Labor’s plan to slash tax rates on foreign investment has been supported by the financial services industry’s funds body.

The Investment and Financial Services Association (IFSA) says the policy, announced in Opposition Leader Kevin Rudd’s Budget reply last week, would boost Australia’s international competitiveness.

Withholding tax is paid by foreign investors to the Australian Tax Office in lieu of supplying a tax file number and can only be claimed if they fill out a tax return.

Mr Rudd has pledged to cut withholding tax on distributions from Australian-managed funds to non-residents from 30% to 15%.

IFSA CEO Richard Gilbert says the current tax discourages international investors.

“The proposed introduction of a new 15% flat and final withholding tax would remove a significant and burdensome administrative requirement for non-resident investors and Australian fund managers.

“This policy measure would greatly assist Australia's global competitiveness and facilitate capital raising for the listed property trust market. Importantly, this measure also entails boosting tax integrity, as a flat and final rate would protect the public revenue.”

Mr Rudd says the tax currently contributes $30 million to Australian coffers.

“In our view, halving it will provide concrete assistance to Australian fund managers competing against tax regimes applying to their competitors in Dublin, Luxembourg, New York and Singapore.”

Treasurer Peter Costello says the tax actually generates $100 million.