Coalition senators do not agree with the recommendations of the majority report and believe the 2020 reforms, as outlined below, should be allowed to bed-down before further changes are undertaken. We also wish to emphasise ongoing support for, and the importance of, investment flows into Australia.
With a strong and stable democracy, the rule of law, a skilled and educated workforce, and a well-managed economy, Australia continues to be an attractive destination for foreign investment. Australia’s foreign investment framework is open, transparent, non-discriminatory and welcoming. Australia has one of the most liberal foreign investment regimes in our region, as foreign investment is not prohibited by any sector, or from any country.
Coalition Senators support foreign investment that is in our national interest, and back a foreign investment framework is strong and enforceable. A lack of foreign investment would reduce productivity, employment and household incomes.
If Australia’s regulatory regime determines that a proposed investment is contrary to the national interest, it will not be approved or conditions will be applied to safeguard the national interest.
Australia’s longstanding approach of assessing proposed foreign investment upfront has served us well in this regard. However, national security risks have increased in recent years and have been evolving rapidly.
That is why on 5 June 2020 the Morrison Government announced the most significant reforms to the foreign investment framework since it was introduced in the mid-1970s. The reforms addressed national security risks, strengthened compliance and enforcement powers, streamlined certain approvals, and introduced a new fee regime.
However, the underlying principles of Australia’s foreign investment framework remain unchanged—Australia continues to welcome foreign investment for the significant economic benefits it brings, and where that investment is not contrary to the national interest.
Coalition senators believe that it is important to understand the changes to the system these reforms introduced, including:
National Security Test
An important aspect of the reforms was the establishment of a new national security test to assess certain proposed investments against factors that give rise to national security concerns. This includes investments that meet the definition of ‘national security business’ or ‘national security land’, which are subject to a mandatory notification, irrespective of value. This provides a degree of certainty to investors about what types of investments need government approval.
This is complemented by a ‘call-in’ power to allow investments that do not require mandatory screening to be ‘called in’ for review where they present a national security risk. Investors can obtain certainty from being ‘called in’ by voluntarily notifying.
Public guidance is available to investors on the likely scenarios that would lead to a transaction being called in, and which investors should consider voluntarily notifying.
Lastly, the additional national security powers include the ability in exceptional circumstances to conduct a last resort review of a previously approved transaction, where national security risks emerge post investment.
Improved compliance and enforcement
The 2020 reforms introduced scalable and flexible tools to respond to non-compliance and encourage a stronger culture of compliance amongst foreign investors. This includes:
Increased penalties for infringements of the framework, and tying penalties to the consideration of investments;
The ability for approvals to be revoked if false or misleading information is given in an application; and
Standard monitoring, investigation and enforcement powers for the Treasurer and the Treasury that align with comparable regulatory bodies.
This helps maintain the public’s confidence in the integrity of our foreign investment regime. While this increases capability to pursue and penalise breaches of the law, the compliance approach remains risk-based, to minimise the burden on investors that do the right thing.
Streamlining regulations
In recognising the many benefits of foreign investment, the new reforms have also reduced the regulatory burden on investors by streamlining less sensitive, low risk investments. As a result:
Privately-controlled investment funds that have passive foreign government investors may now be eligible to be considered as a private investor, rather than a foreign government investor. This change means that fewer of their investments will require mandatory screening and they will be eligible for higher monetary screening thresholds.
Exploration tenements acquired by private investors, and acquisitions of certain royalty interests in respect of mining tenements, are now exempt from requiring screening.
Fees
The reforms also introduced an updated fees framework that ensures the cost of administering the foreign investment review framework continues to be borne by foreign investors, but in a way that is simpler and fairer.
Resourcing
In addition to the reforms to the fees framework, the 2020–21 Budget provided $86.3 million over four years from 2020–21 to implement a new information technology system to support more effective and efficient foreign investment application processing, case management and compliance activities—as well as the new Register for Foreign Ownership.
This is on top of the $62.8 million provided over four years from 2020–21 in the 2020 July Economic and Fiscal Update to support the foreign investment reforms.
Conclusion
Coalition senators support the policy intent behind and implementation of the 2020 reforms. It may be that, over time, minor and technical issues with the law are identified or that, for example, provisions need to be tweaked to better capture or exclude types of businesses, but the Coalition senators support these sensible, incremental and important changes to the law. Coalition senators recommend that any future changes should flow from the report on the operation of the reforms and the Act which will be provided by the Treasury Secretary by the end of the year.
Senator Slade BrockmanSenator Andrew Bragg
Deputy ChairMember
Liberal Senator for Western AustraliaLiberal Senator for New South Wales