credit agencies and recognise as a safe haven in a period of greater international economic instability.
The Heritage Institute for example ranked Australia third in terms of economic freedom and the World Bank ranked it second in terms of the ease of a business start-up, with low corruption (Austrade, 2012). A range of measures have been implemented since the FTA to further establish Australia as a centre for international finance and to make local fund managers more internationally competitive managers of institutional funds ± but have not yet been particularly effective because of the retention of a number of regulatory and tax barriers such as the withholding tax on funds transferred between related bodies such as parent and subsidiary companies in the financial sector ± although the Johnson Review (2010) recommended that these measures be removed.
Notably, the 10 per cent withholding tax (admittedly reduced from 30 per cent) has prevented US and other foreign banks from transferring funds to Australia to fund an expansion of lending in competition with the dominant Australian banks which have established deposit creating networks and access to international wholesale funding not subject to withholding taxes (Australian Financial Review, 15 October 2012).
Other unknown factors was the 2003 Tax T reaty Influential?
Apart from AUSFTA, other factors may also have been important determinants of changes in trade and direct and portfolio investment flows ± such as the 2003 bilateral tax agreement.
US inflows of indirect investment have been significant, attracted by high interest rate returns and a stable investment climate. One reason is that Australia has been ranked AAA ratings by all three international credit agencies and recognise as a safe haven in a period of greater international economic instability.
The Heritage Institute for example ranked Australia third in terms of economic freedom and the World Bank ranked it second in terms of the ease of a business start-up, with low corruption (Austrade, 2012). A range of measures have been implemented since the FTA to further establish Australia as a centre for international finance and to make local fund managers more internationally competitive managers of institutional funds ± but have not yet been particularly effective because of the retention of a number of regulatory and tax barriers such as the withholding tax on funds transferred between related bodies such as parent and subsidiary companies in the financial sector ± although the Johnson Review (2010) recommended that these measures be removed.
Notably, the 10 per cent withholding tax (admittedly reduced from 30 per cent) has prevented US and other foreign banks from transferring funds to Australia to fund an expansion of lending in competition with the dominant Australian banks which have established deposit creating networks and access to international wholesale funding not subject to withholding taxes (Australian Financial Review, 15 October 2012).
Other unknown factors was the 2003 Tax T reaty Influential?
Apart from AUSFTA, other factors may also have been important determinants of changes in trade and direct and portfolio investment flows ± such as the 2003 bilateral tax agreement.
Tax treaties provide certainty for investors regarding the level of tax on investments abroad and are also an important tool or dealing with international profit shifting. In general, tax treaties reduce or eliminate double taxation caused by overlapping taxing jurisdictions because partners agree in certain circumstances to limit taxing rights over various types of income. Investment flows between the United States and Australia were likely to have been encouraged by the 2003 bilateral tax treaty, which reduced the rate of dividend withholding tax on US subsidiaries and branches of Australian companies in the US.
The treaty also helped to prevent double taxation of capital gains derived by US residents on the disposal of interests in Australian entities while retaining Australian taxing rights. Experts forecast that Australian investment abroad would significantly benefit from a lowering of DWT on non-portfolio dividends (dividends paid on 10% or greater shareholdings) (Tax Treaty Explanatory Memorandum, 2003). There has not been a subsequent assessment of the relative impact of the tax agreement ± but it would be surprising if the effect was not significant.