Individual 2014–15 Annual Reports

2.1      On this occasion, the committee has decided to examine in more detail the following annual report tabled by 30 April 2016 or before the tabling of this Report on Annual Reports on 12 October 2016:

2.2      For the Treasury portfolio:

• Foreign Investment Review Board.

Report under the Treasury portfolio

Foreign Investment Review Board—annual report 2014–15

2.3      The annual report for the Foreign Investment Review Board (FIRB or the Board) was presented out of session on 12 April 2016 and was tabled on 18 April 2016.

2.4      The committee notes that the annual report of the Board is not statutorily mandated, but prepared in accordance with the Board's responsibility to advise the government on foreign investment matters. Accordingly, the Board is a non-statutory body responsible for advising the Treasurer on foreign investment policy and administration. It examines foreign investment proposals submitted under the Foreign Acquisitions and Takeovers Act 1975 (the Act) and under Australia's Foreign Investment Policy (the Policy). Responsibility for making decisions rests with the Treasurer.

2.5      The Board is supported by the Department of the Treasury through its Foreign Investment and Trade Policy Division, which leads the Department's work on trade policy. The Division also supports the Board with secretariat and administrative services in relation to applying the foreign investment framework to business, agriculture and commercial land proposals.[1]

2.6      The role of the Board, through its secretariat, is to:

• examine foreign investment proposals submitted under the Foreign Acquisitions and Takeovers Act 1975 (the Act) and supporting legislation, and to make recommendations to the Treasurer and other Treasury portfolio ministers on national interest implications of these proposals;
• advise the Treasurer on the operation of the foreign investment framework and related matters;
• provide guidance to foreign persons and their representatives or agents on the operation of the foreign investment framework;
• monitor and ensure compliance with the Act; and
• foster an awareness and understanding, both in Australia and abroad, of Australia's policy on foreign investment.[2]

2.7        The Board comprises of five part-time members appointed by the Treasurer, as well as the General Manager of the Foreign Investment and Trade Policy of the Department of the Treasury.

2.8        During the reporting period, the Board was also supported by the Australian Taxation Office's (ATO) administration of foreign investment into residential real estate. This responsibility was later expanded from compliance activities to encompass all aspects of foreign investment in residential real estate from 1 December 2015. The ATO also has responsibility for the collection of foreign investment application fees and for administering the register of foreign ownership of agricultural land.[3]

Operational matters

2.9        The Board reported an increase in total expenses for 2014–15 of $339,048 compared to the previous period of $328,048. Most of the Board's expenses were expended on the remuneration of Board members (about 90 per cent) determined by the Remuneration Tribunal, with the remainder expended on travel, car hire and incidentals.[4] The total expenses for the Division over the same reporting period were $4.4 million (an increase from $3.9 million for 2013–14). Expenses were mainly comprised of employee salary (including superannuation and accruing leave entitlements) and administrative costs, and with an average of 31 Treasury staff. This number increased at the end of June 2015 with 37 Treasury staff and the inclusion of external contractors and consultants. The ATO also spent around $0.168 million in 2014–15 preparing for the transfer of the new foreign investment functions and on compliance activities.[5]

2.10      During the reporting period, the Board contributed to the Government's reforms to strengthen the foreign investment framework, which took effect in December 2015. These reforms represented the largest change to the framework in 40 years and the Board played a significant role in the design and implementation of the reform package, with discussions held and advice provided to the Government.[6]

2.11      In 2014‒15, the Board approved 37,953 applications for foreign investment proposals from a total of 38,932 applications valued at $194.6 billion (a 16.3 per cent increase on the preceding period). Of these, 16,446 were approved subject to conditions and 21,507 were approved without conditions. A significant number of these conditional proposals were in the real estate sector.[7]

2.12      There were no proposals rejected in 2014–15 compared with three in the previous reporting period. During the same period, 799 proposals were withdrawn by applicants, and of these, 88 per cent were in real estate. The number of proposals determined to be exempt from the Policy or the scope of the Act was 180 compared to 181 in the previous year. There was one divestment order over the same period and it related to a Sydney property which had been illegally purchased by a foreign-owned company. This divestment order was the first issued in close to ten years, and following the transfer of responsibility for residential real estate to the Australian Taxation Office, a further 26 residential properties unlawfully held by foreign nationals would also be divested.[8]

2.13      Among the more high profile foreign investment applications examined by the Board were Japan Post's proposed acquisition of Toll Holdings and China Communications Construction Company's proposed acquisition of the John Holland Group.[9]

2.14      The real estate remained the largest sector in receipt of foreign investment with approvals at $96.9 billion (about 50 per cent of the value of all approvals) compared with $74.6 billion in 2013–14. This sector experienced a large increase with 37,347 approvals in 2014–15. The majority was attributed to new dwellings, which is consistent with the Government's policy to increase the housing stock. This was followed by the services sector at $38.8 billion value, mineral exploration and development at $26.7 billion, and manufacturing at $19.5 billion. The decreased value in investment for the services sector was attributed to the effects of asset sales in the previous year. This effect was however, offset by increases in investments into the manufacturing, finance and insurance sectors.[10]

2.15      In 2014‒15, China remained Australia's largest foreign investor in terms of the value of all approvals with $46.56 billion approved (or around 33 per cent of the total value of all approvals by foreign country). This was due mainly to increased residential and real estate approvals. Other major sources of proposed investment were the United States ($25.09 billion), Singapore ($9.97 billion), Japan ($8.66 billion) and Canada ($7.89 billion).[11]

2.16      The Board noted that while China remained Australia's largest source country for approved proposed investments in 2014–15, it was coming from a low base. Furthermore, in terms of total stock of foreign direct investment, the country was ranked fifth compared to the United States, which remained Australia's largest inward investor country in 2014–15.[12]

Reporting requirements

2.17      The committee considers the Foreign Investment Review Board's annual report is 'apparently satisfactory'.

Senator Jane Hume
Chair

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