The ABA was also pleased to see:

• a phase-down of interest withholding tax;
• the establishment of a Centre for International Finance and Regulation;
• reforms to boost business credit by encouraging Australians to consider savings products like corporate bonds; and
• improvements to first home saver accounts.

Tax on savings

The Treasurer announced that from 1 July 2011, Australians will be able to obtain a 50% tax discount for the first $1000 of interest they earn, including interest on deposits, and on bonds, debentures and annuity products.

Tony Burke, Acting Chief Executive of the ABA, said: “The banking sector has been asking for incentives to encourage Australians to save via deposits so that existing tax-based distortions between different classes of investments will be reduced. By encouraging more savings in deposits, it will improve the rate of national saving, in particular, middle and lower-income household saving, which is a concern for retirement incomes.”

Interest withholding tax phase-down

The Treasurer announced a phase-down in interest withholding tax.

Mr Burke said: “Reducing this tax over time could enable banks in Australia to raise more deposits overseas for lending within Australia.”

Centre for International Finance and Regulation

The Treasurer announced that the Government will establish a Centre for International Finance and Regulation, which will be a regional centre for excellence in financial system innovation and regulation.

Mr. Burke said: “We look forward to working with the Government on strengthening Australia’s place in the region, and expect that this Centre will build on the work of the joint industry and Government Australian Financial Centre Forum.”

Reforms to Boost Business Credit

The Treasurer has announced a reform to make it easier for businesses to borrow directly from retail investors. It is a new tax incentive to promote personal saving, by encouraging Australians to consider savings products like corporate bonds as a way to diversify their investments.

Mr Burke said: “The ABA supports measures to promote the corporate bond market in Australia. Tax incentives to encourage retail investors to diversify their investments into interest-bearing investments, including bonds, should assist in addressing some of the market barriers which hinder re-building a corporate bond market in Australia.”

“Regulatory barriers will also need to be looked at to ensure promotion of bonds to retail investors can be done in way that reduces costs for issuers and promotes meaningful disclosure to ‘Mum and Dad’ investors.”

Promoting the corporate bond market was one of the recommendations made in the Johnson Report on building Australia as a financial services centre.

Improvements to first home saver accounts

The Treasurer announced a relaxation of rules promoting First Home Saver Accounts (FHSA) as a tax-preferred savings vehicle.

The ABA supports changes to the FHSA product design rules, in particular, the ‘four-year restriction’ to give first home buyers greater control over their purchase decisions and greater flexibility with their money.

Mr Burke said: “We believe that this change should increase the attractiveness of these accounts, improve take-up of first home saver accounts, lift savings and enhance the customer experience with FHSAs.”