private banking industry in Australia has boomed as a result of 16
years of uninterrupted economic growth, and is now the
third-largest private wealth market in the Asia-Pacific region. But
a new offshore tax amnesty signals concerns about tax
evasion.
The number of Australian millionaires is growing at a faster pace
than in the rest of the world, helped along by a buoyant share
market and the country’s plentiful natural resources.
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The number of Australians with financial assets of more than $1
million grew by 10.3 percent in 2006 to 160,600 individuals,
according to the annual World Wealth Report from Merrill Lynch and
business consultancy Capgemini. That is more than Hong Kong
and Singapore combined. Australia’s mega rich also increased in
number: 1,197 people have at least $30 million to their name.
For the first time, Australia has joined the ranks of the world’s
top ten countries in terms of total numbers of high net worth
individuals, the wealth report data shows.
“The steady growth in the size and scale of the Australian
market represents tremendous opportunities for wealth management
firms, especially those that can adapt their service model to the
needs of an increasingly sophisticated client segment,” Merrill
Lynch officials assert.
Growing wealth
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By GlobalDataOver the past ten years, private wealth per person has increased
from A$123,300 ($105,000) in 1996 to A$362,300 in 2006 – a CAGR of
11.4 percent. This near trebling in wealth is a result of growth in
nearly all asset classes, according to a report by Axxis, an
Australian research organisation supported by the federal
government.
The total pool of financial assets held by wealthy households has
surged, driven by robust real GDP growth, a low interest rate
environment and the rise in value of Australian equities and other
asset classes, including commercial and residential property.
Of the 7.7 million households in Australia, one in ten had a net
worth in excess of A$1 million dollars between 2003 and 2004,
including property assets, according to the Australian Bureau of
Statistics.
The majority of the wealthiest 10 percent of households had a net
worth of between A$1 million and A$2 million.
However, there were still a significant number of people in higher
net worth ranges. Over 16,000 Australians had a net worth in excess
of A$7 million, Axxis found. Australians with more than A$513,000
in liquid assets owned more than 43 percent of total liquid retail
wealth in 2004, despite accounting for only 1.4 percent of
Australia’s adult population.
Australians have become increasingly sophisticated in the
management of their finances. With the cash component of wealth
decreasing, they have been increasing their holdings of equities
and superannuation retirement assets.
Retirement assets grow
In 1991, superannuation retirement assets accounted for 48 percent
of household financial wealth, while equities accounted for only 12
percent. In 2006, superannuation had moved up to 55 percent and
equities had a 19 percent share of household financial wealth.
Deposits and bonds, on the other hand, accounted for 40 percent of
total household financial wealth 15 years ago and only 26 percent
of household financial wealth in 2006.
However, the single most important driver behind Australia’s
swelling pool of financial assets has been superannuation, Axxis
notes. Since the introduction of the government-mandated
superannuation scheme in 1992, assets in these schemes have
undergone explosive growth to become the largest financial asset
held by households.
In the past decade, superannuation – reserves of life offices,
pension funds and unfunded superannuation – had a CAGR of around 11
percent, increasing from A$405 billion to A$1.1 trillion.
Prospects for sustained growth are bright, Axxis says, with
superannuation private pension assets under management forecast to
expand to $2 billion by 2015. In recent months, a number of
taxation and other incentives have been brought into effect by the
Australian government to encourage individuals to save for
retirement.
These measures are expected to lead to further growth in
Australia’s superannuation assets, Axxis notes.
Importantly, Australian superannuation assets managed by both
institutional and retail investors are fully contestable.
Individuals are also free to choose a preferred manager and move
assets on the basis of performance.
Australia has more than 325,000 self-managed superannuation funds
worth a combined A$218 billion or an average of around A$670,000
per fund.
The ‘greying’ of Australia’s population will lead to an increase in
the number of people reaching retirement age in coming years.
The average net worth of couple households with one person aged 55
to 64 years was A$895,000 between 2003 and 2004, which was the last
year these statistics were released by the government.
Australian retirees have typically drawn their superannuation
balances as lump sums. This trend is expected to change, however,
after tax changes this July which removed the tax on superannuation
withdrawals for people aged 60 and over.
Tax amnesty
The huge growth in personal wealth coupled with a frenzied merger
and acquisition boom has been worrying the Australian tax
authorities, which are concerned that individuals are using a
variety of unfair tax shelters, as well as offshore jurisdictions,
to shelter their assets. As a result, Australia has become the
latest country to announce an offshore tax amnesty in a clampdown
on evasion that is targeting offshore jurisdictions such as Jersey,
Guernsey and the Isle of Man.
The amnesty was announced by Commissioner of Taxation Michael
D’Ascenzo, who declared that the Australian Tax Office (ATO) is
increasing its audit activities in cases where people may try to
conceal assets offshore in tax havens.
Taxpayers who contact the ATO before they are the subject of an
audit and make a full and true disclosure “will have reduced
shortfall penalties” and may avoid criminal prosecution, he
said.
The ATO has asked Australian banks’ overseas subsidiaries or
branches in the Pacific tax haven of Vanuatu to write to their
Australian customers and encourage them to make a voluntary
disclosure of any unreported income.
Other initiatives include sending a letter to people identified as
having an offshore debit or credit card in Jersey, Guernsey or the
Isle of Man, or as having dealings with those jurisdictions. As
many as 1,000 taxpayers the ATO suspects used offshore credit cards
to get access to concealed income will be approached for
disclosure.
Regulators are also targeting the tax affairs of Australia’s
corporate heads, particularly those executives and directors who
are paid shares in addition to their base salary. Audits showed a
high level of “potential discrepancies” in taxes paid on these
shares, ATO officials said.
The agency is examining billions of dollars worth of deals arising
from the country’s mergers and acquisitions boom, including capital
gains treatment by corporate sellers, tax paid by private equity
funds and tax paid by investment banks on fees.
Australian mergers and acquisitions volume reached a record A$115
billion between 2006 and 2007, up from A$47 billion the previous
fiscal year.
Private banking leaders
Australian banks continue to maintain a significant lead in their
home market, despite the incursion of foreign competitors such as
UBS and Deutsche Bank in recent years.
National Private Bank, part of the National Australia Bank Group,
is the leader in wealth management with A$16.9 billion of assets
under management (see table).
Citigroup Private Bank offers the most client-friendly service in
Australia and has a small ratio of ten clients to every
relationship officer. With a wealth threshold of A$10 million, Citi
concentrates on the ultra high net worth sector. Most of its
clients own investable assets of between A$50 million and A$100
million.
