Chapter 1
Introduction
1.1
The Rural and Regional Affairs and Transport References Committee's
inquiry into the Foreign Investment Review Board (FIRB) national interest test continues
to grapple with one of the most significant contemporary issues in Australia's
agricultural industry: that is, how to properly manage and encourage foreign
investment for the industry's and the nation's benefit. The committee
recognises the significant wealth and job creating benefits that foreign
investments can bring to the Australian economy as well as to the continued
development of the agriculture sector. The committee also unequivocally
supports foreign investment in Australia and particularly when it is commercial
in nature, improves local and national agricultural markets and competes fairly
with domestic businesses.
1.2
However, the committee also notes and shares the significant concerns of
many of Australia's rural and regional communities that certain recent trends
in foreign investment in Australian agriculture are not necessarily in
Australia's national interest.
1.3
Mindful of the extent of evidence already received by the committee and
the need to regularly update Parliament on its progress,[1]
this interim report has identified two major issues which will be considered: issues
with the relevant tax arrangements and the out-dated legislative framework for
foreign investment in Australian agriculture.
1.4
The evidence before the committee suggests that the current community
concerns regarding foreign acquisitions of Australian agricultural assets stem
from the increasing pressure created by the growing global food task. This
appears to be leading to an increasing trend of foreign governments considering
investment in Australia for food security purposes. The inadequacies of the Foreign
Acquisitions and Takeovers Act 1975 (FATA) to deal with contemporary
practices in foreign investment have exacerbated these problems.
1.5
Furthermore, the committee heard evidence during its inquiry that there
may be tax incentives or loopholes that benefit foreign investors over
Australian investors in the agriculture industry. This was coupled with evidence
suggesting there is scope for foreign government entities to avoid fair tax
liabilities in Australia. Given that the government lists the impact of foreign
investment proposals on Australia's tax revenue as a key part of applying the
national interest test,[2]
the committee considers that the evidence received shows the significant
limitations of the current foreign investment review process.
1.6
There are a number of other issues that the committee is continuing to
investigate in its inquiry that are not addressed in this report. These issues require
further consideration and will be discussed in detail in the committee's final
report. The issues include:
- the regulatory framework for foreign investment in Australia and
the international trends in foreign investment regulation;
- the global context of food security and foreign investment (in
greater detail than this report provides);
- major information gaps regarding foreign investment in Australian
agriculture;
- the scrutiny and transparency of FIRB in applying the national
interest test; and
- the foreign investment review threshold.
Structure of the report
1.7
This interim report is divided into three chapters. Chapter 1 details
the conduct of the inquiry and the purpose of the interim report. The chapter
also notes the growing challenge of global food security and the need to understand
the issues discussed in chapters 2 and 3 in this context.
1.8
Chapter 2 is the key substantive chapter that deals with the concerns
the committee has with the current taxation arrangements for foreign
investment. In doing so, the chapter discusses:
- the tax arrangements that apply to foreign investment that are
potentially different from those that apply to domestic investment, with a
particular focus on transfer pricing, capital gains tax and passive income
exemptions;
- the possible avoidance of a fair tax share for Australia from
foreign government entities investing in Australia for non-commercial food
security purposes; and
- the 'pathways' for major domestic investment in long-term
Australian agriculture projects and capital that are hindered due to current
tax arrangements.
1.9
Chapter 3 provides a discussion of the inadequacies of the FATA to address
the contemporary issues regarding foreign investment in Australian agriculture.
This stems primarily from the poor and imprecise definition of rural and urban land
under the FATA and the failure of the Act to distinguish between agricultural
land and agricultural business.
1.10
The committee notes that Government Senators intend to present an
additional report to this interim report at a future date.
Global food task
1.11
The future global food task is a fundamental issue for this inquiry. As
noted by the Department of Agriculture, Fisheries and Forestry (DAFF) in its
national food plan issues paper (which was attached to their submission to the
inquiry), there are currently:
...one billion people [who] suffer chronic hunger and the
United Nations estimates that food production will need to increase by about 70
per cent from 2005–07 average levels to feed the projected world population of
9.3 billion by 2050.[3]
1.12
This represents a major challenge for global agriculture over the coming
decades and Australia will have to make an ongoing and increasing contribution
into the future. A large number of submitters and witnesses considered that the
implications of foreign investment in Australian agriculture need to be
examined in this context.
1.13
Furthermore, the committee received evidence that some countries are
taking active steps to invest in Australian agriculture to meet their domestic
food security needs. Hassad Australia, for example, which is an Australian
based, Qatari government owned entity, told the committee that its investments
in Australian agriculture were initially based on developing Qatari food
security.[4]
1.14
The committee considers future domestic and global food security needs as
a fundamental feature of managing foreign investment in Australian agriculture,
and therefore, the issues raised in the report regarding tax arrangements for
foreign investment are examined in this context.
Conduct of the inquiry
1.15
On 6 July 2011 the Senate referred the matter of the examination of the
Foreign Investment Review Board national interest test to the Rural and
Regional Affairs and Transport References Committee for inquiry and report. On
22 November 2012, the Senate extended the reporting date for the inquiry to 27
February 2013. The terms of reference are available in Appendix 1.
1.16
The committee advertised the inquiry in the Australian, on the
committee's website, and invited submissions from peak bodies, government
departments and relevant agricultural companies.
1.17
To date, the committee has received 31 submissions which are published
on the committee website (see Appendix 2) and held 8 public hearings in
Canberra (see Appendix 3).
Acknowledgements
1.18
The committee acknowledges the contribution of the many individuals and
organisations that made contributions to the inquiry through submissions,
providing briefings, or appearing as witnesses to the inquiry.
Note on references
1.19
References to Committee Hansard are to the proof versions. Page numbers
may vary between the proof and official version of the Hansard.
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