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Economics Legislation Committee
Australian Competition and Consumer Commission

Australian Competition and Consumer Commission


Senator WONG: Have you tabled your annual report?

Mr Lonsdale : For FIRB?

Senator WONG: For 2014-15.

Mr Lonsdale : Not for 2014-15.

Senator WONG: Why is that?

Mr Lonsdale : It is routine for the FIRB to publish an annual report. It is not a legislative requirement, because it is not a statutory body, but it is routine that we would publish it. This year we published the previous year in March or April. I do not have a time frame on it, but we are working on it and we will publish one.

Senator WONG: When was it transmitted to the Treasurer?

Mr Lonsdale : The annual report for 2014-15 for FIRB has not been transmitted to the Treasurer.

Senator WONG: Thank you. I go to the RIS issues we were discussing before. You have never done a cost-benefit analysis of the effect of the government's changes to FIRB thresholds for agricultural land and agribusiness, correct?

Mr Lonsdale : Let me check that.

Senator WONG: Or have you?

Mr Lonsdale : I am advised that it is included in the RIS.

Senator WONG: Have you done as part of that an assessment of the effect of this policy on investment flows?

Mr Earl : The RIS does go into the impact of the lower agricultural thresholds on foreign investors.

Senator WONG: I do not have it here. Does it go to a view about the effect of no policy change versus this policy change?

Mr Earl : Yes, it does do a comparison between no policy change and the lower thresholds. Then it looks at our view of how many additional cases will be brought within the system and the compliance cost.

Senator WONG: I remember that bit but at this stage I am actually more interested in flows. What was the conclusion in relation to investment flows?

Mr Earl : The view that was taken in the RIS is that we do not think it will have a significant impact on investment flows in the agricultural sector. That is because we do not think FIRB is a significant burden on investors. Having to come through the FIRB process, given the record that most applications are generally approved, we do not think will have a significant impact on investors. We do not expect to see a reduced investment into the agricultural sector from those lower thresholds.

Senator WONG: Are you assuming ceteris paribus—everything else continues and there are no changes other than policy change?

Mr Earl : Yes, that is essentially it.

Senator WONG: Can you explain the answer to BET61? The answer given to me was that 'a detailed analysis of the costs and benefits of options other than election commitments other than the no policy change was not required'. That is on page 3 of the answer. If you did not do the no policy change, how can you assess the effect of the policy change? I do not understand that.

Mr Earl : We do not do a detailed assessment of no policy changes in terms of compliance costs and things like that. The RIS does include a no policy change section, but the assessment done in relation to the no policy change is not as detailed as it is for the other sections, where we are making changes.

Senator WONG: Can you say that last bit again?

Mr Earl : The RIS does include a section on no policy change, but the assessment in relation to that section is not as detailed as the other sections, where we are making changes. We are assuming in that case that there are not going to be additional compliance costs, so we do not go through a detailed assessment of what the different compliance costs would be for the no-change option.

Senator WONG: I now go to the effect. I want to take you through the sequence. We have an 11 February 2015 policy announcement and the 25 February options paper. As of 1 March 2015, by administrative action, the screening threshold for foreign purchase of agricultural land went from $250 million to $15 million, correct? That has occurred as a result of ministerial action. You then announced on 2 May a package of changes to 'strengthen' the foreign investment train work, which included the register and increased scrutiny around foreign investment in agriculture. That is a legislative change giving effect to the $15 million. Is that right?

Mr Earl : Not really. The 11 February announcement announced that the government would lower the agricultural screening threshold for agricultural land to $15 million cumulative and also the introduction of the register of agricultural land. Those measures were essentially re-announced on 2 May as part of the broader reform package.

Senator WONG: And the agribusiness proposition was the 2 May announcement?

Mr Earl : Yes.

Mr Lonsdale : Just to be clear: the 2 May announcement had six bits to it: transferring the residential real estate functions to the ATO, stricter penalties versus, application fees—

Senator WONG: scrutiny around foreign investment an agriculture, transparency for the land register and a more modern and simple foreign investment framework.

Mr Lonsdale : Correct.

Senator WONG: Then you have the bills introduced into the House. They are currently in the Senate.

Mr Lonsdale : The bills were introduced in August, yes, and the regs are currently being consulted on. The measures are scheduled to begin on 1 December subject to parliament.

Senator WONG: Not all measures. Some measures have already begun

Mr Lonsdale : You are talking about the February ones?

Senator WONG: Yes.

Mr Lonsdale : Correct.

Senator WONG: I want to understand a couple of things about the effect of changes. First I want to confirm that the $15 million figure for agricultural land is not proposed to be indexed annually.

Mr Earl : That is correct.

Senator WONG: Is the $1 billion—which is now a $1.094 billion figure—for investors from the United States, New Zealand and Chile indexed?

Mr Earl : Yes, it is.

Senator WONG: And the indexation is obviously to keep the real value of the threshold at the same level, yes?

Mr Earl : That is correct. It was part of the agreement with the United States that we would index that threshold.

Senator WONG: But in the absence of indexation you will actually, effectively, tighten the threshold ever year.

Mr Earl : In essence that is right.

Senator WONG: So why is the $15 million not indexed?

Mr Lonsdale : That is a policy issue.

Senator WONG: What is the rationale?

Mr Lonsdale : That is a government decision that $15 million is the number.

Senator WONG: If you were an investor from the United States, New Zealand or Chile, your threshold gets indexed each year. If you are an investor from China, you have a flat $15 million threshold for however many years this government stays in power. Is that right?

Mr Lonsdale : You are correct that one is indexed and the other is not indexed.

Senator WONG: What about cumulative investment? Is the billion-dollar-plus threshold cumulative?

Mr Earl : No, it is not.

Senator WONG: Is the $15 million threshold cumulative?

Mr Earl : Yes, it is.

Senator WONG: Why, if I am an American investor, can I make many different investments and stay under the threshold but, if I am a Chinese investor, every single investment I make is counted for the purposes of getting me to the $15 million?

Mr Earl : That is the government's policy. The threshold for the United States was an agreement that was locked into the Australia-United States Free Trade Agreement. Australia cannot change the treatment of US investors without either renegotiating those commitments or breaching the agreement?

Senator WONG: But what is the policy rationale?

CHAIR: I think we will leave that to the government.

Senator WONG: I know, because it is a National Party commitment, but it is ridiculous economic policy.

Senator WILLIAMS: No, actually—

CHAIR: Senator Williams, I do not want you participating in this.

Senator WONG: It is ridiculous economic policy. You have a threshold where over time the real value declines.

CHAIR: It was only meant for you and for Senator Canavan. If you are going to go to policy, I am going to pull you up.

Senator CANAVAN: Senator Wong can promote the National Party's policies.

Senator WONG: Sure. Senator Sinodinos, can you explain the policy rationale for me as to why it is that not only do American investors get a far higher threshold but it is also indexed and non-cumulative, but a Chinese investor has a $15 million threshold which is not indexed and is cumulative. I am sorry, Senator?

Senator WILLIAMS: And Japanese and South Korean.

CHAIR: Not only Chinese.

Senator WONG: Basically why the Asian countries get—

Senator WILLIAMS: We are tightening selling off the farm.

Senator WONG: Did you say: we are tightening selling off the farm? Is that government policy—

CHAIR: Senator Wong, you threw it in.

Senator Sinodinos: Rather than detaining the committee, I can take that on notice. But I would say, I am aware of the Australia-United States Free Trade Agreement that was locked in in 2004—a slightly different stage and context. I will take the other one on notice and give you a proper answer.

Senator WONG: Senator Sinodinos, Senator Williams just—

CHAIR: Senator Wong, I know what you are doing. Senator Williams and Senator Canavan: do not participate.

Senator CANAVAN: Sorry, too tempting.

CHAIR: I am banning you for the next three minutes.

Senator WONG: I am asking this minister a policy question. I am allowed, if I may—

CHAIR: Ask the minister; don't refer to your—

Senator WONG: With respect, Chair, I can ask whatever question I like; you can uphold the standing orders.

CHAIR: I will.

Senator WONG: Can I finish the question?

Senator Sinodinos: I am trying to be helpful.

Senator WONG: I am asking the minister—the Cabinet Secretary. Your colleague Senator Williams just said that these were all about tightening up. What did you say?

Senator WILLIAMS: Tightening up selling off the farm.

Senator WONG: Tightening up selling off the farm—is that the Turnbull government's policy?

Senator Sinodinos: I will give you a proper response based on advice from the Treasury and others. Given I am not a Treasury—

Senator WONG: It is a political question. Is tightening up selling off the farm—you could add to Asians, if you want, because that is all it applies to—

CHAIR: Order!

Senator Sinodinos: Mr Chairman, this is now a red herring. I want to answer—

Senator WONG: I will rephrase: is tightening up selling off the farm Malcolm Turnbull's policy?

Senator Sinodinos: Our policy is to promote foreign investment subject to the safeguards that have been enacted over a period of time.

Senator WONG: Promote foreign investment, so does that include foreign investment into farms?

Senator WILLIAMS: Are you asking me?

Senator WONG: No.

Senator Sinodinos: If you look historically, we have had 200 years where we have relied on foreign capital to fill the gap between domestic savings and investment. The fact of the matter is, and this is something that is not often appreciated, the more we screw down—for example, on equity investment into Australia—for a given gap in savings and investment, we are going to have to rely more on debt capital coming in. This is one of the issues with people who have often tried to have too many controls over equity investment in Australia. The point you make about selling the farm—

Senator WONG: That is not my point; it is your colleague's—

Senator Sinodinos: The issue you make about that is that people who worry about selling down the farm have got to worry about the gap between domestic savings and investment. If you want less of that to happen, you have to meet that gap more from domestic savings. That is a macro answer, but I will get you a specific answer to the features of these agreements that you are talking about.

Senator WONG: I agree with you and I also agree—I suspect you would too, Senator Sinodinos—that foreign capital has been central to this country's economic advancement. I would also agree that, with the sort of investment that is required in our agricultural sector to scale up, it is inconceivable that we can fund that from domestic sources alone.

Senator Sinodinos: And we are seeking to promote it, but I will get you an answer to your full question.

Senator WONG: Senator Sinodinos, you say you are seeking to promote it but you are actually making it harder, and Senator Williams says your policy proposition is to tighten up selling off the farm.

Senator Sinodinos: No, not at all. Senator Williams can say whatever he wants. I will get you an answer—

Senator WILLIAMS: I always do.

Senator Sinodinos: to the specific question you have asked.

Senator WONG: Have you been advised of any impact on investment thresholds for particular investors as a result of the TPP?

Mr Earl : My understanding is that the deal given to TPP members is the same deal given to China, Korea and Japan. Private investors will get the higher threshold but there will be carveouts for agricultural investments and investments in sensitive sectors.

Senator Sinodinos: Which would cover what—national security, aviation?

Mr Earl : Critical infrastructure.

Senator Sinodinos: Which has often been the case.

Senator WONG: Can you update me on the progress of the transfer of the residential real estate functions to the ATO?

Mr Lonsdale : That transfer is going smoothly. We expect to have that in train by 1 December. We have some tax office people in situ working parallel with our people and aligning systems so that it can happen smoothly.

Senator WONG: In June 2015 former Treasurer Mr Hockey gave figures about the number of cases under investigation and the number of foreign investors who had voluntarily come forward to identify breaches of the investment rules. Can you update these figures?

Mr Lonsdale : The broad schema is that we have around 870 matters that the tax office are investigating.

Senator WONG: Is that the 195 figure adjusted? I am trying to work out if it is apples and apples, that is all. I am reading off the former Treasurer's press release and I am just trying to work out whether the 195 is the same category as you are giving me when you reference the 870 figure, or whether you are adding another category or more to that.

Mr Lonsdale : I think this is a broader category.

Senator WONG: Tell me what the 870 is and then you might be able to tell me what the 195 is now.

Mr Lonsdale : The 870 refers to matters that the tax office are investigating, in total; 400 of those have been finalised to date so that leaves about 500 that are still under investigation. I think there have been a dozen properties where the former Treasurer has provided concessional divestiture, and they were announced in the press releases of August and September. There are other cases that the tax office are examining where people have not come forward but where the tax office have identified possible unlawful foreign investment of properties which may result in forced divestiture.

Senator WONG: I am not sure whether that has given me what I was asking for. Can you give me the updated figures in the categories Mr Hockey gave the figures for?

Mr Lonsdale : I am happy to come back to you and tell you what is that pool—

Senator WONG: And then what it now is. I would appreciate your taking that on notice.

Mr Lonsdale : We are very happy to do that.

Senator WONG: So I understand, because there have been so many changes in regs, et cetera, what will commence on 1 December 2015 that is not already in operation?

Mr Earl : As Mr Lonsdale mentioned before, there are six key elements to the package. I will go through them one by one and explain which ones are starting on 1 December. The first element is transferring the residential real estate. At the moment the ATO has taken over responsibility for compliance and they will take over responsibility for screening from 1 December. As Mr Lonsdale mentioned, there are ATO staff in Treasury at the moment who we are training. The second element is stricter penalties. The stricter penalties are included in the Foreign Acquisitions and Takeovers Legislation Amendment Bill, which is currently before the Senate. The government's plan is to have that passed and come into effect on 1 December, so the new penalties will apply to investments that occur post-1 December. Similarly with the application fees, they will apply for applications from 1 December onwards.

There are three elements in the agricultural space. The first element is for agricultural land—that is the lower $15 million cumulative threshold that took effect on 1 March. The second element is the land register—this is the investors notifying the ATO directly of their agricultural land holdings and they could do that from 1 July. The third element is the new lower threshold for agribusiness—that is the $55 million threshold that will come into effect on 1 December, assuming the legislation is passed. There is another element to the package, which is a state-based land register which covers all real estate. The government is currently in negotiations with the states and the plan is for that to start on 1 July 2016. The final element is the modernisation of the legislative framework and that is scheduled to take place on 1 December, assuming the legislation is passed .

Senator WONG: Not complicated at all. In relation to agribusiness, have you assessed the scope of the proposed agribusiness definition? I am trying to get a sense of the numerical scope and coverage et cetera. I am just cutting to the chase. I cannot remember which industry, I think it was the food and beverage, who suggested it would cover half of the sector. I am trying to get a sense of what numerical, quantitative assessment of the existing definition you have undertaken.

Mr Lonsdale : Are you asking of the definition that is out—

Senator WONG: The existing proposed definition, which is in the bill—isn't it?

Mr Lonsdale : The regs.

Senator WONG: Yes, the regs.

Mr Earl : The definition is in the regulations.

Senator WONG: I want to understand what quantitative analysis you have done of what that definition will encompass—how many businesses, what proportion of the particular industries et cetera. I want to understand how you have looked at that.

Mr Earl : We did look at that when we were doing the regulation impact statement. We do not think it will bring in a significant number of cases within the system. Our estimate was around 10 or so additional cases. The reason for that is—

Senator WONG: No, that is not the question. You are doing it in terms of analysis of the number of people who have to make a FIRB application—is that how you are assessing it?

Mr Earl : Yes.

Senator WONG: I am talking about the definition of agribusiness, what is the quantitative assessment of the scope of the definition, who is potentially brought in?

Mr Lonsdale : Are you saying how many entities or businesses, the potential—

Senator WONG: Or proportions of industry. I have met with stakeholders who have suggested it is a very large proportion of their sector. Have you done that kind of analysis?

Mr Lonsdale : I think what Mr Earl is trying to explain is that of the pool that we are talking about, how many businesses will now be screened that were not screened before.

Mr Earl : Yes, how many additional cases we will screen. That is the analysis.

Senator WONG: There are so many variables in the analysis though, because you need to make an assumption about proportions of foreign investors in the sector and the investment flows.

Mr Lonsdale : It is an estimate.

Senator WONG: Do you say 10?

Mr Earl : The reason for that is the existing threshold is $252 million, but if you are requiring a stake of 15 per cent or more in an Australian company valued above $252 million then you need foreign investment approval. The new $55 million threshold is based on a value of the investment. Our analysis is that there will be some additional cases brought within the system, but a lot of those applications would have been caught by the existing rules.

Senator WONG: What is the 10 figure? Is that 10 additional FIRB applications per annum?

Mr Earl : Yes, that is what we have estimated.

Senator WONG: Assuming what pattern of investment flow? Presumably more from those nations over time. What sort of growth are you assuming?

Mr Lonsdale : If you would like to know the assumptions—do we have them?

Mr Earl : Yes, we will take those assumptions on notice.

Senator WONG: You would get one set of outcomes if you assume Chinese, Korean and Japanese investment levels in the agribusiness sector were the 10 year average. You would get another set of outcomes if you assumed that the investment flows from those origins would increase at X per cent a year.

Mr Lonsdale : Notwithstanding your point, if you vary the assumptions you can get a different answer. What we are saying is on our best estimate, on reasonable assumptions, we think the burden is low. The number of cases coming in is low.

Senator WONG: I would like to understand what information you can give me about assumptions as to the pattern of investment flows from the north Asian economies that we have been discussing.

Senator PERIS: When did you become aware of the Northern Territory government's plan to lease the port of Darwin to a Chinese private company called Landbridge under a 99-year lease agreement?

Mr Lonsdale : Our longstanding practice is not to discuss cases or potential cases in public. That is because entities that come to us expect FIRB to respect the information that they provide and we do not want to jeopardise that.

CHAIR: I will protect you there. It is the same as the ATO—we just cannot drill down into specific cases. These guys will not respond.

Senator PERIS: Okay. Can you please explain to the committee how the foreign investment framework, or threshold, works in relation to strategic assets.

Mr Earl : The way the system works at the moment is if you are acquiring a stake of 15 per cent or more in an Australian company that has assets valued above $252 million, then you need foreign investment approval. There are some exceptions to that—for countries that have been given a higher threshold through the FTAs, the $252 million threshold has increased to $1,094 million, then there are carveouts for sensitive sectors. In the case of ports, in relation to telecommunications, transport infrastructure, uranium-plutonium mining and military activities in those sectors, we do not raise the threshold to $1,094 million. In sensitive sectors the general threshold continues to apply. We also have additional rules in place if the investor is a foreign government investor. Foreign government investors require further approval for all direct investments to start a new business and for all acquisitions of an interest in land, regardless of value. So for foreign government investors, it is a zero dollar threshold. If the investment is in a sensitive sector by foreign government investors, it would be caught, and if it is above a relevant threshold for $252 million for a private investor it would be caught, in summary.

Senator PERIS: Are you able to explain how the selling or leasing of strategic assets like ports is covered by FIRB?

Mr Lonsdale : They are covered by FIRB in the way that Mr Earl outlined.

Senator PERIS: Has this transaction been scrutinised by FIRB?

Mr Lonsdale : I think that question goes directly to—

CHAIR: It goes back to the first question; we are not going to comment on any specific case.

Senator PERIS: Is that correct?

Mr Lonsdale : That is correct. I do not want to comment on any specific cases that we may or may not have dealt with.

CHAIR: I will not let you—not that you need coaching!

Senator PERIS: Has FIRB made inquiries—I do not know whether you can answer this—into whether the company is—

CHAIR: No. You can ask generic questions about what FIRB does, but if you are specifically referring to a circumstance, a company, an individual or anything, I will allow it.

Senator PERIS: Are you aware of any cost-benefit analysis being done by the Northern Territory government prior to this lease?

Mr Lonsdale : That is a question you would have to address to the Northern Territory government. I am not aware of one.

Senator WILLIAMS: Chair, aren't the senators allowed to ask about a specific company buying a specific business?

CHAIR: You can talk to all the other groups about that, but in general, with FIRB and the ATO, the case management of those things is confidential.

Senator PERIS: Has FIRB given advice to the government on this transaction?

Mr Lonsdale : I cannot add to my earlier answer on that.

Senator PERIS: Are you aware of any national security implications this leasing may have?

CHAIR: They are not going to tell you whether they are involved, so they are not going to be able to answer that question. They have not said they were involved, so how would they know?

Senator PERIS: Minister, when Senator Wong was telling you about the tightening up of selling our farms—Senator Williams made that comment—you mentioned 'within safeguards'. Darwin Port plays a central role in Australia's defence. When you are talking about the selling off of assets here in Australia, does the port not fall into that category?

Senator Sinodinos: In terms of generic policy, where the officers were going with that was that, for sensitive sectors, there would be scrutiny of proposals. Clearly they cannot go into specific cases where national security is involved. Media is another area, and aviation as well, but that is generic policy. They cannot talk about specific cases. If you have issues about that particular proposal, you should write to the Treasurer about it. I do not know whether he can add anything more, but that would be the other avenue for you to pursue it. But be assured that a sensitive case, on strategic or security grounds, would be looked at under the policy.

Mr Lonsdale : That is correct. In critical infrastructure—things like water, telecommunications and electricity—where we do get involved, we will look at issues like security, the source of funds, tax and competition. There is a whole range of issues and consultation to ensure that the investment is not contrary to the public interest.

Senator PERIS: So you can confirm that you have done that with the port?

CHAIR: No, he cannot. Mr Lonsdale just outlined that they would traditionally look at issues like ports, aviation and media. You can draw your own conclusion.

Senator CANAVAN: In those sectors—ports, telecommunications and water—would you tend to seek advice from other agencies and departments? In particular, in the case of a port, would you seek advice from the ACCC?

Mr Lonsdale : Where the transaction came to us, absolutely. There is a lot of consultation. We would go to the ACCC, the tax office, intelligence agencies and Defence. There is a whole array of agencies that we would consult in forming a view.

CHAIR: Thank you very much for your evidence.