"This important tax change sends a clear signal to the region that Australia's already well-regarded managed funds sector is highly competitive and open for business," Bowen said.

"This also demonstrates that the Rudd Government is committed to establishing Australia as a major financial services centre in the region. We have a great managed funds sector in Australia that has built up its skills base, but has not fully realised its potential in exporting these skills to the world," he observed.

"Young people who want a future in financial services should not feel the need to move to London, New York or Dublin. They should have confidence in the opportunities that can be provided to them, in a competitive market, here in Australia. For too long Australia has been saddled with one of the highest withholding tax rates at 30%," Bowen added.

Under the new law, residents of jurisdictions with which Australia has effective exchange of information (EOI) arrangements on tax matters will be subject to: a 22.5% non-final withholding tax for fund payments in 2008-09; a 15% final withholding tax for fund payments in 2009-10; and a 7.5% final withholding tax for fund payments for later income years.

Australia is internationally recognised as one of the major markets for managed funds. The Australian funds management industry manages more than AUD1.4tn (USD1.33tn) in assets with industry estimating this figure could exceed AUD2.5 trillion by 2015.

This important first step has also been welcomed by Australia's managed funds sector.

"These changes ensure that Australian fund managers can effectively compete in the world's fastest growing region – the Asia Pacific," the CEOs of the Investment & Financial Services Association (IFSA) and the Property Council said in a joint statement.

"Establishing Australia as a financial services hub is more than just a slogan – it takes hard work, boldness and a government prepared to put in place policies to let Australian fund managers compete on their merits," Bowen added.

The Government has also begun to look at other measures to help make Australia a financial services hub including through: a review of Division 6C of the income Tax Assessment Act 1936 to reduce complexity, increase certainty and minimise compliance costs for Australian real estate property trusts; the referral to the Board of Tax to review the taxation arrangements that apply to managed funds to canvas options to create a specific tax regime for managed funds to further enhance the international competitiveness of Australian managed funds; and a review and public consultation on Australia's future tax treaty negotiation programme and policy.