TAX NEWS - JUNE 2010

Australia Tax: Resource super-profits tax risks capital flight: ANZ

by Michael Sainsbury, 04 June 2010 -- ANZ chief executive Mike Smith has warned the government's planned resource super-profits tax risks triggering capital flight out of Australia as global investors reassess their view of sovereign risk.

Mr Smith stressed that "uncertainty frightens capital" and said that Australia needed to remain competitive in an "increasingly tough world" amid growing concerns that damage from the tax would spread beyond the mining sector and contaminate the country's investment environment.

Mr Smith also denied reports that ANZ had made a multi-billion-dollar offer for a 51 per cent interest in South Korea's KEB Bank to its private equity owner Loanstar, or was considering a merger with Standard Chartered Bank. "The (KEB) report is not accurate, this still has some way to play out, the prospectus is around and we are having a look at that, but that is as far as we have got," Mr Smith said.

"In terms of the Citi report (on Standard Chartered), that is just spinning a story. I am not sure where they get it from. I have said before that at some stage we might look at a transformational deal, but that is in the medium to long term."

But Mr Smith stepped up his rhetoric on the government's controversial mining tax.

"I was in the United States talking to investors and that was one of the questions that was raised," Mr Smith told The Australian.

"Capital is mobile, it goes where it is welcome, and therefore the key things we have to really understand is that investment requires certainty and that it requires a lack of change, particularly for the long-term investment that these things (mines) require. Uncertainty frightens capital."

In a speech on financial services at Shanghai Expo last night, federal Treasurer Wayne Swan himself highlighted problems in Europe.

Mr Smith was speaking at the opening of ANZ's new China headquarters in the heart of Shanghai's Lu Jia Zui financial centre.

Mr Swan was on hand to help Mr Smith cut the ribbon, in between batting away questions on the tax from Chinese investors and government officials in meetings set up months ago.

ANZ has seven branches in China and has just received approval to open a branch in the booming city of Chongqing, in the west of the country.

Mr Smith said ANZ was planning for 20 branches in China in the next few years targeting major centres as well as a number of rural branches after the opening of the first of these near Chongqing last year.

Its step up as a regional presence is due to ANZ's acquisition of retail networks in Hong Kong and Taiwan as part of a pan-Asia deal to buy part of the ailing Royal Bank of Scotland business. Mr Smith said ANZ had originally bid for RBS branches in China but "they were asking too much".

Asked if the company would have another look at the assets if they were available, he said ANZ "was always looking for opportunity at the right price".