Higher Foreign Investment a Key to Maintaining Our Edge

Australia could boost its GDP by $16.5 billion by 2020 through a 10 per cent increase in foreign investment, supporting higher employment and wages into the future, research conducted for the Business Council of Australia (BCA) has found.

BCA President Graham Bradley launched the paper, Foreign Attraction: Building on Our Advantages through Foreign Investment, which highlights that foreign investment is vital to Australia’s economic prospects and living standards.

The paper notes foreign investment of all types now accounts for 51 per cent of Australia’s overall capital stock, providing a critical foundation for much of our economic activity and growth. 

The paper finds that while Australia has emerged relatively strongly from the global financial crisis and our foreign investment policies have served us well, there are two clear factors which now require adjustments to our foreign investment settings.

Firstly, the continuing impacts of the global financial crisis (GFC) mean the availability and cost of capital will present challenges for Australian industries. Secondly, the shifting sources of global capital, including the emergence of state-owned enterprises, poses challenges in maintaining public support for foreign investment while continuing to send a signal to overseas investors that we are open for business.

The paper includes research by Access Economics into the benefits of foreign investment and a paper by Tony Hinton, a former executive member of the Foreign Investment Review Board (FIRB), assessing issues related to foreign investment policies and their administration.
 
“Attracting the foreign investment required to support jobs and an enviable lifestyle has long been one of Australia’s strengths,” Mr Bradley said.

“Foreign investment has added to our domestic savings to provide the capital needed to establish and maintain globally competitive industries and businesses. Throughout our history, foreign investment has supported stronger economic growth, contributing to more jobs, and higher wages and returns to shareholders.

“The federal government has shown it is prepared to make changes to ensure our foreign investment settings continue to serve us well. But following the global financial crisis, we need to take further steps to continue to encourage sufficient foreign investment to support our economy. At the same time, our foreign investment settings need to maintain broad public support for the level of investment needed to maintain our lifestyles in the future,” he said.

Foreign Attraction contains a number of recommendations that aim to support and maintain public confidence in higher foreign investment, including:

• Extending the higher foreign investment screening threshold which applies to investors from the United States – currently set at about $1 billion – to private corporate investors from other nations.
• Further developing and clarifying the existing foreign investment policy arrangements for state-owned enterprises (SOEs). This should involve making it clear that an SOE is expected to demonstrate, as part of an investment proposal, that it will act independently of a foreign government.
• That the federal government avoid encouraging or formally attaching conditions to a foreign investment proposal where the conditions are not directly related or relevant to the specific investment proposal.
• That where conditions are attached to foreign investment proposals, these should be effectively enforced
• Amending the Foreign Acquisitions and Takeovers Act to prevent investors from using complex arrangements to circumvent the 15 per cent ownership threshold required for screening in relation to investment proposals.
• Improving the marketing and communication of Australia’s foreign investment policies to promote a wider understanding and acceptance of the policies by prospective investors and by the Australian public.
• Reforming the broader policy settings of federal and state governments that have an influence on foreign investment flows. Chief among these is the need to reduce the tax burden on investment capital as part of broad-based tax reform.
• That all governments resist policy changes that would deter investment, or, alternatively, policies that would be protectionist in their effect. It should be a requirement that processes for considering new policy proposals include an assessment of the impact of a new proposal on investment, including foreign investment.

“We have come through the global financial crisis better than most, but we must caution ourselves against complacency,” Mr Bradley said. “We need to build on our advantages and keep reforming our economy so we are prepared for all the opportunities and challenges that lie ahead.”

Foreign Attraction: Building on Our Advantages through Foreign Investment (PDF, 3.5MB)