Foreign Investment in Australia – Commission research paper

  • Over the past two centuries, foreign funding has supported Australia’s economic development by permitting more capital investment than domestic savings would have otherwise allowed
    • Foreign investment brings ‘spillover’ impacts too, both positive (access to new technologies, better management practices, increased competition) and negative (potentially less competition, social and environmental costs).
    • Foreign investment also stirs strong community reservations, although Australians are generally supportive of globalisation and free trade.
  • To balance the economic benefits of foreign investment against the risks, and to maintain community confidence that foreign investment is in the national interest, Australia regulates foreign investment through a range of mechanisms.
    • Since 1974, foreign acquisitions with a value above certain thresholds are screened and require a decision of the Treasurer that they are not contrary to the ‘national interest’. Recent changes have lowered these thresholds to zero for sensitive national security businesses.
    • Australia has a broadly open policy towards foreign investment, but is more restrictive than many other advanced economies, by some measures
    • To the extent that foreign investment proposals are blocked or discouraged, this results in lower Australian household incomes — Commission modelling estimates that these economic costs would be material, though not large.
  • Foreign investment policy has become more prominent over recent years. Greater attention is being given to the difficulty of taxing multinationals and the national security risks associated with sensitive sectors or critical infrastructure assets — as, for the first time, one of our largest sources of investment is not a democracy or a military ally.
  • Policy change in response has been piecemeal. Monetary thresholds for screening vary by source country, sector and type of investor, while the use of approval conditions is increasing.
    • The role of the Foreign Investment Review Board has become more akin to a regulator than a gatekeeper, yet its powers and institutional arrangements have changed little.
  • Overall, the design and vesting of responsibility with the Treasurer for administering the ‘national interest’ test works well. It gives flexibility to quickly adapt to new concerns, weighing up not just the costs, but also the benefits from foreign investment. The ‘negative’ nature of the test (deciding whether proposals are contrary to the national interest) also limits the risk of rejecting projects that are in the national interest. These features should be retained.

Source: Extract from https://www.pc.gov.au/research/completed/foreign-investment

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