Craig Thomson (Dobell, Australian Labor Party) Share this | Hansard source

Mr Speaker, it is good to see you very comfortably there in your chair, given the earlier activities! Australia needs legislation to improve the integrity of its foreign investment screening regime. The Foreign Acquisitions and Takeovers Amendment Bill 2009, which I am speaking in support of today, clarifies the operation of the Foreign Acquisitions and Takeovers Act to ensure that the government has the capacity to examine all substantial investment proposals that could potentially raise national interest concerns.

The government welcomes and encourages foreign direct investment because of the benefits that it provides to the Australian economy. Foreign investment creates new job opportunities for Australians, encourages innovation and skill development, introduces new technologies and promotes competition amongst our industries. Foreign investment has helped build the competitiveness of our economy and will continue to do so in the future.

The Foreign Acquisitions and Takeovers Act 1975 seeks to get the balance right between encouraging investment into Australia and ensuring that the government can review significant foreign investment proposals and intervene where these could undermine the national interest. The act provides the basis for the Treasurer to examine proposed foreign investments in Australian businesses and assets to ensure that they are not contrary to the national interest. The act requires foreign investors to notify the Treasurer of their transactions in certain circumstances and provides the Treasurer with the power to block or place certain conditions upon those proposals determined to be contrary to the national interest.

The notion of ‘control’ is a fundamental component of the act. Overall, the current provisions of the act that deal with control have worked well. But the use of innovative and increasingly complex financing arrangements has been a growing feature of investment activity over recent years. These arrangements have highlighted some shortcomings with the act where ownership and control events may potentially arise, either now or in the future, in a variety of new ways other than through traditional shares or voting power.

To preserve the original policy intent of the act, on 12 February 2009 the Treasurer announced that the government would amend the act to ‘clarify the operation of the foreign investment screening regime’ to ‘ensure that it applies equally to all foreign investments irrespective of the way they are structured’. The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company, either now or in the future.

The bill clarifies the operation of the act by explicitly requiring foreign investors to notify the Treasurer where there is a possibility that the type of investment arrangement being used will deliver influence or control over an Australian company valued above the relevant monetary threshold. This will be achieved by expanding the definition of ‘voting power’ so that it covers the number of votes that could be cast if it is assumed that a future right is exercised and by clarifying the section of the act dealing with interests in shares.

The bill will also clarify where the act deals with interests in shares. The act currently provides that a person is deemed to hold an interest in a share if they have a right to acquire a share or to have a share transferred to them. The bill clarifies that a right can include a right under an instrument, agreement or arrangement, whether the right is exercisable presently or in the future and whether on the fulfilment of a condition or not.

These amendments are not the result of any one investment proposal. They ensure that the foreign investment framework keeps pace with the changing nature of foreign investment proposals and with trends that were evident some time before this government was elected. The amendments in this bill apply from 12 February 2009—the date that the Treasurer announced the changes—to provide certainty around the act’s application.

Let us clarify what these retrospective amendments mean. To ensure that investors are not unfairly affected by the retrospective start date, the bill includes transitional provisions that apply in relation to business proposals and transactions that occurred between 12 February and the date of royal assent. During this period, there will be no criminal penalties for noncompliance. Upon commencement, foreign investors will have 30 days to notify the Treasurer if, during the transitional period, they entered into a transaction of the type covered by these amendments and have not already provided notification to the Treasurer. The transitional provisions will ensure that no foreign investors are adversely affected by the start date of these amendments. It is not expected that there will be many investors in this situation. The Foreign Investment Review Board has noted that the proposed amendments were broadly anticipated by investors, many of whom voluntarily notified the board of their investments.

Nothing in the transitional provisions would reduce the government’s ability to block or place conditions on proposals which are determined to be contrary to the national interest. The act focuses on situations where a foreign investor has obtained substantial influence or control. Overall, the current provisions in the act that deal with control have worked well, and its approach remains sound. However, since the act was drafted in the 1970s more complex investment instruments have evolved. The use of innovation financing arrangements have been a growing feature of investment activity over recent years. These arrangements have highlighted that ownership interests and control can be held in a variety of forms other than through traditional shares and voting power. While these types of investment arrangements have a solid commercial basis, they have raised questions about the act’s full application. It was for this reason that the government announced earlier this year that we would amend the act to safeguard its policy intention. We consider that these changes improve the integrity of the act and capture arrangements that may be deliberately structured to avoid foreign investment screening.

These changes are consistent with Australia’s international obligations under our free trade agreements. The bill does not change the robust national interest framework that underpins our foreign investment policy or the screening examination arrangements of the Foreign Investment Review Board. These procedures are well established and familiar to foreign investors. The examination procedures and the decision to block or impose conditions on foreign investment proposals will continue to be based on whether the investment has altered or will alter the control of an Australian business or corporation and whether the investment is contrary to the national interest.

The government is confident that this bill strengthens and modernises Australia’s foreign investment framework. As we build stronger foundations for Australian prosperity beyond the global recession, we are committed to a regulatory regime that gets the balance right: protecting the national interest while ensuring that Australia is a more competitive destination for foreign investment. The fact that the Australian economy has performed much better than the economies of the rest of the world during the global recession will help make this country an attractive market for investment, especially when the economy fully recovers. But, while we have fared better than most, we should not forget that there are now 670,000 Australians out of work, and we expect further rises in unemployment ahead. Cancelling fiscal stimulus in one hit rather than continuing with our gradual and careful phasing down would cost thousands more jobs, ruin many more small businesses and risk sending the economy backwards before the recovery in private activity has taken hold.

The recent Westpac-Melbourne Institute survey of consumer sentiment found that consumer confidence fell by 2.5 per cent in November after five consecutive months of improvement. It is important to keep in mind that consumer confidence is still 44.3 per cent higher than it was in October 2008, prior to the announcement of the first fiscal stimulus package. That compares with a mere 3.9 per cent increase in consumer confidence for the OECD as a whole over the same period. But confidence is a fragile thing, and we need to be careful and make sure that the stimulus package is properly seen through. We also saw the results of the NAB monthly business survey for October. Business confidence continued its upward climb, consolidating the gains we saw in recent surveys. However, the most striking finding of the October survey, as pointed to by NAB Chief Economist, Alan Oster, was ‘the sharp acceleration in actual business outcomes.’

The International Monetary Fund released the report Recent Global Developments and Prospects last week to APEC finance ministers, ahead of the APEC leaders’ meeting that weekend. The IMF made it clear that the global recovery is not yet self-sustaining and is still dependent on policy support. The report says:

The overarching risk is that the recovery stalls. This could occur because of a premature exit from accommodative monetary and fiscal policies—especially if the policy-induced recovery so far is mistaken for the beginning of a sustained and autonomous recovery in private demand.

For these reasons the IMF again cautioned against the premature withdrawal of fiscal stimulus, stating that ‘policy support needs to be sustained until recovery is firmly established.’ Healthy foreign investment needs a strong economy, and this government has taken the decisive measures to help weather the unprecedented storms of the global recession. Again, we are confident we are getting the balance right: protecting the national interest while ensuring that Australia is a more competitive destination for foreign investment.

I will sum up by looking at where we are with this bill and what the amendments actually mean for the foreign investment regime. These amendments simply modernise the act to preserve its original policy intent with respect to new investment instruments. They should not be viewed as the result of any single foreign investment proposal but as addressing new trends in investments that have been growing in recent years.

The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company, either now or in the future. They require foreign investors to notify FIRB where there is a possibility that the type of investment arrangement being used will deliver influence or control over an Australian company valued above the relevant monetary threshold. This will be achieved by expanding the definition of ‘voting power’ so that it covers the number of votes that could be cast if it is assumed that a future right is exercised and by clarifying the section of the act dealing with interests in shares. The act currently provides that a person is deemed to hold an interest in a share if they have a right to acquire a share or have a share transferred to them. This bill clarifies this provision so that it is clear that the rights include a right under an instrument, agreement or arrangement, whether that right is exercisable presently or in the future and whether it is exercisable on the fulfilment of a condition or not.

The bill will not change FIRB’s screening and examination procedures. The examination procedures and the decision to block or impose conditions on foreign investment proposals will continue to be based on whether an investment has the potential to control an Australian business or corporation and whether the investment is contrary to the national interest. Through the bill the government will maintain the right balance between encouraging investment in Australia and ensuring that the government can intervene when necessary to protect the national interest. These changes strengthen the operation of the act by ensuring that it keeps pace with new types of investment instruments.

Generally, Australia welcomes and encourages direct foreign investment because of the benefits it provides to the Australian economy. International capital opens new investment opportunities and helps to develop Australian industries. Foreign investment brings new job opportunities for Australians, new innovation and skills development, new technologies and promotion of competition amongst our industries. It is estimated that foreign investment supports around one in every four Australian workers in the mining industry. On 4 August the Treasurer announced reforms to the screening regime to reduce some of the compliance costs faced by foreign investors and to ensure that Australia remains a competitive and attractive destination for foreign capital. Specifically, the screening threshold for private foreign investment will be increased from $100 million to $219 million and indexed annually. New businesses in Australia valued above $10 million will no longer need to notify the Foreign Investment Review Board.

The government has not rejected a single new business proposal for the past decade or more. New business proposals are subject to a range of other regulatory requirements. These amendments, combined with the 4 August announcement, better target the national interest test towards cases that could raise national interest impacts. This is part of the overall regulatory reform that the Rudd government has been engaged in since coming to office almost two years ago. It is an important piece of legislation. It is legislation that, thankfully, is supported by the opposition and it is legislation that this parliament should support. I commend the bill to the House.

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