Strengthening Australia’s foreign investment framework

Budget Review 2015–16 Index

Kali Sanyal

The Foreign Acquisitions and Takeovers Act 1975[1] (FATA) along with the Foreign Acquisitions and Takeovers Regulations 1989 [2](the Regulations) provides legislative support for the Government’s foreign investment policy and the associated screening regime.

The FATA empowers the Treasurer to examine proposals by foreign entities to:

  • acquire, or to increase, a substantial interest in, or acquire a controlling interest in the assets of, a prescribed Australian corporation valued above the relevant thresholds or
  • acquire an interest in Australian urban land.[3]

The Treasurer can block proposals that are contrary to the national interest or apply conditions to the way proposals are implemented to ensure they are not contrary to the national interest. When making such decisions, the Treasurer relies on advice from the Foreign Investment Review Board (FIRB).

The Act also gives the Treasurer power in certain circumstances to make an order prohibiting a proposed transaction and, where a transaction has already been completed, to direct a foreign person to dispose of shares or terminate arrangements.[4]

In addition, Australia’s Foreign Investment Policy[5] (AFIP) provides for further notification and approval requirements for foreign investors specific to a particular application. The policy sets out a roadmap as to what factors the Treasurer will consider in determining if a proposed investment is contrary to Australia’s national interest.

Background to the reform measures

Currently applications from private foreign investors over a specified monetary threshold need an approval from the Foreign Investment Review Board (FIRB).  Acquisitions of Australian business and land by foreign government entities, however, attract FIRB scrutiny irrespective of the value of the assets.

There are two opposing views of foreign investment in Australia. There is a body of opinion that accepts the importance of high levels of foreign investment in order to drive employment, productivity growth, and innovation.  On the other hand, there is widespread community anxiety about the control of Australian assets by foreign entities, particularly in agriculture and mining sectors.

Political anxieties about foreign investment appear to rise around the surge in new sources of foreign investment, historically from the United States, Japan and recently from China. Each wave of foreign investment has attracted a measure of political resistance. ...Concerns in recent years about the impact of foreign investment on Australia created a momentum that has seen political commentary that is antagonistic towards foreign investment and led to a number of parliamentary committees inquiring into different aspects of the foreign investment regime.[6]

Recently the Senate Rural and Regional Affairs and Transport Committee (the Committee) held an inquiry into ‘Foreign Investment and the National Interest’. The Committee released its final report on 26 June 2013.

Major findings of the Committee

  • Information gap–there is a significant lack of detailed and accurate information regarding foreign investment in the Australian agricultural sector.
  • The transparency and scrutiny of the national interest test–while some submitters and witnesses supported the current FIRB arrangements, there were significant shortcomings in the transparency of the FIRB process and in the scrutiny of the national interest test.
  • The FIRB review investment threshold–the current investment threshold that triggers a FIRB review of proposed private foreign investments in the agriculture industry is far too high.
  • Definitional issues: rural land, urban land, and direct investment–the definitions of key terms in the FATA and the AFIP were inappropriate or inadequate for managing current foreign investment challenges in agriculture.[7]

Summary of recent changes

Following the recommendations of the Committee, on 25 February 2015, the Government released a discussion paper entitled ‘Strengthening Australia’s Foreign Investment Framework’. The paper proposed a series of new policy positions regarding acquisitions of real estate property, farm land and businesses by foreigners.

After a series of consultations, the Government announced a revised foreign investment framework on 2 May 2015.[8]

One change that has already taken effect from 1 March 2015 is that a reduced cumulative monetary threshold of $15 million (from the existing $252 million in 2015) will apply for acquisitions of rural land to all foreign private investors except those from the Australia’s free trade agreement (FTA) partners. Private investors from FTA partner countries will have differentiated thresholds according to the terms of agreements.[9]

Other changes that are proposed to take effect from 1 July 2015 include:

  • fees for FIRB applications (up to 1 per cent of the investment value for certain land acquisitions)
  • greater information gathering, review and audit powers for the relevant government agencies to ensure compliance
  • greater penalties for non-compliance by foreign investors
  • a new threshold, likely to be much lower than the existing threshold of $252 million in 2015, for acquisitions of Australian agribusinesses—this threshold will also vary for private investors from the FTA partner countries, and has been announced as $50 million for Thailand and Singapore, and $1,094 million for the United States, New Zealand and Chile
  • restrictions to advance ‘off the plan’ approvals for developers and
  • changes to the different categories of land with consequent changes to the notification requirements for investment in those land categories.[10]

A revenue gain of $735.0 million over the forward estimates period is estimated after the introduction of application fees on all real estate, business and agricultural foreign investment proposals from 1 December 2015.[11]  The Treasury would receive $19.7 million and the ATO $47.5 million to enforce the changes.[12]

The Treasury will receive a further allocation of $15.8 million over four years to establish an office in Sydney, which is expected to provide greater engagement with private sector including foreign investors.[13]

Under the new arrangements, increased criminal penalties and a new civil pecuniary penalties regime will be introduced for breaches of the Foreign Acquisitions and Takeovers Act 1975 (FATA). A reduced penalty period for foreign investors that have previously breached the foreign investment rules in relation to residential real estate has been provided until 30 November 2015. These investors may avoid prosecution, but will be required to divest the property.[14]

There has not been much comment on the foreign investment measures in the wake of the budget announcement, but one commentator described the changes as ‘mere populism’.[15]

The Government will introduce legislation into Parliament in the Spring Sittings to ensure that the reforms will commence on 1 December 2015.



[1].          ComLaw, Foreign Acquisitions and Takeovers Act 1975, Act No. 92 of 1975 as amended taking into account amendments up to Personal Liability for Corporate Fault Reform Act 2012.

[2].          ComLaw, Foreign Acquisitions and Takeovers Regulations 1989, SR 1989 No. 177 Regulations as amended, taking into account amendments up to Trade Agreements Legislation Amendment Regulation 2014.

[3].       Foreign Investment Review Board (FIRB), 2009–10 Annual Report, Chapter 3, p.39.

[4].       Ibid.

[5].          FIRB, Australia’s Foreign Investment Policy, 2015, website.

[6].          East Asian Bureau of Economic Research, Submission, Strengthening Australia’s Foreign Investment Framework, Consultations, 26 March 2015.

[7].          Senate Rural and Regional Affairs and Transport Committee, ‘Foreign Investment and the National Interest’, Executive Summary, 26 June 2013, pp. xxii–xxiii.

[8].          J Hockey (Treasurer), Government strengthens the foreign investment framework, Joint media release with the Prime Minister, 2 May 2015.

[9].          FIRB, Australia’s Foreign Investment Policy 2015, op. cit., p.10.

[10].       Government strengthens the foreign investment framework, op. cit.

[11].       Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 31.

[12].       Ibid.

[13].       Ibid.

[14].       Ibid.

[15].       D Uren, ‘Putting the squeeze on foreign investors’, The Australian, 21 May 2015, p. 12.

 

All online articles accessed May 2015. 

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