Labor, the Greens and Independent senator Rex Patrick have called for more enforceable conditions on some of the trillions of dollars in foreign investment in Australia, warning overseas companies are flouting the undertakings they agree to as part of the approval process.
The Labor-chaired Senate Economics Reference Committee on Friday released its final report after its long-running inquiry into foreign Investment proposals. The committee recommended that Australia’s scheme be toughened with enforceable undertakings and a more effective and efficient regulator.
Coalition senators rejected the recommendations, saying the current system did not require fundamental change, after government-led reforms were put in place last year.
The report warned the assessment of foreign investment proposals – conducted by the Foreign Investment Review Board (FIRB) and recommended to the Treasurer for final approval – may not be sophisticated enough to satisfy national interest tests and, since 2020, national security tests.
“There remains doubt as to whether the Treasury has the knowledge, experience, and information management systems to appropriately regulate foreign investment in Australia. At the very least, it would seem appropriate that if companies make undertakings they should be expected to follow through on these,” the report said.
“So-called ‘voluntary undertakings’ made at the time an investor is seeking approval for an investment, but which later fail to materialise, make a mockery of Australia’s assessment process against the national interest and undermine community confidence in the foreign investment framework.”
The report recommends changes to regulations to ensure undertakings can be enforced as conditions on an investment approval and that the government consider publishing details relating to these decisions.
FIRB’s capabilities should also be strengthened following an audit of what is required to thoroughly assess applications against the national interest, according to the report, which also recommends the government reviews the “the structure necessary for an effective and efficient foreign investment regulator”.
The inquiry examined several recent foreign investment approvals which have been heavily criticised, including the 2016 approval of Chinese-owned Moon Lake Investments to acquire land and assets of the largest dairy farm in Australia for a reported $280 million.
Then-Treasurer Scott Morrison approved the deal, saying it passed the national interest test because it supported local jobs and he had secured undertakings from the company for additional investment in the farms which would nearly double jobs and generate $100 million in additional investment.
However, in 2020, following several Moon Lake board resignations and a corporate restructure, it was revealed the company was yet to meet several of the commitments, including investing only around one-fifth of the additional investment.
This year, almost all the dairy farms were found to have significant compliance issues and the company received warnings it was damaging nearby waterways.
“There has been nowhere near the $100m invested in the farm and nowhere near the promised doubling of jobs. However, the company was able to find $25,000 to donate to the Tasmanian Liberals in 2017-18,” Greens Senators wrote in additional comments in the Reference Committee report.
The Greens said the report had done a good job in identifying foreign investment issues, but its three recommendations did not go far enough to correct them.
“We should stop pussyfooting around. We have an opportunity, given the current downturn in foreign investment, to get our house in order without being accused of targeting any particular investment or group of investors,” Greens Senators said in the report.
Independent senator Rex Patrick supported the recommendations and added the foreign investment application and approval process needs to be more transparent, including disclosure of investors global tax structures.
In additional comments, Senator Patrick wrote foreign investment “is infected with the secrecy bug” including Australian legislation that allows information to be unjustifiably hidden from the public.
“Other jurisdictions publish information about foreign investment and there is no evidence that this has hindered investment in their countries,” he said.
But government senators dismissed the calls for reform and transparency, saying their 2020 reforms are addressing several of the issues already. A report on those reforms is expected by the end of the year and should inform any incremental changes, according to the government senators.
Companies from the local software and emerging technology sector have previously warned the foreign investment approvals are too opaque but have also criticised them for being too extensive, which they say damages smaller companies. While the new national security test has also been criticised as a potential blocker for certain industries like quantum computing.
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