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Rural and Regional Affairs and Transport References Committee
Foreign Investment Review Board national interest test
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Rural and Regional Affairs and Transport References Committee
Nash, Sen Fiona
Back, Sen Chris
Xenophon, Sen Nick
Cash, Sen Michaelia
Sterle, Sen Glenn
Edwards, Sen Sean
Heffernan, Sen Bill
McKenzie, Sen Bridget
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Rural and Regional Affairs and Transport References Committee
(Senate-Thursday, 16 August 2012)
CHAIR (Senator Heffernan)
- Senator BACK
Content WindowRural and Regional Affairs and Transport References Committee - 16/08/2012 - Foreign Investment Review Board national interest test
GERATHY, Ms Deidre, Chief Adviser, Markets Group, Treasury
HILL, Mr John, Senior Adviser, Foreign Investment and Trade Policy Division, Treasury
MURPHY, Mr Jim, Executive Director, Markets Group, Treasury
REINHARDT, Ms Sam, General Manager, Foreign Investment and Trade Policy Division, Treasury; Executive Member, Foreign Investment Review Board
WILSON, Mr Brian, Chairman, Foreign Investment Review Board
CHAIR: I welcome the new Chairman of the Foreign Investment Review Board, Mr Brian Wilson, and other representatives from the Foreign Investment Review Board and representatives from the Treasury.
I remind witnesses that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about how and when policies were adopted. Officers are reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and shall be accompanied by a statement setting out the basis of the claim.
Mr Wilson, we would be delighted to hear an opening statement from you, if you wanted to make one, and then we will go to some gentle questioning.
Mr Wilson : Thank you, Chair. I was not proposing to make an opening statement; I am here at your invitation to answer questions.
Mr Murphy : May I suggest that, if there are issues relating to foreign investment policy or the national interest test, it would be best to have those questions first, while Mr Wilson is here. My colleagues and I are also appearing in relation to the government's proposal to look at setting up an agricultural land register, and we can answer those questions later.
CHAIR: Okay. We are most grateful for your appearance here today. The national interest test considers security issues and some other, undefined issues.
In setting out what is the national interest, would it be fair for the Foreign Investment Review Board to consider the critical mass of the revenue base for Australia going into the future, with the growing event of foreign sovereign investment in home-based agricultural sovereign assets and the capacity of a sovereign investor to exclude itself from a lot of the public good by way of generation of taxes and other things? Is that something that you would consider to be a national interest issue—that is, protecting the revenue base?
Mr Wilson : Under the national interest test in general terms there are, under the disclosed policy, five broad heads of national interest. There is the impact on the economy and the community. There is national security. There is competition, both domestic and international. There is compliance with Australia's laws and other matters, including explicitly the impact on Australia's revenue base. Finally, there is the character, nature and reputation of the investor. To answer your question explicitly, tax revenues of Australia are definitely part of the considerations for national interest.
CHAIR: We received evidence last week from AACo. In very plain language what was said was for an Australian-based capital source in some instances it is better to send the capital overseas and bring it back to pick up some of the tax advantages available to money coming back. Are you acquainted with that? We will have a longer session with the tax office, because we are only about a quarter of the way into understanding the issue. Is it possible that, for the national interest, if enough of that went on we would begin to have revenue leakage and begin to lose our revenue base if there is an explosion in sovereignties taking an interest in other people's sovereign assets without the right regulation in place to protect our revenue base? Are you acquainted with the current situation, as the chairman of the board, and the criteria we need to protect our revenue base?
Mr Wilson : I have not seen the specific statements that you refer to which were made by AACo. I have seen some reports of statements that AACo made that suggested that reasons that enterprises such as Canadian pension funds invested in enterprises in Australia, including agricultural enterprises—
CHAIR: And forestry.
Mr Wilson : and forestry and, I should say, infrastructure, toll roads and the like, were related to tax. Having been involved in the superannuation industry for many years and also being a member of the Cooper review of superannuation, I do not believe that the core driver of that particular matter is tax. It actually relates to our superannuation system where we have essentially a defined contribution system, and under the SuperChoice system all members are free on very short notice—sometimes a matter of days but certainly no more than 30 days—to withdraw their funds from superannuation funds. Therefore because the liability base of Australian superannuation funds is very short, because theoretically they are open to having all of their funds withdrawn in a very short period of time, Australian superannuation funds tend to have assets which are very short and liquid—in other words, a lot of cash, a lot of investments in securities on the stock exchange and so on—compared with the Canadian situation which has essentially defined benefit funds and members of those funds are locked in for life. As a consequence, the liabilities of those funds are very long and they tend to be able to match assets which are very long. Hence the Canadians particularly and some of the other sovereign funds around the world are most focused on long-tail assets—things like forestry, agriculture, toll roads.
I have not seen the particular matters around the tax-driven things that AACo might have spoken of, but from what I have seen of their reports I would disagree about this.
CHAIR: The sovereign investor might be investing it is something you will review—and I know you are currently reviewing one, a cotton enterprise and they are going to export at the lowest base rate to minimise the tax. We had Itoham and JBS Swift buying a company when there was a higher bidder for the deal, but Itoham wanted to do a deal with the said company on a fishing issue somewhere else in the world so they were given a discount against the better offer. For a few months in the transfer of the business—when previously a lot of that beef went undetected for many years when it went back home at base cost for a loss here—suddenly they had to start paying the full price because there was a different owner and they got a shock at the landed cost of meat in Japan.
That says to me that we need to think about this—and we are only thinking about this, not trying to find a solution—and eliminate the 50-year focus of the global food task and the preciousness of an agricultural resource in a world which is losing about one per cent per annum of its agricultural capacity for a whole lot of reasons. We need to look at sovereign investors with some generosity in tax deductibility which are not looking for a return on their investments but to secure a certain position in the market—like the security of food which is starting to become an issue. We know that China by 2070 will have to meet 70 per cent of its agricultural needs from somewhere else. This is a contentious issue, but if those investors do not need a return on their money for whatever reason—for example, Shenhua Watermark Coal's 40-odd farms at Gunnedah, paying up to four times the market value just to shut farmers up and get them out of the way for the mine—do you see the distortion in the capital market as a national interest issue? The Canadian funds and the American super funds are competing for returns on their investments for their fund members and cannot compete against a source of capital that does not need a return on its money, which is what happened with some home acquisitions in Sydney three or four years ago. Do you see that distortion in the capital markets for people to get a return on their money to repay the bank as being in a national interest issue as they are priced out of the market?
Mr Wilson : Again, I think the national interest test has a number of components. If we come down to those that are specifically dealt with under the agricultural policy, those sorts of issues are considered around land use and productivity, land access and use, the employment and prosperity of the local community—all of those factors are obviously part of the national interest consideration. To the extent that there was a distortionary effect as a result of non-commercial matters, that would be a consideration in determining whether a particular investment was contrary to the national interest or not.
CHAIR: That give some guidance. Further to that, if there was a direct dealing outside the market return of the commodity—which I know as a practical farmer having learned that when Coles and Woolies pull out of an auction there is that distortion in the sale—the distortion that can be caused with the cumulative impact of enough events of sovereign transfers outside the market, is the distortion in the commodity market an issue in the national interest?
Mr Wilson : Senator Nash is on record as saying she would like clarification of some statements I made the other day which were expressed as a statement of current SOE policy and analytical approach around the essence of investment decisions being made on a purely stand-alone commercial basis.
Senator NASH: I was going to get to that.
Mr Wilson : Perhaps I can answer the two questions with one answer. We can assume that if a stand-alone commercial enterprise makes investment decisions that they are going to want the best out of that investment. I think that is self-evident. If a stand-alone commercial enterprise makes a decision to invest they are going to want to maximise the long-term profitability of business, to maximise the long-term sustainability of production, to minimise their cost base and maximise the prices they achieve for their product. That is what a commercial enterprise would do.
CHAIR: But a non-commercial—
Mr Wilson : A government, because it may have many other assets or purchases in the same sector, may, if I can use the colloquial expression, take a dollar out of the left pocket in order to put five dollars back in the right pocket, effectively by changing market dynamics—changing market pricing, changing demand-supply in one area to pick up a greater benefit in another area.
Individual corporations do not do that. They cannot do that, because you would probably lose a dollar out of your left pocket to make only 20c in the right pocket. Governments, given their breadth of exposures, can obviously potentially benefit in a gross sense from manipulating a market price or a supply-demand position in the market.
CHAIR: Especially if you are using a non-market currency.
Mr Wilson : As in—
CHAIR: Just by way of procedure, do you mind if there is a photograph taken?
Mr Wilson : No, that is fine. I have had plenty of photographs taken in this particular capacity.
CHAIR: I forgot to put my lipstick on but other than that I am all right!
Mr Wilson, we are very pleased to see you as the new head of FIRB. We are encouraged. With distortion in the supply and demand, keeping people in the revenue for Australia, even if they are sovereign, with the exemptions that are available—and there are all sorts of withholding tax arrangements that we have to deal with—the capacity of the tax office to audit the transfer pricing, and the track record, globally, of transfer pricing tax avoidance, do you want to comment on the leakage of revenue due to the unpredictability of auditing in transfer pricing?
Mr Wilson : I think there has been some comment in the press also about the prevalence of investment bankers on the Foreign Investment Review Board. I might say that one of the factors that are involved in large-scale investment banking transactions is that tax is usually a major part of the transaction. So the two of us on the board who do have an investment banking background have probably spent man years dealing with tax lawyers and tax barristers on domestic and cross-border tax issues.
I think, as I said at the outset, that one of the components of the national interest test is compliance with Australian laws and protecting Australia's revenue. It is the role of the Foreign Investment Review Board in making its recommendations to the Treasurer and in consulting the other parts of government, as we do, to be aware where there may be, as a consequence of the transaction structure or restructuring of the business, the potential for revenue leakage. We can and we do consult with the tax office on those matters. Where we are uncomfortable with the level of consultation we get back, in some cases we have gone back and further consulted and further raised the issue. That having been said, administration of Australia's tax law is a matter for the tax office and the composition of Australia's tax law is a matter for the parliament, not for the Foreign Investment Review Board.
Ms Reinhardt : It might be worth talking through the process that we go through to make sure that we do follow up on the tax aspects of our foreign investment cases. It is a fairly thorough process. We get our applications in, we get a full description of what they are intending on purchasing—the full structure of the entity, whether it be a merged entity or an investment in an entity, and the likely production of that entity where it is an agricultural business. We provide that to the departments that we consult with, which include the tax office and the revenue area in Treasury, so that they can fully analyse the likely implications of both revenue and of the tax structure or the entity structure they have chosen. They can then advise the board if they think there are concerns. We can then take a course through advising the Treasurer on whether it is appropriate to implement undertakings or conditions that then constrain that acquisition around how they can structure their entities so that we can ensure the revenue base is protected and that their operations are not a threat to Australian tax revenue.
CHAIR: In auditing a wheat transfer from a sovereign grower, how would you really know whether it was F1 or APW?
Ms Reinhardt : I would not know that, so that is why, when we advise the tax office of what they are producing, the tax office would then follow it up and determine whether the prices were appropriate under the tax laws.
CHAIR: But how would you know what was in the container?
Ms Reinhardt : I guess it is the same with any tax case where you have to implement the tax law.
CHAIR: We are as worried, as you are, about leakage. In relation to reporting sovereign involvement to the board for an acquisition in Australia, we were told this in very plain language at the last hearing under the previous chairman, who was looking forward to some recommendations from us—and we are scratching our heads about what those recommendations might be in a legal sense—but eliminating the problem is useful. If you have, as it were, mandatory reporting of a sovereign involvement in an acquisition and they do not report, there does not appear to be any penalty and you do not cancel the sale.
Ms Reinhardt : We are not aware of any cases where sovereign entities have not reported. As you would be aware, it is dealt with under the policy, so the Treasurer would then certainly have the ability to go back either to that sovereign government—
CHAIR: When you see a speed camera on the side of the road, you generally look at the speedo. Don't you think there ought to be some speed cameras in the system to make people focus on reporting—in other words, some penalties, because there is no penalty regime that we know of. Is there a penalty regime for nonreporting?
Mr Wilson : I think Senator, to use your analogy, the role of the Foreign Investment Review Board is to recommend to the Treasurer whether the particular driver should be allowed to buy a car. It is the role of other agencies to then license the driver, monitor his driving and penalise him. I think it is important to recognise that our role, to use that analogy, is to say whether a particular person should be allowed to buy a car, not how they should drive it. To the extent that we believe that the nature of that particular person, the nature of their proposal, is such that they are likely to be dangerous drivers, then we do discuss that with the appropriate authorities.
CHAIR: In terms of owning up, if I am a sovereign entity and I lend Senator Nash the money interest free—which we have struck, and I do not know whether you are aware of it or not—and the asset reverts to me, the sovereignty, in 30 years time for the facility, is that a passive—
Ms Reinhardt : That would not be considered a loan for our purposes.
CHAIR: Is that a passive investment, tax-free? Do I have to report it because I have lent the money?
Ms Reinhardt : If you are taking security over the asset.
CHAIR: I refer to Cargill and BFB at Temora—they have roughly 80,000 acres of farming land; good luck to them, they are good payers, even though they store some stuff direct, which does not help the locals. But they are aggressive citizens, 85 per cent owned by Black River Investments, which is a wholly owned subsidiary of Cargill but not considered to be a foreign entity in agriculture. The chief executive at the forum the week before last in Melbourne stood up and said, 'Cargill doesn't make investment in agricultural land.' When the BFB-Brabham thing was pointed out she said, 'That's a hedge company,' and for the purposes of the Foreign Takeovers Act, I do not think they are considered to be a foreign company. So isn't that a way around it?
Ms Reinhardt : I guess our preference is not to talk about specific cases. If you want to talk hypothetically, more than 15 per cent—
CHAIR: I should have said, 'if there was a company', so scrub that question.
Ms Reinhardt : If there was a company that had more than 15 per cent, they would—
Senator BACK: Perhaps I could take this one.
CHAIR: I will hand over.
Senator BACK: Say we had the situation of Senator Heffernan lending money, being an overseas entity, whether state owned or not, to Senator Nash. In the event that Senator Nash did not declare the source of those funds, and, for whatever reason, Senator Heffernan did not take security over that asset, strictly speaking Australian authorities would have no knowledge of that, would they? It would simply be a resident of Australia, Senator Nash, buying some form of asset, be it agricultural land or an agricultural business. Is that correct? If there is no link from the overseas entity, being Heffernan, to the domestic entity, being Nash, it is purely domestic transaction from the point of view of the tax office.
Mr Wilson : Obviously one does not know what one does not know. That having been said, in that particular example, if Senator Heffernan had lent money at zero interest to Senator Nash then the profitability of Senator Nash's enterprise would be higher than it might otherwise be, because it had a zero funding cost and, all other things being equal, the tax Senator Nash would be paying on her business would be higher than it might otherwise be.
Senator BACK: Perhaps I could just go a stage further. If at some point in the future—10 or 15 years into the future—it comes to the attention of the Australian authorities that this in fact was of the nature that I just described, are there penalties upon Senator Nash for effectively failing to disclose the original source of those funds? Or is it simply, as you say, that her enterprise would be so profitable that the Australian tax system has earned sufficient revenue from her more than highly profitable enterprise?
Mr Wilson : I think we would need to differentiate between a nondisclosure under the act and a nondisclosure under the policy. Obviously under the act there are quite explicit remedies, including divestment, for nondisclosure. That has been the case since the act was put into place in 1975. Under the policy—and, as we are all aware, the policy operates in a policy area rather than a legislative area—
Ms Reinhardt : There are significant international pressures that can be brought to bear from government to government if we do not get compliance with those. We also have the ability to consider further applications in the future from those countries or companies.
Mr Wilson : I think the saying that has been used in the past is, beware the soft power of a sovereign government. Generally, foreign governments and foreign entities, no matter how large and powerful they are, tend not to want to come to other countries and act in an unacceptable way. In the end, the Australian government does have capacity to change laws and make life difficult. Under the policy I do not think there is a legislative redress. Under the act there is. But I must say, I have not seen situations where I believe a foreign party, including a foreign government, has deliberately gone out to tell lies or circumvent the things. Obviously, with the help of lawyers and so on, foreign governments as well as commercial enterprises, both Australian and foreign, do attempt to operate their affairs in the most effective and efficient manner.
CHAIR: Would the Myer acquisition, which got all the publicity over the avoiding of $700 million in tax, have come to the Foreign Investment Review Board?
Senator XENOPHON: This is the private equity firm you are talking about?
Mr Wilson : TPG and Myer.
Senator XENOPHON: Yes.
Mr Wilson : It was certainly before my time, but I would assume—
CHAIR: When giving an approval to the sale I wonder whether the Foreign Investment Review Board at the time would have given consideration in the 'national interest' test to the possibility of a $700 million leakage from our tax system?
Mr Murphy : It is as the policy has been set out. If there are tax considerations we would seek advice from the ATO. That is how we would work it. We would take that into account. That is part of the 'national interest' test and that would be part of the advice going to the government.
CHAIR: But the ATO did not know about it until after it was done. It would not have been in the national interest to give away $700 million in tax, would it?
Mr Murphy : That may be the case in that instance. You only have to have one or two of these instances happen and people are alive to that type of circumstance. So you are forewarned.
Mr Wilson : I think that is one of the reasons the essentially undefined 'national interest' test under the foreign investment regime has actually been useful.
Mr Murphy : It is flexible.
Senator NASH: At the outset, Mr Wilson, you outlined the criteria around the 'national interest' test. How do you define 'national interest'? What is your definition for the purposes of the test?
Mr Wilson : I do not think there is a single one-sentence definition—
Senator NASH: That is okay. Thank you.
Mr Wilson : I think that national interest is a number of those factors that, taken together, represent something that is contrary to the national interest. I suppose it is one of those things where you know it when you see it. If I could take an example, one of the reasons that non-rural land is part of the Foreign Acquisitions and Takeovers Act is that it was included in 1989 at a time when there was huge community concern about Japanese investment in Queensland tourism properties. That, if you like, back in the late 1980s was the agricultural land of 2012. So, the pinnacle of a national interest concern was then seen to be Japanese investment in Queensland tourism properties. I think we could all agree that that would hardly rate as a major national interest concern in 2012. I have every expectation that in another 10 or 20 years there will be some other pinnacle of national interest concern that may be different from agricultural land.
Senator CASH: Were applications for that type of land rejected at the time as being not in the national interest?
Mr Wilson : I believe they were. It was obviously way before my time on the board. I believe there also were very material conditions attached to a lot of those applications.
Senator CASH: As you said that was almost the equivalent of what we are looking at now with agricultural land. So maybe there is some interest there.
Mr Murphy : National interest is used as a concept in a wide range of Commonwealth legislation, and it is not defined. If you asked for a rule of thumb definition you would say that it is probably the wellbeing of the Australian community as such. That is the national interest: the Australian community.
CHAIR: On the matter of the definition of agricultural land for the Foreign Acquisitions and Takeovers Act we were given evidence that it is land that is used full time for agriculture, and all other land is urban land. Do you think that needs updating, because the Kimberleys and the Tanami Desert are urban land under that description?
Senator STERLE: You might be asking for an opinion there.
Mr Murphy : I would have thought that was probably a matter of—
CHAIR: Will you confirm that that is a fact?
Mr Wilson : I can certainly confirm that rural land is land that is used exclusively for agricultural purposes.
CHAIR: And all other land, for the purposes of the act, is urban.
Mr Wilson : All other land is, regardless.
Senator NASH: We will have a look at that. 'Know it when you see it' does not give me a lot of confidence; but I understand, and I take your point of what you are saying—
Mr Wilson : Sorry, if I could just expand then? It is a balance. There are myriad factors that may suggest that something is in the national interest or contrary to the national interest. It is hard to—
Senator NASH: I understand that.
Mr Wilson : There may be cases where something is not particularly attractive to a particular community but has enormous national economic benefits, so that on balance that particular transaction may be not contrary to the national interest. In another case it may be something with very minor national economic benefits that is very attractive to a particular community in terms of employment, services or whatever and that may not be contrary to the national interest either. It is a judgment matter taking into account all of the relevant factors. That is why we have—
Senator NASH: Absolutely, and I completely understand that you are operating under the current rules and that you can only operate under the current rules. I think that gives rise to some of the concern, because of that balance and the nature of the make-up of the decision-making body. We as a committee have to be sure that we have that right, because it is a balance; and it is the balance, as you say, that it might be an economic national interest question compared to a community national interest question. The issue is whether or not the Australian people have the confidence that in that kind of weighing up it is being done. I would like to ask—in terms of it being in the national interest—what is not in the national interest?
Mr Wilson : I think there is a huge range of things. It could be something that materially damaged Australia's revenue. It could be something that involved the nature and character of an investor; so, a criminal organisation from a particular country, almost regardless of the economic benefits they might bring, would probably not be in the national interest. Something that might, on a stand-alone basis, be a positive economic development, but which damaged Australia's market credibility around the world, or its general market reputation in a particular commodity or its market position in a particular commodity—the pricing of that particular commodity—may not be in the national interest.
If I can take three cases—and as Sam Reinhardt has said, we do not normally comment on cases—which were well-known rejections by the Treasurer—
Senator NASH: Sorry, I am talking about agricultural land and business. I should have been specific about that at the start. We are very short of time and I just want to make sure—
Senator STERLE: We were just getting to some good bits!
Senator NASH: That is right! Could you take what you were going to say on notice, because it still would be very interesting for the committee to have those examples of what you were talking about? But in the context of time, I really just want to stick to agricultural land and business.
One of the issues that concerns me enormously—and again, I understand that as it is in the context of your current rules—is that the issue of accumulation of land is not able to be taken into account by the Foreign Investment Review Board because you have the threshold at the $244 million. Balancing that up against the national interest, what strikes me is how the FIRB can ensure that you are determining whether or not the decisions you make are in the national interest when you do not have the capacity to take accumulation into account? I use the example of Shenhua and the Liverpool Plains: 43 properties, none, of course, come anywhere near the threshold of $244 million, and yet the accumulated parcel of land is significant.
So how does the Foreign Investment Review Board—which, as we have heard, is tasked with the decision-making on what is in the national interest and then applying the criteria to it; it is all up to the board—take that into account?
Mr Wilson : I think that, as you said, we must deal within established law and established policies. If the acquirer is a private enterprise—it is not a state government related enterprise—then unless it is $244 million we have no jurisdiction. Remember that state owned enterprises have a zero threshold for all and every direct acquisition.
Senator NASH: Absolutely. I was coming to that next, and this is something that I just need clarified: the definition of state owned enterprises. You have a company, Shenhua, that is a government-controlled mining entity, and that is not a state owned enterprise?
Mr Wilson : Yes. Any enterprise in which a government directly or indirectly, through a set of chains and including its associates, has 15 per cent or more it is a state owned enterprise.
Senator NASH: And that is the zero threshold?
Mr Wilson : The zero threshold.
Senator NASH: So why did none of those properties on the Liverpool Plains kick in with the FIRB's interest?
Ms Reinhardt : I do not want to comment on particular cases. If they were a state-owned enterprise and there were zero dollars they came to us.
Senator NASH: Just bear with me—I do not necessarily want you to say anything on the record and I am happy for you to take it on notice and, again, obviously reporting can be wrong. There was some reporting in June 2011 that because those properties had been individual parcels of land they never came before FIRB—just going back to the accumulation issue, none of which triggered the $244 million.
Mr Murphy : The report is wrong.
CHAIR: Could I just move a procedural matter, that we perhaps would like to take you in camera to get the answer?
Mr Murphy : The answer is that if those acquisitions were—
Senator NASH: So they did all come before FIRB?
Mr Murphy : Yes, they did.
Senator NASH: In that instance where they all come before FIRB—and, again, I understand that trigger—by the time you get to the end of those 43 purchases, you have a significant parcel of land. But along the way you can only assess each one individually; or do you actually look at previous purchases by the same company to get, if you like, a rolling overview of the accumulating land?
Mr Wilson : Yes, we do.
Senator NASH: You do.
CHAIR: Could I just add to that? Those sales were between two and four times the market value for agriculture purposes of the land, and that it is very good for the blokes getting out They were not, by the way, considered in the ABS survey. The distortion that occurs is because the Valuer-General takes the average of sales for a district for a year—and that was the bulk of the sales—which then flows on into the rating base distortion. Do you consider that to be a national interest thing in the marketplace? I will bet that you did not. It was not your call, but—
Mr Wilson : No, but I will answer the question. I would have thought that it is a local interest issue. I would have thought that it is something that, potentially, the Valuer-General should consider in making those things. But whether as a consequence of something like that a transaction should be precluded on national interest grounds I suspect I would not have taken that view.
Senator NASH: Yes, and may I just correct? For the record, I did incorrectly read that; it did go to FIRB. I am sorry, but the issue of accumulation still does stand.
Can I just go to the issue of 'in the national interest' and coming down to those criteria? Is any level of foreign ownership of any particular amount of land in Australia too much when it gets to the national interest? Put it this way, very simplistically: if every single piece of agricultural land were to be foreign owned, is that too much when you are assessing things coming through in terms of the national interest? Is that something that you consider?
CHAIR: Just to set out into the proper perspective: Mr McGauchie from the Reserve Bank board said that it would not matter to us if we sold 30 per cent of Australia's agricultural land to a foreign nation—not to a company.
Senator NASH: Does the FIRB have a view about the amount of land, overall, that would not be in the national interest?
Mr Wilson : I think that would be a matter of government policy, rather than a FIRB view. But clearly, concentration of ownership either nationally or in particular areas would be a factor that is considered in whether a particular—
Senator NASH: But doesn't this come to the global supply issue that you have to look at in the national interest? I am only talking theoretically but theoretically if you have 100 per cent of Australian land foreign owned and supply is going offshore—and I am just talking theoretically—
Ms Reinhardt : I think you have hit the nail on the head. The competition issues would cut in well before 100 per cent and other issues as well.
Senator NASH: What competition issues would those be?
Ms Reinhardt : You could not possibly have an open market with 100 per cent ownership.
CHAIR: Coles and Woolies have 82 per cent of the prepackage market. That is not a bad example.
Mr Murphy : In the national food plan, the agriculture minister is seeking to address some of these issues in terms of security of land and food production. I think this is a matter of public importance. It is a policy issue for the government. This is very important for this committee. These issues about investment in agricultural land, investment plant and food security are in general discourse within government.
Senator NASH: What we need is long-term thinking. I have just a couple of quick questions and I will put some on notice, if you do not mind, because I have masses. Mr Wilson, I go back to those comments you alluded to at the beginning that investment decisions should be made by investors on a purely stand-alone commercial basis. What do you do if they are not? What do you do if a foreign entity comes to you that you are aware is not solely making decisions on a commercial basis, given your comments that they should be making them on a commercial basis?
Mr Wilson : If a particular aspects of those decisions were such that they were having a negative impact that could be corrected with conditions. I will give you some examples of conditions: that all sales must occur through an open market arrangement, that they must bring in a commercial partner who by definition is going to be concerned to make sure that profits and the business do operate on a commercial basis, that there must be a third-party manager employed to deal with the matters that are at issue. A range of conditions are designed to effectively bring commerciality as it impacts upon Australia's national interest back to a commercial level.
Senator NASH: So in terms of an oversight process, a foreign entity comes to you on a commercial basis and five or 10 years down the track that changes. They then go to the security of supply issue and export grain directly back to another nation. What is the oversight that picks that up and what consequences are there for that company, given your comment that they should be operating on a commercial basis?
Mr Wilson : In that particular case, it would be around the transfer pricing.
Senator NASH: So you would expect the ATO to pick that up? Who would pick that up and what would the consequences be, given that in the first place you have said it should not happen?
Ms Reinhardt : If we have applied an undertaking for a condition we often require annual reporting on meeting that condition. The other thing is that if it is an ATO issue where they are actually flaunting the law and they are somehow trying to give away grain when they are actually a commercial entity, the ATO would also have an interest in it. We would also look very closely at any further acquisitions by that entity. If we felt they had not complied with their conditions, we might either not approve other ones or they could, in the most extreme case, be asked to divest.
Senator NASH: With that in mind, what is the oversight process of that, given that Hazzard Australia and Qatari company were asked this last November and an undertaking had not been required? How do you, as the firm, make sure these things do not slip under the radar?
CHAIR: There are no borders put around the contract. I think we have a bit of work to do.
Senator NASH: Okay, perhaps I can ask you to take that on notice. I have a question going to the FIRB approval of the Ebro takeover of Sunrise last year—I think it was in April. Obviously, FIRB looked at all of that and said it was in the national interest. A 100 per cent takeover of a Riverina-farmer owned company by a Spanish company—there are a number of concerns around that. Perhaps if you could provide on notice how you saw that 100 per cent takeover of an Australian rice company by a Spanish entity, with all of the obvious commentary around that about the loss of grower control, the company becoming a subsidiary of a foreign company and prices being based on the California paddy rice market, being in the national interest.
CHAIR: We could get the answer in camera, if you like. I was very vocal at the time!
Senator NASH: I am very happy for you to take that on notice.
CHAIR: It is an individual case.
Senator NASH: Yes, the individual case. And perhaps, on notice, confidentially. Thank you very much.
Mr Wilson : Perhaps we can answer this question in terms of the Ebro commitments that were given. I should point out, by the way, that the test under the act is not whether something is positively in the national interest but whether it is not contrary to the national interest—which is a subtle difference.
Senator NASH: I am very happy for you to take that on notice.
Mr Wilson : But the not-publicly-released commitments that Ebro made in relation to that transaction, which obviously did not proceed, were a medium-term purchase commitment for rise produced by growers; growing markets for Australian rice, through its existing global market network; and continuing Sunrise's support of the Rice Growers Association.
CHAIR: Which was all, in reality, a phony—and I said so at the time. And everyone has learnt that they nearly made a serious error because, as Senator Nash pointed out, the price here, despite the season here, was going to be set in California by someone who has a global monopoly.
Senator NASH: Could I ask you to take that on notice and perhaps provide as much detail as you can for the committee.
Senator EDWARDS: My question goes to the national interest test. I will use an example to try to flesh out how the procedure flows. On 23 February this year Virgin Australia announced a new structure, which created an unlisted entity which was owned by the existing shareholders but was comprehensively serviced, managed and funded by Virgin's domestic business. On 5 June Etihad took a 3.96 per cent stake, and the following day they took a 4.99 per cent stake. That is just a history lesson. Since then Etihad have received approval from you to go to 10 per cent. And I think yesterday Mr Howard, the managing director or CEO of Etihad, flagged that he would like to go to 20 per cent. By virtue of that investment by Etihad, Virgin is now a majority foreign owned carrier. The fact that Etihad have been allowed to proceed to five per cent without your approval was met with some surprise in various circles. Given that Etihad is a company that is owned by a sovereign country, do you have any comment to make on that? Does that fit the criteria, or the guidelines, of what you would seek from a country's investment into a domestic company?
Ms Reinhardt : I assume they are not buying agricultural land; this is just in relation to this acquisition of Virgin.
Senator EDWARDS: In the context of the national interest test—given that your guidelines are clear that 'all foreign governments and their related entities should notify the government and get prior approval before making a direct investment in Australia, regardless of the value of the investment.'
Ms Reinhardt : It goes on to indicate that a direct investment is generally considered to be 10 per cent, although in some circumstances it is indeed under that. The approval for Etihad was done with full consultation with all the relevant agencies and, as in any case, it looked through all the issues around the implications for the industry and the implications for the Australian national interest, and obviously it was approved, as you are aware. I would note that it was also previously majority foreign owned and there was no change in that with the Etihad acquisition.
Senator EDWARDS: But they were a foreign country investing in a company which is domiciled here.
Ms Reinhardt : Yes.
Senator EDWARDS: So they did not seek permission up to the five per cent as your guidelines suggest they should. Is that right?
CHAIR: That is what I was told when I rang up about it.
Senator EDWARDS: So they got to five per cent and they thought, 'Oops!' and then they came and saw you about going to 10 per cent. Is that right? So there was no consultation with FIRB up to five per cent?
Mr Murphy : It is the preference of the government and the rule under the policy that all investments by state owned enterprises are notified to the government as of zero dollars. The policy is a little unclear in terms of direct and portfolio investment. I think Virgin were mistaken. They characterised that initial five per cent investment as a portfolio investment, not as a direct investment. If it is a direct investment and it is by a state owned enterprise they should notify us.
Senator EDWARDS: If I accept that that was an indirect investment—
Mr Murphy : No. For clarity's sake, with the policy, we are now trying to explain to everyone that if they are a state owned enterprise they should notify FIRB of any direct investment in Australian entities.
Senator EDWARDS: So that was a mistake.
Mr Wilson : Senator, the policy as it was expressed was that a direct investment was 10 per cent but in other circumstances may be a direct investment prior to that. I think that was open to interpretation as to whether an investment of three or four per cent was or was not a direct investment. We—
Senator EDWARDS: Etihad's investment could be not construed as neither, to use your terminology, a lasting interest nor a strategic long-term relationship—it clearly was a lasting interest and a strategic long-term relationship. So it was a significant investment that should have triggered—
Mr Wilson : I could get into the legal semantics with you of—
Senator EDWARDS: I do not want to do that.
Mr Wilson : If I recall correctly, the words were 'with a view to establishing a strategic or long-term interest'. Etihad already had a strategic and long-term interest in Virgin. They already had a codeshare agreement and a cooperation agreement. So it was open to their interpretation that what they were making with that particular purchase was not establishing an arrangement because they already had one and that it was not a direct investment because they were not taking 10 per cent. We have subsequently sought to clarify that so that it cannot be misinterpreted.
CHAIR: Mr Murphy, you look decidedly aggravated. Would you like a coffee?
Mr Murphy : No, I am all right. I enjoy it.
CHAIR: You are wagging your feet, grinning, mooing and complaining. I don't think you're too happy but I can get you a coffee—it'll cheer you up.
Mr Murphy : No, I am happy. I enjoy it.
CHAIR: You are not enjoying it; we can see from this side that you are not happy.
Mr Murphy : I am very happy.
Senator STERLE: Ask me if I am enjoying this—come on. No, I'm not—let's go home!
Senator XENOPHON: I just a short supplementary to Senator Edwards's line of questioning: does that mean that following that advice there will be some guidelines published on the FIRB website to clarify that issue?
Mr Wilson : We have been preparing—
Senator XENOPHON: So that will be clarified and it will be on the website. It will be transparent.
Mr Wilson : Yes.
Senator XENOPHON: Thank you.
Senator BACK: Can I ask you, maybe it is in relation to the working party, is the nature of land tenure likely to be of any influence in eventual decision making, in the sense that the land is freehold?
Is there any value from an Australian national interest perspective contemplating the purchase of that land by a foreign entity—possibly a state owned entity—that for the purposes of that purchase the land transfers from freehold to leasehold? Is there any greater level of comfort to the Australian community to be gained by that land being under leasehold arrangement for that period, however long—99 years, or whatever—rather than freehold, so that the Australian community's interests can be better protected?
Mr Wilson : This is probably outside my particular area, and I do not want to stray into policy, but it seems to me that the ownership of land, freehold or otherwise, merely gives, at best, a right to occupy. Even freehold ownership of farming land does not mean you can chop down trees as you see fit; it does not mean you can plant whatever you see fit; it does not mean that you can—
Senator BACK: Stop people coming onto the land.
Mr Wilson : In reality, for land—the least portable asset—most of the risk sits with the investor, not with the local government or the local community. The local government's or the sovereign government's capacity to damage the quiet enjoyment of land by a foreign investor is pretty high. Take it down to the domestic level: I own my house but I cannot chop down a tree as I feel like it; I cannot change the roofline without getting approval; I cannot demolish the house; I cannot put up fences; I cannot do anything. The same applies to agricultural land.
Senator HEFFERNAN: Do you have a view?
Mr Wilson : I do, and, unfortunately, there are a few trees in the way.
Senator BACK: Senator Heffernan can help you at the conclusion of the hearing.
Senator HEFFERNAN: I'd better not go any further.
Senator BACK: So the answer to my question really is, regardless of the method of the use of the land, whether it is freehold or leasehold, that the safeguards are sufficiently in place.
Mr Wilson : I think that is probably a matter for government policy, not for the board—
Senator BACK: I am sure. Your experience tells you—
Mr Wilson : but as a personal view I think that ownership of land, however constructed, probably at best gives you a right to occupy.
Senator XENOPHON: Back in 1971, the policy was that anything over $1 million would be subject to FIRB's—or the equivalent body's—approval. It has now gone to $244 million as a threshold if it is a non-state owned enterprise. Then you will need to consider this five-pronged national interest test, which is quite amorphous, and understand the reasons for that and a whole range of issues. To what extent is your ability to determine the national interest constrained or compromised by virtue of the fact that the policy directive you have is for the threshold to be $244 million? Secondly, to what extent do you, as the relatively new Chairman of the Foreign Investment Review Board, see a role to provide advice to government as to whether that threshold ought to be lowered below the $244 million figure?
Mr Wilson : Obviously, the board can only act in accordance with the legislation or the policy as it applies. So, to the extent that the policy or the legislation means that certain things are not subject to our review, it goes without saying that that legislation and those policies constrain what we might or might not be able to review. That covers the first half of your question.
Senator XENOPHON: When I put these questions to your predecessor on 9 February this year Mr Phillips said:
The charter of FIRB covers the advice the Treasurer …
And he went on to say:
Our advice is directly to the Treasurer …
To what extent do you see a role to actually give robust advice to the Treasurer to say, 'Treasurer, $244 million may not be the appropriate threshold. It ought to be lower or at a different level.' To what extent do you see that role? In respect of the threshold, if the Treasurer said, 'The threshold is $20 billion before you could look at anything,' that would mean that there would be no role for FIRB to take. You are smiling, but I do not know whether you think that is an appropriate threshold. But there must be a point at which FIRB has a role to play to give advice to the Treasurer as to what an appropriate threshold is in order to properly determine what the national interest is given the national interest considerations that you are guided by.
Mr Wilson : I can tell you that FIRB has certainly discussed these matters at its board meetings. But I do not think that within the constraints of my role here I can talk about policy per se.
Senator XENOPHON: I am not asking you to talk about policy but I am asking you if you acknowledge that your board has a role to play in providing advice to the government as to what a reasonable threshold would be. I am not asking you to tell me what you think the threshold ought to be.
Mr Wilson : As I say, our board has certainly discussed issues of where we feel that under a range of scenarios the policy and/or the act could be improved and we have certainly advised the government in those situations. It is obviously though up to the government to determine what it does with that advice.
CHAIR: We are going to have to finish up. So it is quaint, I think, that if I am a sovereign investor and if I want to buy a quarter acre in downtown Tanami Desert I go to you fellows but if I want to buy $240 million worth of the Murrumbidgee flats I do not. So if I am going to the Tanami to do business there, I have got to come to FIRB regardless, because it is urban?
Ms Gerathy : Sorry, are you talking about a state owned enterprise?
CHAIR: No. It is a non-state-owned enterprise.
Mr Murphy : If it is urban, yes. For urban land you have to come.
CHAIR: That is right. So if I want to buy a quarter acre block, so 1,000 square metres, in downturn Tanami that does not exist and I have got to go and see you fellows if I am a corporate, but if I want to buy half the Riverina I do not. Do you think that makes sense?
Mr Murphy : You can understand there are differences.
CHAIR: That is stupid. I do not want to get caught up with the stupidity but—
Mr Murphy : It is about urban land. There are rules in there for urban real estate.
CHAIR: But you have got to actually go to FIRB to buy a quarter acre in the Tanami, right?
Mr Murphy : I do not know where the Tanami is.
CHAIR: I do not doubt that for a minute. You have spent too much time in Canberra. It is urban land, for the description of the act, so you have got to do that. There is the agricultural part of the Pilbara, for a quarter of an acre. But if you want to buy Toongabbie station or somewhere, so a couple of hundred million dollars worth of the best agricultural land in Australia, you do not. Clearly, there is the national interest.
Mr Wilson : I think I can answer your question in a way that does not digress through the forbidden policy zone.
CHAIR: No, I don't want any trouble!
Mr Wilson : When the act was first put in place in 1975, land in total was entirely excluded. In 1989 urban land, which was defined as everything other than wholly rural land, was included largely, as I said earlier, around concerns about Japanese investment in Queensland tourism and the like. As I understand it, the main reason that all land was not brought into the net back in 1989 was as a result of relatively effective lobbying by the farming lobby back at that time. Whether that may have been in retrospect—
CHAIR: We don't want you to stray into policy and get a smack!
Mr Wilson : I have to go.
CHAIR: Yes, it is 7 o'clock; you've got to go.
Senator XENOPHON: Very quickly—I just want to get this straight: do you concede that the effectiveness of the FIRB's determination of the national interest test is in part determined by the threshold that is imposed upon you by the Treasurer?
Mr Wilson : Perhaps I can answer it in a way that again does not stray into the policy area. We can only consider the national interest test where a matter is subject to the act or subject to policy. So, to the extent that something is not subject to the act or subject to policy, we have no role to play.
CHAIR: We have some questions coming on notice, but we do not want you to miss your plane.
Mr Wilson : No, I must not miss my plane.
Senator NASH: Absolutely not. I can ask my questions on notice to FIRB once you have gone. Thanks, Mr Wilson.
CHAIR: Thank you for putting up with us.
Senator NASH: Mr Murphy, did you want to make any sort of opening statement around the working group at this point, given that we are now moving into what is the next section, as the chair of the working group?
Mr Murphy : No, we can just answer your questions.
Senator NASH: Do you want to take a couple of minutes to explain to the committee why you were set up and what you have actually been tasked to do, just so we are all on the same page?
Mr Murphy : The government issued a press release on 15 June to say that they wanted a working group to consult on the development of a Commonwealth foreign ownership register for agricultural land. Realistically, the purpose of all of this is to give greater transparency on the ownership of agricultural land in Australia and what is described as a more comprehensive picture of the specific size and locations of foreign agricultural land holdings, over and above what we know at the moment.
CHAIR: Why is there a need for a threshold?
Mr Murphy : Well, I am talking about—
CHAIR: Have you ever been pulled up by the highway patrol?
Mr Murphy : Sorry?
CHAIR: Have you ever been pulled up by the highway patrol?
Senator BACK: Chair, how is that relevant?
CHAIR: It is very relevant.
Mr Murphy : I was asked by Senator Nash—but I know you are the chair, Senator Heffernan—to talk about the agricultural register. If we want to talk about other issues I am quite happy to take those—
CHAIR: This is the register I am talking about.
Mr Murphy : Right.
CHAIR: Is the register going to include all sales from $1,000, as it were, to $1 billion and, if not, why not?
Mr Murphy : We set up a working group, as requested by the government. The next step in terms of that would be the issuing of a discussion paper as to the various issues surrounding this and then reporting back.
CHAIR: I accept that. So, going to the question of the highway patrol which you did not wish to pick up—
Mr Murphy : I was just—
CHAIR: There is no need to get the heebie-jeebies. I have been pulled up by the highway patrol. And I hand my licence to the highway patrolman and he goes over to the car and he puts my licence in and—it does not matter where I am—he comes back and says, 'Your driver's record is this.' I go to the doctor and give him my Medicare card, and he says, 'This is your PBS history.' I go to the tax office and give my ABN. All sales are registered at the titles office. Why have a threshold at all? Why not just press a button and say, 'These are the sales—the whole lot.'
Mr Murphy : There are two questions there. That is the threshold in terms of the existing foreign investment rules. We are talking about the register. The register, to some extent, will complement the foreign investment policy, but it is not the foreign investment policy.
If you want a register of agricultural land—and that is what we understand the government is looking at—in effect all new transactions and all post transactions will have to be captured, to give you a comprehensive view of agricultural land foreign holdings in Australia.
Senator NASH: What I was trying to get a bit of a handle on was, firstly, will it be retrospective, taking into account all the land and businesses that have been purchased by foreign entities, and will there be any kind of preclusion at all, or will the register take into account every agricultural purchase by a foreign entity regardless of value?
Mr Murphy : This goes to what the register ends up with. I suppose you could call it a design feature. The purpose of the discussion paper is to garner from the community what would be of most benefit for them and for the government.
Senator NASH: So that is something that has not been determined yet. We are just trying to get a handle on this.
Mr Murphy : Yes. That is not determined.
Senator NASH: So it is possible that we may end up with a register that still has a threshold. Because we are still in this process, it is possible that we may end up with a register that has a threshold value on agricultural purchases that are included or we may not. We may end up with a register that has a zero level. I am just trying to clarify that that has not been determined as yet.
Mr Murphy : It has not been determined. What I think we want, from what we have been directed by the government, is to come back with the most useful register for the purposes of what the government sees.
Senator NASH: Has the retrospectivity been determined yet—whether previous purchases will be taken into account?
Mr Murphy : That will have to be considered.
Senator NASH: That is part of the current consideration.
Mr Murphy : There are, in a couple of states at least, already registers. One of them is Queensland. We will talk to them about what information they have got and then work out in a reasonably short period of time what is the best thing. If you are going to go into this exercise, you want to make sure you have something that is really worthwhile out of it.
CHAIR: If everyone has to do it now for a quarter-acre in the Tanami, for example, why not do it for everyone for agriculture?
Mr Murphy : That may be the case. We will just have to see. In terms of thresholds, there have always been thresholds in foreign investment policy.
Senator NASH: That does not mean they should stay.
Mr Murphy : Other countries have thresholds.
CHAIR: Some countries—and we have got the list of them—have no-go zones in agricultural land, where it is impossible to acquire the freehold title. Do not ask me what the national interest test is behind their thinking compared to ours—and we are trying to write free trade agreements with these characters.
Mr Murphy : I know that, but we are seen at the OECD level—and you might be dismissive of it—as one of the most restrictive foreign investment regimes, more restrictive than other countries.
Senator BACK: Is part of the brief of the working party to look at this whole question of the use to which land is put? Senator Heffernan quite correctly says that, at the moment, there is this anomaly that if something is not defined as agriculture therefore it is urban. He used the Tanami Desert example. You could use the Pilbara or the Kimberley in Western Australia. Clearly it is something that has not been contemplated before. Is it within the working group's terms of reference to examine that anomaly so that we can have more than the current two categories, being agricultural and non-agricultural, for rural land?
Mr Murphy : I suppose one of the key starting points is the definition of agricultural land. Again, I do not want to be coy about it, but we are still working all these things out.
Senator BACK: You are aware—you follow the discourse as well as everyone else—that you get to this scenario where a foreign entity, or maybe an Australian entity, purchases what we recognise as agricultural land but, because they do not intend using it for agricultural purposes, there is the question of whether it gets caught up or does not get caught up when we are considering ownership of agricultural land. From a common sense point of view, my answer would be, whatever the intent is that they have for using it, it is currently agricultural land. Can I ask you to respond to that and then I will get onto pastoral leasehold land.
Ms Gerathy : In relation to the first part of your question, which I think goes to the current foreign investment screening arrangements and not the working party, the definition of rural land applies to what it is being used for now. If it is wholly and exclusively used for the purpose of primary production then that would be rural land.
CHAIR: Could I just jump in there. For the purposes of the statistical evidence of the ABS, which guided ABARES, which advised the government, the prospect that Senator Back is talking is not included in agriculture, even though it is agricultural land. The phenomena of mines buying up a whole lot of countries is ever growing, but it does not have agricultural taxation status.
Senator BACK: I am keen to hear your response to that sort of scenario.
Ms Gerathy : I will just go to the working party. There are a whole range of design features, as Mr Murphy called them, that we will have to cover off in the consultation paper which will go to the definition of 'agricultural land' and 'foreign person'. It will cover the threshold issue that we were talking about before. There are a whole range of design features that need to be taken into account. We will be seeking views from parties who have an interest in this because, at the end of the day, you want to design something that is meaningful and is not going to be too costly for people to comply with.
Senator BACK: And a company that will stand the test of time into the future—
Mr Murphy : It is probably going to be costly to set it up; you want it to be able to go in perpetuity.
Senator BACK: That was really the origin of my question. When you get, for example, pastoral land, which very often is leasehold—in fact, most pastoral land in Australia is leasehold—traditionally there are state mainly, more than federal, requirements of pastoral boards that the land be used for certain purposes, including feral animals and whatever. But, increasingly, there are mining companies. In fact, I would venture the opinion that most pastoral land in Western Australia is controlled by mining companies, whose primary business, again, is not agriculture. In fact, very often they have to have managers on their places and run stock, if the dogs have not eaten them out, simply because they have to comply with the Pastoral Lands Board requirements. I am placing this on notice rather than asking a question, but in framing the recommendations of your working party are those sorts of factors taken into account so that—
Mr Murphy : We are doing some preliminary work with other departments, like the department of agriculture, and other people and talking to peak organisations. We put out a discussion paper and then we will learn from what people tell us and then put forward realistically a viable proposition to the government. It is for them to decide what they want to do. But our brief is to try to put forward something that works.
Mr Hill : It seems to me that if you were to come to a definition of agricultural land there are a couple of ways you could do that. You could adopt the land use definitions. There are a range of those. One of them you would be familiar with in the FIRB area—the rural land definition. That is just one. That is a regulatory definition. There are other definitions for land use that might go to the ABS methods that use the ANZSIC classification. When you step away from land use definitions you start to go into where land is located. That is another way you can define agricultural land. That might be based on a zoning arrangement that the states currently use. So there are a range of options that we will need to explore.
Senator BACK: And isn't your plan going to have to contemplate a change in zoning with urbanisation so that what was rural land in 2012 is going to be suburban land?
Mr Murphy : Yes. What we would be trying to do in this exercise would be to have a register which is useful to government for a range of purposes. Foreign investment is important.
Senator BACK: Absolutely.
Mr Murphy : But hopefully it would be useful for other government planning and policies.
Senator BACK: My final question is: does your working party contemplate agricultural businesses as well as agricultural land—in other words, the businesses beyond the farm gate?
Ms Gerathy : Once again, that is a design feature. We are really looking at ownership of agricultural land. But I would imagine that, as part of the consultation process, people will bring up a range of issues.
Mr Murphy : They will see whether it is worthwhile.
Ms Gerathy : One of the things you were talking about before, Senator, is in relation to leasehold land versus freehold land. That is obviously one of the factors that we need to take into account: is it just freehold or is it leasehold if it is over 10 years, 20 years or whatever? So they are the things on which we will be seeking input from the people that we consult with.
Senator BACK: That is right. I do not suppose we need to be frightened about leasehold land. There is no land in the ACT that is freehold, is there?
Ms Gerathy : True.
Senator BACK: It is all leasehold land.
CHAIR: You may be able to assist us, and I am sorry that we have made you a bit grumpy today. We were given an answer that the politicians have been guided by the ABS survey which informed ABARES on the percentage of businesses in agriculture and the percentages of land ownership. It is a complete fraud, because it did not take trust, it did not take shelf companies and it did not take mining companies. But what it did do was to trigger it with a $5,000 threshold. You had to have an ABN and you had to be registered for agriculture; that was the trigger point for the 11,000 surveys which have informed all the commentary made. The lower trigger point was $5,000. I asked what I thought was a reasonable question: is that turnover against the ABN or profit? We were told it is neither.
Mr Murphy : I am not sure.
Ms Gerathy : I understand that it is neither. I understand that it is also the same $5,000 they use for all their agricultural measures across the ABS for all their surveys.
Senator NASH: Great. You can tell us what it is. We are really struggling.
CHAIR: To go from there, could we clarify this figure. When I had asked whether it was profit or turnover, they told us:
The estimated value of agricultural operations is a modelled value which allows us to provide a size for a business which helps in the stratification or the grouping of the businesses on our frame …
For the purposes of an ABN, the tax office does not actually know the stock numbers and they do not know whether I have five acres of irrigated lucerne or five acres of rocky granite shit. How the hell do they arrive at that figure to send me the questionnaire?
Ms Reinhardt : I cannot, unfortunately, speak for the ABS.
CHAIR: We have not found anyone who can. They cannot speak for themselves.
Ms Reinhardt : I have read the transcript. I can say it is the same $5,000 they use for all their surveys, and what they do is to say that anything that they calculate to be over $5,000, right up to the—
CHAIR: But what is the $5,000?
Ms Reinhardt : It is their measure of what could be produced on the land. I cannot offer you any more than that. I can take a question on notice.
CHAIR: They could not either.
Ms Reinhardt : But I know that they weight the outcomes for the actual income across that sector. Even though they survey some of those $5,000 properties, they certainly do not weight them heavily when they come up. As you know, it is a sample, and they then extend that out for the sector.
Mr Murphy : That is why we are taking some time as to what our definition is.
CHAIR: Take as much time as you like. We want to—
Mr Murphy : If you feel, Senator, that there are flaws in the ABS survey, that is not going to do any of us any good if you perceive it as that. So what we have to do is come up with—
CHAIR: We will. They sent the heavier group along last week—the ones we had down when Obama was here. The original people that did it said: 'Look, we didn't have the time or the resources. We had a political deadline. Therefore it's not'—
Mr Murphy : There are a range of definitions for this register, and our job is to work out—
CHAIR: My difficulty is that all these politicians, from Craig Emerson to Joe Hockey, run around quoting the figure of 89-point-whatever of businesses and the weighting for a billion dollars and the $5000 is a formula we cannot determine, but they did not take into account trusts—the Cayman Islands, shelf companies, mining companies. It was fundamentally a flawed document, which everyone now says is gospel. Senator Sterle, would you like to ask a question?
Senator STERLE: I was going to, but I am going to dedicate my time to the Senator Xenophon because he ran out of time last time.
CHAIR: Go on, Sterlo, have a crack.
Senator STERLE: No, I am just tickled pink. I can't stop laughing; I'm having a ball.
CHAIR: Senator Back?
Senator BACK: I am going very well, Chairman.
Senator NASH: I have three questions—they are all very separate things—which I am very happy to place on notice; just some detail around them will be fine. I will put mine on notice and then I will pass to Senator McKenzie. Please correct me if my figures are wrong, but my understanding is that last year FIRB rejected 43 applications for foreign investment. One was the sale of the Australian Stock Exchange, the other 42 were residential. I think over the past 10 years there have been 477 applications rejected, all of which were residential real estate but none of farms. Could you clarify that for me on notice, and perhaps give the committee some detail around the rejections of the residential and real estate transactions. I am very well aware you cannot give me any individual detail, but I want to get a sense of what was not in the national interest for a section of those rejections.
The national interest: under the guidelines you of course have to assess whether or not the foreign acquisition of the land is appropriate on a case-by-case basis, but how do you then determine whether the cumulative impact of the purchase of the many parcels of land by foreign entities is actually in the national interest?
My last question goes back to Ebro and the approval by FIRB. At the time did you know of the information on the apparent court action by Spanish growers against Ebro regarding a contractual issue, and if you did then did you take it into account? There are some real issues around that apparently for Spanish growers. I am saying 'apparently' because I am not sure, but if you were aware of it at the time did you take that into account in the context of the eventual approval of the take over of SunRice by Ebro? Thank you.
Senator McKENZIE: I have a couple of questions around data. When you are looking at assessing the effect in the national interest test—when you are looking at the effect on the community, the types of datasets you use, how you collect that, where you source that, how you use it—what weighting do you give it in your decisions? Similarly, the environment and the effects on the economy. The other issue I would like to put on notice is: yes, you have rejected or, yes, you have agreed, but are there any instances where you have made decisions and put caveats or recommendations where you have changed? I would like some detail around that too. Thank you.
CHAIR: There are no further questions. We are most grateful for your patience and endurance. Would you like to come and have a grog with us now and get into a bit of biffo or something?
Committee adjourned at 19:24