Significant reforms to Australia’s foreign investment framework which have raised concerns among the local tech sector have been introduced to Parliament, with plans to implement them from the start of next year.
The Foreign Investment Reforms (Protecting Australia’s National Security) Bill 2020 was introduced to Parliament on Wednesday, outlining a package of reforms to try to make sure Australia’s foreign investment screening framework “keeps pace with emerging risks and global developments while remaining a welcoming destination for foreign investment”.
Under the changes, any proposed direct investment in a local company deemed to be a “national security business” will be subject to a new national security test. The Treasurer will also be handed the power to block or divest an investment deemed to put Australia’s national security at risk.
National security businesses are defined as “endeavours that if disrupted or carried out in a particular way may create national security risks” and will likely include telcos, critical infrastructure operators, companies manufacturing defence technology for another country or those storing or with access to classified or personal data relating to defence and intelligence personnel.
There will also be “increased penalties, directions powers and new monitoring and investigative powers”, while a register of foreign-owned assets will be launched.
The government said the legislation strikes the right balance of ensuring Australia remains an attractive destination for foreign investment and that national security is protected.
“Risks to Australia’s national interest, particularly national security, have increased as a result of a confluence of developments – including rapid technological change and changes in the international security environment,” the explanatory memorandum said.
“The challenge remains balancing the settings to attract foreign capital that supports the economy, while protecting the national security,” it said.
Major concerns with the proposed reforms have been raised with the government throughout its consultation since they were first announced in June this year, especially from the tech sector.
Q-CTRL founder Dr Michael Biercuk said the reforms would “imperil” the quantum sector and severely disadvantage local tech companies.
“The entire potential of quantum technology to support these ambitions is now imperilled by the unintended consequences of this draft legislation. The broad definition of ‘national security business’ in this draft legislation encompasses effectively all emerging quantum technology companies and places our sector at a tremendous disadvantage relative to competitors formed in regions with larger and more mature investor base including the US and EU,” Dr Biercuk told the government.
“Australia risks cutting off the nascent quantum technology industry at its knees by implementing an expensive and time-consuming review process on low-risk early-stage companies. Proceeding without amendment will ensure that Australia fails to capitalise on its long-term investments.”
The Law Council of Australia shared the concern that the definition of a “national security business” is “very broad and open to interpretation” and will make “compliance difficult, costly and time-consuming, in exchange for perceived but very marginal benefits to Australia’s national security”.
The Victorian government also railed against the draft legislation, saying it would damage Australia’s ability to attract innovation, research and development and investment, and lead to more companies being subject to costly reviews than previously.
“The proposed legislation in its current form has the potential to disadvantage Australia’s ability to secure international investment and consequently risks economic growth and recovery, development of human capital, knowledge transfer and innovation for the nation,” the Victorian government submission said.
“The likely impact of these changes would see Australia rise in the rankings as one of the most restrictive OECD members with regards to foreign investment regulations. This would not occur at a worst time for the nation’s economic prosperity, when foreign investment is more critical than ever in supporting the nation’s economic recovery.”