Annual Investment Statement to the Parliament
House of Representatives, Parliament of Australia
Monday 20th August, 2018
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I thank the Minister for his Statement to the House.
Like all of these statements they are an important reminder of the importance of foreign investment.
But it’s also important in debates like this that we remind ourselves that as important as foreign investment is, that doesn’t mean it is overwhelmingly popular. It’s not.
As my friend Andrew Leigh has said:
“There may be no other issue on which economists and the general public disagree more.”
This can be seen in the 2017 Lowy Institute Poll which found that 40 per cent of Australians thought that foreign investment was a critical threat.
Given how important foreign investment is this is a worrying result. And it’s not unique to Australia – we see it in many parts of the world.
Since the Minister last updated the Parliament in December last year the clouds of protectionism have only gotten darker.
We have been fortunate to avoid the tariffs on steel and aluminium imposed by the Trump Administration but most of the rest of the world hasn’t.
As we speak the US and China have both increased tariffs on the goods they sell to each other and they are threatening a lot more.
The news late last week that the Chinese Vice Commerce Minister Wang Shouwen will travel to Washington this week for trade talks with US Treasury Under Secretary David Malpass is good news and not a moment too soon. Hopefully it will help bring both countries back from the brink.
This is an important moment. If they don’t sort this out and if they do everything they have threatened to do and more, they won’t just hurt each other. It will cost jobs here in Australia and in many other countries around the world.
And this isn’t just about tariffs.
A big part of the US Government’s beef with China is about foreign investment. About restrictions on US companies wanting to invest in China and vice versa. Over the last few months the Trump Administration has floated the idea of banning companies with 25 percent Chinese ownership from buying US tech companies.
None of this has happened in a vacuum.
I made the point earlier that foreign investment isn’t universally popular.
In the US according to a survey done by the American Security Project in 2016, 67 per cent of people think it has a negative impact.
On Friday I met with the UK Minister for Investment Graham Stuart.
There are similar challenges in the UK. According to a 2014 survey conducted by the Pew Research Centre, more than 50 per cent of people in the UK think that foreign companies buying domestic companies has a negative effect.
Given how important trade and foreign investment are for countries like ours these are challenges we can’t ignore.
We are a country built on foreign investment.
Many of the farms that helped us ride on the sheep’s back for so many years were developed with money from the UK.
The same is true of the big resource projects that underpin our economy today.
55 per cent of our exports come from mining and oil and gas.
A lot of that can only happen because of foreign investment. Without it those projects wouldn’t happen. People wouldn’t have jobs and we wouldn’t be collecting as much tax.
A good example of that is the Ichthys LNG project. I met up with the President and CEO of Inpex just before Question Time.
Gas production has just started.
This is a project that has injected $40 billion into our economy and will deliver about $1.9 billion in extra company tax on average every year to the next 40 years.
It’s the same story in manufacturing and many other parts of our economy.
As Andrew Robb said when he was Minister for Trade and Investment, every $1 billion in foreign investment creates 1000 jobs here in Australia.
There are a lot of people who say look that’s fine, but why don’t we fund things locally? Why do we have to bring in money from overseas? There is plenty of money in Super Funds.
That’s right there is. But they are investing overseas as well.
The fact is we don’t have enough funds here in Australia that want to invest in everything we want to do. To build the companies people want to create. Or build all the roads and railways and ports and other infrastructure that we need.
In 2016 that gap was about $44 billion.
That’s the gap between the money we needed and the money available here at home.
Without foreign investment, in that year alone, a lot of things wouldn’t have been built, a lot of companies wouldn’t have got the funds they need to grow, and about 40,000 more Australians wouldn’t have had a job.
We need foreign investment.
Much of this comes from three places - the US, Europe and Asia.
The US is by far and away number one. It currently invests more than $896 billion in Australia.
The UK ranks second, Belgium ranks third and I note the Minister’s comments that the potential free trade agreements with the EU and the UK could unlock a lot more opportunities.
Japan is currently ranked fourth, Hong Kong fifth, China ninth.
But, again as the Minister noted there’s been a big increase in Chinese investment in the last five years.
The Lowy Institute Poll released in June this year shows an important parallel trend. As Chinese investment has increased so has community concern.
In 2009 50 percent of respondents to the Lowy Poll said they thought the government was allowing too much investment from China. In June that number was 72 per cent. Up dramatically from 56 the year before.
Again, given how important foreign investment is and given a China is our largest and most important trading partner, this is a challenge we have got to manage carefully.
We have got to talk up the benefits of foreign investment, but we also can’t ignore community concerns. If we do they will only fester and get worse.
The 2018 Lowy Poll highlighted the areas of foreign investment where Australians are most concerned - agriculture, residential real estate and critical infrastructure.
If someone is dead against foreign investment they are unlikely to change their mind.
But information is important here - so at least people who are worried about it know what going on.
That’s why the Agriculture Land Register is important. We are still waiting for an update of the Register to come out - but the last update released in September last year showed that as at June 30 2017- 13.6 per cent of Australian farmland is foreign owned. Less than I suspect most Australians would have thought.
It also shows that UK companies own 2.6 per cent of total agricultural land and China 2.5 per cent. Again less than most people would have thought, given all the focus on foreign investment in agricultural land.
The Register is a useful tool, but it could go further. As I said last year, we think the Register should set out for everyone to see not just the percentage of land owned by overseas companies, but who has purchased what, where and how much they paid for it.
The Government has also said they will do this, but we are still waiting.
We are also still waiting for the long promised National Register of Foreign Investment in Water Entitlements. This was supposed to be released by the end of last financial year. But we are still waiting.
In February the Government did announce a significant change in the way agricultural land is sold. The changes mean that now before agricultural land can be sold to foreign investors it must first be offered for sale to potential Australian buyers.
It’s a bit like labour market testing - except for land. Under our labour market testing rules, employers have to first advertise jobs here in Australia before they can offer them to workers overseas. This applies the same rules to land.
The disappointing thing is while the government is putting these common sense rules in place for land, they are removing them for people. In a raft of trade agreements over the last few years they have removed the requirement on employers to advertise jobs here before they bring in workers from South Korea, China, Japan, Brunei, Canada, Malaysia, Mexico, Peru and Vietnam.
As I have said a number of times, this is the sort of stuff that really makes people angry and reduces their faith in the benefits of trade and investment, and what we are trying to do here. It’s not protectionist to say before you bring in a carpenter or a plumber or a boilermaker from overseas you should first have to check if there is an Australian who can do the job. It’s just common sense.
Land is important, but so are jobs. If it is good enough that land has to be advertised before it can be sold to an overseas buyer, the same rule should apply to jobs.
Before you bring in a plumber or a carpenter from overseas you should first have to advertise the jobs here. It’s not much to ask, but this government is removing that requirement in every trade deal it signs.
On residential property I note we have seen a big drop in investment by Chinese buyers over the last 12 months.
A year ago the Chinese State Council put in place formal restrictions on outbound investment in real estate. There have also been changes in taxes and tighter lending rules here at home.
Twelve months on we have seen a big drop in demand. According to FIRB data released in May Chinese investment in real estate has halved and total foreign investment in real estate has fallen by two thirds.
What’s not clear from the figures is what the impact of the vacant property tax on foreign investors has been.
I said last year that our current rules only allow foreign investors to purchase new property. New houses and apartments.
The logic behind this is it helps build supply. It helps make sure we have more housing and foreign investors aren’t just competing with locals for existing property and pushing up the price.
This only works though if the properties that are built are rented out and don’t lay vacant. Unfortunately there has been a lot of examples of this. That’s why the tax was put into place. Unfortunately the Minister didn’t give us a clear idea of what the impact of that tax has been.
On critical infrastructure, there are two big decisions the government faces in the next few months. One on Huawei and the 5G network and one on the sale of APA Group.
We hope that all decisions, with advice from the FIRB, will be taken in the national interest.
I made the point last year that the poor way the sale of Darwin Port was managed and the Ausgrid debacle can’t be repeated. It just undermines confidence investors have to invest here.
In the latter case companies were told they could bid by federal government agencies and only after the NSW Government selected a preferred tenderer was that company told they were ineligible to bid.
The reason I am sure was solid. But the process was flawed. It made us look like amateurs.
I know the government has made changes to the FIRB since then and set up the Critical Infrastructure Centre, and hopefully those changes will ensure the decisions the government has to make soon are made professionally and properly and companies aren’t misled.
Finally I note the Minister talked about the importance of regulatory certainty and that’s undoubtedly true. But it’s a little ironic that he mentioned the importance of regulatory certainty given what’s happened this morning and what’s likely to happen later this week.
This morning the Prime Minister back flipped on his much vaunted National Energy Guarantee and later this week he’s expected to dump the centre piece of his economic plan that the Minister talked about. The tax cut for companies with a turnover of more than $50 million. Now it doesn’t provide regulatory certainty and it certainly doesn’t demonstrate the government’s economic plan in action as the Minister described. What it is, is policy on the run, all designed just to save the Prime Minister’s job. Now this Prime Minister looks like a dead man walking – in question time we saw what looked like a scene out of Weekend at Bernie’s. You could almost smell the formaldehyde wafting across the Chamber.
DEPUTY SPEAKER: The Member is straying away from the substance of the motion…
CLARE: Well I’m emphasising the importance of regulatory certainty and when there are backflips Mr Deputy Speaker like we saw this morning it reduces certainty, Mr Deputy Speaker, that investors need if they’re going to invest here in Australia.
And energy policy is a big part of that. The Prime Minister once said that he wouldn’t lead a party that isn’t as committed to climate change as he is. But that leather jacket Prime Minister is long gone.
What we’ve got is a cadaver in a Canali suit and that’s a disappointment for all of us Mr Deputy Speaker and it reduces the certainty that investors need to invest here in Australia.
And unfortunately all of that happening in the media today just takes away from the attention that the Minister has so justifiably wanted on this important investment statement. I thank the Minister for his statement, potentially his last one to the House.
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