Investment in Australia must be on our terms, said Prime Minister Scott Morrison during a press conference today.
This was followed by Treasurer Josh Frydenberg explaining the three key elements of the largest reform to our foreign investment policies since the establishment of the Foreign Investment Act in 1975.
One in 10 Australian jobs are created by foreign investment and of the nearly $4t of foreign investment in our country, more than 20% comes from the US, and more than 10% each from the UK and Japan. China represents a little over 5%.
The reforms announced today aim to strike a balance between welcoming and inviting foreign investment and ensuring that investment is in our national interest.
These reforms have been in development for some months and the aim is for an exposure draft to be tabled next month and passed for the end of the year to be in place by 1 January 2021. In the interim, and in response to COVID-19, the Government has established a zero threshold for all foreign investment in Australia.
1 – New National Security Test
Foreign investors, not just foreign governments, will be subject to the new national security test for sensitive assets regardless of value.
While the assets that will be reviewed under this test is still being consulted upon, it is expected to cover nationally sensitive assets including telecommunications, critical infrastructure such as energy and sensitive utilities, defence, and businesses that collect, store and own data that is critical to our defence and security.
The Treasurer will have new last resort powers to vary or impose conditions, or force a divestment in a very limited number of exceptional cases, for example, a material mistake during the approval process, or if the activity of the business changes to be of national security significance.
2 – Strengthening enforcement of the regime
Over 80% of foreign investment by value last year had conditions attached. An additional $5m will be provided towards monitoring and ensuring compliance.
3 – Streamlining the approval process for passive investments by foreign governments
Bearing in mind we are competing internationally for capital, the Government will streamline the approval process for passive investments by foreign governments when they partner with private capital in non-sensitive sectors.
While we wait for the fine print on what the national security test will strictly apply to, this provides some guidance for businesses reviewing their long term investment strategies.
To discuss how the changes on the horizon may impact you and your business, please reach out to your local Grant Thornton advisor.