Dave Sharma (Wentworth, Liberal Party) Share this | Hansard source

The Foreign Investment Reform (Protecting Australia's National Security) Bill 2020 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020 represent the most significant reforms to the Foreign Acquisitions and Takeovers Act 1975 since that legislation was introduced. These bills will ensure that our foreign investment framework remains fit for purpose and keeps pace with emerging risks. The changes mirror similar changes underway in comparable countries around the world.

I'm a supporter of foreign investment. Since settlement, Australia has always been a net capital importer. It's foreign investment that has allowed us, with a small population base, to develop the resources of this vast continent, to build First World infrastructure and to create the modern and prosperous economy and society from which we all benefit today. A small domestic population, which Australia has, could never alone deliver us the savings needed to fund our development. It's foreign investment—access to foreign capital—that has allowed us to do this. It has allowed to us fully harness the talents and ingenuity of our own people.

Foreign investment drives economic growth, it supports the creation of skilled jobs, it improves productivity and it gives us access to important overseas markets. Australian firms with foreign direct investment support one in 10 jobs in Australia. They also make a significant contribution to the one in five jobs in Australia that are export related. Businesses supported by foreign investment contribute more than a quarter of industry, value added, and foreign businesses pay wages that are, on average, $20,000 per year higher than those paid by non-foreign businesses in Australia. It's important that we remember these facts, particularly as protectionist pressures rise around the world and particularly as we go about updating our foreign investment framework.

As I said, Australia has always welcomed foreign investment, and we've been a beneficiary of foreign investment. If we turn our back on foreign investment, ultimately, we as a nation will be the poorer for it. That said, there are good reasons to update our foreign investment framework to deal with new and emerging national security risks, including as a result of rapid technological change and changes in the geopolitical and security environment. There are good reasons to update our framework to strengthen compliance measures and to streamline approval processes, but in doing so we must take care to preserve the underlying principles of our system: that Australia is a country which welcomes foreign investment, that Australia runs a non-discriminatory foreign investment regime and that, where we put processes in place, there is a good public policy justification for doing so and that the measures we put in place are proportionate. It's also important that the public retains confidence in the integrity of our system. These bills, I believe, get this balance right.

Earlier reforms to the foreign investment review framework were made in 2015. At that time the Foreign Acquisitions and Takeovers Act was modernised by bringing all foreign investment into the legislative framework, by strengthening the Treasurer's oversight and enforcement in the residential real estate sector, by providing greater scrutiny and transparency around agricultural investments, and by introducing fees so that the cost of administering the foreign investment regime was borne by foreign investors and not by Australian taxpayers.

Under the current foreign investment regime in Australia, foreign persons must notify the Treasurer of certain actions where the investment meets certain criteria, such as monetary or percentage thresholds that are dependent on the sector, the nature of the investment and the country of the investor. During the coronavirus crisis, this year, the government announced on 29 March a temporary reduction to zero dollars of the monetary screening thresholds for all foreign investments subject to the Foreign Acquisitions and Takeovers Act. Prior to these changes, foreign government investors faced a zero dollar screening threshold, but private investments under $275 million—or under $1.192 billion for investors from FTA partner countries—were not screened. The presence of these thresholds means that certain investments in some of the most sensitive sectors are not liable to screening, which can create a vulnerability for Australia. These bills we'll be debating today address this vulnerability and seek to build upon earlier reforms. The bills will expand scrutiny of investments which pose potential national security risks.

There will be a new national security test for foreign investors seeking an interest in a sensitive national security business, including where they seek to start such a business. Such investors will be required to seek approval before starting down this pathway regardless of the value of the investment. This will include when a foreign person seeks to acquire a national security business from the Commonwealth or from a state, territory or local government. These actions will not be exempt from the operation for legislation. Generally speaking, national security businesses will be connected with such things as critical infrastructure, defence, the national intelligence community and related supply chains. It will include businesses that develop, manufacture or supply critical goods, technology or services that will be used by defence and intelligence personnel in Australia or in other countries, as well as businesses that own, store, collect or maintain classified or personal data relating to Australia's defence and intelligence services and personnel.

This mandatory notification will also be required for proposed investments in national security land where location or use of the land could prejudice Australia's national security, including interests in exploration tenements in national security land. National security land will, amongst other things, include defence premises or where a national intelligence agency has an interest in the land. The definitions of 'national security business' and 'national security land' will be prescribed in the foreign acquisitions and takeover regulations, and the government intends to provide guidance material on these definitions to support investors in navigating these reforms. The member for Rankin was correct to point out that investors will need such guidance.

Schedule 1 to the bill also defines a new category of actions: notifiable national security actions, as they're called, to describe actions that must be notified to the Treasurer for review regardless of the value of the investment or where they are otherwise notifiable. And there will also be provision for investments not otherwise notified to be called in for review by the Treasurer if they raise national security concerns. Investors will also be able to voluntarily notify of actions that could be called in to obtain certainty about their particular investment should they wish.

There will also be a last resort power, giving the Treasurer a final opportunity to review actions for which approvals have been given if exceptional circumstances arise. This last resort power can only be used if a national security risk arises in relation to the investment and other options to address this risk have been exhausted. The last resort power also allows the Treasurer to impose conditions, to vary conditions or, in extremis, to issue a disposal order and force divestment where there are no other remedies for the identified national security risk.

The existing national interest test in the legislation remains unchanged, including the factors that are relevant for such assessment, such as the character of the investor; the level of competition in the market; the impact on the economy, the community and national security; and other relevant government policies. All these remain unchanged. These new bills will, however, provide for stronger enforcement powers through increased penalties, direction powers and new monitoring and investigative powers in line with those available to other regulatory agencies. This will include such things as access to premises by consent or as permitted by warrant to gather information. And these measures and these powers will improve regulators' abilities to monitor investor compliance and investigate potential noncompliance.

The Treasurer will also have new powers to give directions to investors to prevent or address suspected breaches of conditions. Furthermore, increased civil and criminal penalties provided for in the bills will ensure better deterrence. Taken altogether, the measures will mean breaches relating to foreign investment can be adequately investigated and meaningfully punished, and they will ensure the size of the penalties provide an effective deterrent against noncompliance.

The bills also provide for a new register of foreign owned assets, which will include the existing registers and will record foreign interests acquired in land and water rights and be expanded to include any acquisitions that now require foreign investment approval. The new register will provide a more comprehensive picture of foreign investment in Australia and ensure that public confidence in our system of foreign investment is maintained. The intent is that the temporary measures announced on 29 March of this year, where we introduced a zero-dollar threshold for review, will transition to this new system once legislated with a view to the new system taking effect from 1 January 2021.

I do not believe that these bills should have a material impact on the level of foreign investment in Australia. I believe that our attractiveness as a foreign investment destination will remain. In the three years to 2019 our FDI inflows averaged 3.3 per cent of our GDP, compared to 1.7 per cent average for other OECD countries. We have an abundance of high-quality investment opportunities in Australia that cannot be met from domestic savings alone. We have a stable democracy. We have a strong rule of law. We have a highly skilled and a highly educated workforce, and we have a strong infrastructure base. We are proximate to the most economically dynamic region in the world and we have a well-managed economy. All these things mean that Australia will remain a very attractive destination for foreign investors.

There has been widespread stakeholder consultation concerning this legislation. Exposure draft legislation was released on 31 July. Treasury has undertaken over 40 engagements with over 1,000 stakeholders. Treasury has received 54 submissions, and I note that similar jurisdictions around the world are taking steps to modernise and strengthen their foreign investment regimes.

On 11 November the UK government introduced legislation, the National Security and Investment Bill, which increases government security and transparency within 17 sectors of their economy, focused on areas such as technology, data and infrastructure, with the UK government, under this legislation, having the power to unwind any transaction within the last five years if it deems that transaction to be a risk to national security.

The United States passed its own Foreign Investment Risk Review Modernization Act in 2018. France and Germany have introduced similar laws. Canada, Japan, the EU and New Zealand have all also recently updated their foreign investment rules. In fact a 2019 paper by the OECD found that, in the two years from 2017 to 2019, nine out of the world's 10 largest economies had modified or introduced new policies to manage foreign investment related risks. So Australia is in good company here.

Undoubtedly, these new bills do create additional regulation, but I believe that this additional regulation is proportionate and reasonable in comparison to the risks being addressed and they get the balance right. In particular, they address existing shortcomings in our foreign investment review regime, most notably here the so-called screening gap whereby low-value investments from private foreign investors can proceed into Australia without any government oversight even where they may pose significant national security risks. These bills, however, also increase the monitoring, compliance and enforcement tools available to government, ensuring that there is an effective deterrent against noncompliance.

Finally, they will increase public confidence in and transparency around foreign investment, including through the establishment of the new register of foreign ownership. Although there is some additional regulation, fundamentally, I do not believe it will deter foreign investment in Australia and, in many instances, it will in fact provide foreign investors with greater certainty. I commend these bills to the House.

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