Key aspects of reforms include a new national security test, increased compliance measures and a streamlined process for foreign governments partnering with private capital.
Treasurer Josh Frydenberg has today announced landmark reforms in how Australia will treat a source of income that is now worth close to $4 trillion and accounts for one in 10 jobs.
Speaking at a press conference this morning, the Treasurer explained the reforms had been in the works for some time and overseas trading partners were given a "heads up" through diplomatic channels.
"Today's reforms to our foreign investment framework are the most significant since the establishment of the [Foreign Acquisitions and Takeovers] act in 1975, and these reforms are supported by the head of the Foreign Investment Review Board (FIRB), David Irvine," Frydenberg said.
He said the reforms fall into three main categories:
- A new national security test for foreign investments in "sensitive national security business"; a definition to be determined through consultation but is expected to include telecommunications, critical infrastructure such as energy and sensitive utilities, defence supply chains and businesses that collect, store and own data. Treasurers will also have new powers to "call in" an investment if it creates a national security risk and the business is not covered by the existing definition.
- A strengthening of the compliance and integrity framework, including penalties and enforcement, with more than $50 million in additional resources to be allocated.
- Streamlining the approval process for passive investments by foreign governments when they are partnering with private capital.
The Treasurer noted more than 80 per cent of foreign investment by value last year had conditions attached, and the FIRB currently has more than 1,000 conditional approvals on its books.
"We need to have the requisite penalties to ensure compliance and we also need to have the resources in place to monitor and ensure compliance," he said.
But on the other hand, Australia is also competing for internationally for capital and Frydenberg highlighted "trillions of dollars" were being spent by foreign governments' funds in non-sensitive sectors.
"We want to streamline and speed up that process," he said.
"Foreign investment has and will continue to be absolutely critical to Australia's economic prosperity. One in 10 Australian jobs are created by foreign investment.
"Foreign Investment brings skills and expertise to our country, and foreign investment has benefited every sector of the Australian economy from mining to agri-business, financial services to tourism."
He added that of the nearly $4 trillion of foreign investment in Australia, more than 20 per cent is from the US, 10 per cent is from the UK, 10 per cent is from Japan, and five per cent is from China.
"Our foreign investment regulatory framework has always sought to strike a balance between on the one hand welcoming and inviting foreign investment to this country, but on the other ensuring that those foreign investment proposals that succeed are in our national interest," he said.
"But technology has been evolving and our geopolitical climate has become more complex. In fact, the world over governments are seeing foreign investment being used for strategic objectives; not purely commercially ones.
"Many other nations including many other like minded nations, including the United States, United Kingdom, Japan, New Zealand and many others, have made reforms to their foreign investment framework."
Next month the Federal Government plans to release exposure draft legislation, which it intends to have passed by the end of the calendar year and put in place from 1 January, 2021.
"As you know, during the COVID crisis we established a zero-dollar threshold for foreign investment; that was to protect the national interest, but that was always to be temporary."
Updated at 11:41am AEST on 5 June 2020.
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