HOUSE OF REPRESENTATIVES, 3 DECEMBER 2020
Australia benefits from investment, but we haven't had enough of it in recent years. In preparing my remarks today, I turned to the Australian Bureau of Statistics figures on actual business expenditure. It showed that, if you looked at 2013, the year that the government came to office, business investment was around $160 billion. By 2019 it had fallen to around $120 billion, and this year looks to be somewhere around $100 billion. So, Australia has an investment problem, and foreign investment can be an important part of rectifying that.
Foreign investment, as the shadow Treasurer has noted, has played an important role in Australia's history and Labor has been supportive in a broad sense of the role that foreign investment has played. You need only look at the Japanese investment in our beef industry; American firms such as Kraft, Schweppes, Kodak, Heinz; General Motors and Ford—before the car industry was goaded to leave the country by the coalition; foreign investment in our oil and gas sectors—Royal Dutch Shell, Chevron, ConocoPhillips; and foreign investment in the movie industry. Among the movies made in Australia are The Matrix, Mission Impossible 2, The Great Gatsby, Babe and Wolverine. Australia has not only imported foreign capital but also the know-how, the additional productivity and the competitive benefits that can come from foreign investment.
Foreign investment isn't without its challenges. Large multinationals have increasingly looked in recent years to channel profits through tax havens, with one study suggesting that two-fifths of multinational profits are now channelled through tax havens. We need tougher laws to make sure that tax havens aren't misused and, in an era in which firms are increasingly engaged in weightless production, that the opportunities provided by intellectual property to move the legal location of profits to low-tax jurisdictions isn't exploited in a race to the bottom on company tax. We need to ensure too that foreign firms are operating on a level playing field and that they're not simply snapping up local firms that could otherwise provide a competitive benefit to the economy.
We know Australia has a market concentration problem. New research published just last month by Sasan Bakhtiari showed that market concentration in Australia has gotten worse over the course of the last decade. So we need to be careful as we encourage foreign investment that it's boosting the competitive landscape and we're not ending up in a situation where we have just a few big firms dominating.
The Productivity Commission this year brought out a paper on foreign investment in Australia. It noted that Australia has the fifth most restrictive foreign investment screening of the 36 OECD countries, so we are relatively restrictive when it comes to our approvals regime. Most of this is indeed due to the screening and approval regime, for which Australia has the second most restrictive scheme in the OECD. Only New Zealand has a more restrictive foreign investment screening regime than Australia, and the Productivity Commission pointed to research that suggests that New Zealand's more restrictive approach to foreign investment has indeed led to lower investment levels in that country and is potentially one of the reasons New Zealand's labour productivity has been relatively sluggish.
The report notes that were we to decrease foreign investment flows by a quarter, the wages of Australians would fall by about two per cent. It goes on to model a scenario in which Australia's foreign investment rules were moved to a level of restrictiveness equivalent to New Zealand. It estimates the cost of that would be $82 to $731 per Australian household per year, and it notes that there would be a 0.26 per cent fall in gross domestic product and a 0.24 per cent fall in wages. The Productivity Commission points out that the model it is using assumes that unemployment stays constant, but it points out that in fact it is probably more realistic to think of the impact of more constrained foreign investment as being both on wages and on unemployment, meaning that were Australia to savagely restrict foreign investment we would see even worse wage growth than we've had in these recent times. That's hard to imagine, given that wage growth has fallen to historic lows under this government and was already trending down badly before COVID-19 hit, but wage growth would be worse according to the Productivity Commission with a more restrictive foreign investment screen and unemployment would be higher.
It is worth noting that in the October budget the government announced measures aimed at increasing investment in Australia, with immediate expensing measures designed to encourage firms to increase their capital investment. If this bill has the effect of reducing investment, it would have an economic impact the exact opposite of that, and that means that Australia could face a slower recovery.
The government assures us that there is not going to be an impact on overall investment of this bill, but they've presented no careful modelling that would support that. The modelling we have is the modelling from the Productivity Commission, and that certainly leaves Labor cause for pause. That's why the shadow Treasurer has foreshadowed that Labor will move a substantive amendment in the Senate requiring Treasury to review the impact and effectiveness of the bill within the first 12 months of its commencement. I urge the Treasury to work with the boffins of the Productivity Commission, whose analysis has suggested that there could indeed be a significant impact on investment from tighter foreign investment screening, which would then mean a slower recovery for Australia.
It's certainly the case that we need to take national security concerns into account, but this can be done in a way that doesn't waste the time of foreign investors. The way in which screening was carried out for the Port of Darwin lease was ham-fisted, putting it politely. Coming only four years after the United States, our largest security ally, had agreed to rotate marines through Darwin, we failed to consult with the United States over the lease of the Port of Darwin. The investment in New South Wales energy grids is of much the same character. Australia failed to lay out the clear principles that would guide foreign investment in electricity grids. It's certainly appropriate that there be scrutiny, especially in areas such as telecommunications and electricity. Other countries have these approaches as well. But if the approaches are cack-handed and capricious then they simply deter foreign investors and ensure that Australia gets less foreign investment than we would have otherwise.
There is significant uncertainty in this bill over the definition of a national security business, particularly given its connection to the Security of Critical Infrastructure Act 2018, which is currently under review. Industry and investor groups, particularly in the resource sector, have raised the concern that these proposed changes could create sovereign risk, might deter investment, might delay application processing and might make an already complex system even harder to operate. It's important that we carry out screening in a way that doesn't waste the time of potential investors—that foreign investment screening is done swiftly and carefully. The Foreign Investment Review Board has been under-resourced and too opaque. It's been operating in a way better suited to last century. It hasn't provided the sort of clarity of guidelines to investors that you'd expect of a country which is putting in place foreign investment screening that's among the most restrictive in the OECD.
In concluding, I would highlight why it is important for me, as a Labor member, to see Australia receiving foreign investment, and that's because of the way in which foreign investment and immigration both affect the capital-labour ratio. You can think of a large-scale program of immigration as increasing the number of workers relative to the capital stock. We know in very broad terms that, if you have countries that have a lot of workers and relatively little capital, wages tend to be lower. Conversely, if you have countries that have a lot of capital and relatively few workers, wages tend to be higher. The starkest example of this is the end of the 19th century, when workers moved from labour-rich Europe to labour-scarce Australia and saw themselves earning more than anyone else in the world. One of the reasons why Australia was the so-called 'working man's paradise' in the 1800s was the fact that labour was relatively scarce.
Foreign investment does the opposite. Foreign investment means that we take in greater capital, and that means there is more capital per worker and we're able, therefore, to see wages rise. So, as a Labor representative who believes in engaged egalitarianism, who believes in the benefits of multicultural Australia and who's immensely proud of the way in which Australia has been enriched over the course of the postwar era by large-scale migration, I see foreign investment as sitting alongside that.
If we say yes to large scale migration and no to foreign investment, then we shouldn't be surprised if, over the long term, that has some downward pressure on wages. But if we say we're going to take foreign investment, appropriately screened, and we're going to be open to migrants, again, through our points based system which underpins skilled migration, then we're able to be a country that is open to the world and continues to pay high wages.
So our openness to foreign investment isn't contrary to Labor values. Indeed, it's from my Labor values that I believe that foreign investment does play a vital role in Australia. It's why I always find it strange when those on the Left say we should take more workers but no foreign capital and somehow assume that that's not going to have an effect of pushing down wages. I'd encourage my friends on the Left to be as open to foreign capital, properly screened, as they are to overseas workers and to recognise that those two things go together. They allow us to keep the capital to labour ratio where it is; to ensure that there is plenty of machinery and technology to sustain the productivity growth that supports strong wage growth. So it's as an egalitarian that I support foreign investment.
This bill before the House is one which requires careful scrutiny. We're in a challenging international environment—there's no doubt about that—but foreign investors don't come from just one country. We need a broad-principles approach, not the hodgepodge of screening thresholds that we have right now. Australia needs to approach our foreign policy by working with allies, by hewing to an international rules based order and by understanding that our greatest periods of prosperity, as the University of Sydney's Stephen Kirchner has pointed out, have been our periods of greatest openness. The late 19th century was a great period of prosperity for Australia precisely because of our openness, and the surge in living standards that occurred during the 1980s and 1990s is a marker of our return to openness. When Australia has closed itself off from the world we have suffered not just culturally but economically. We're at our best when we're engaged egalitarians. It's that philosophy that I'll bring to every debate in this House.
Authorised by Paul Erickson, ALP, Canberra.