The federal government was “dismissive” of concerns raised during consultations about the impact of reforms to Australia’s foreign investment laws on local tech companies, with these left unaddressed in the final legislation, according to Q-CTRL founder Professor Michael Biercuk.
During the last sitting fortnight of the year, significant reforms to Australia’s foreign investment framework were passed with bipartisan support.
The reforms include a new national security test with no monetary threshold for any company deemed to be a national security business, which are defined as “endeavours that if disrupted or carried out in a particular way may create national security risks”. The definition likely covers a number of local tech companies and startups.
The legislation also hands the Treasurer significant powers to block or divest an investment.
There are widespread concerns, including from the Australian Investment Council, the Law Council of Australia and the Victorian and Queensland state governments, that the changes will act as a disincentive for foreign investors looking at Australian companies and create significant levels of uncertainty for local businesses.
In a submission to government, Professor Biercuk said the changes would “imperil” the future of the Australian quantum sector in particular, due to its reliance on foreign investment.
Professor Biercuk also participated in Treasury-led roundtables on the legislation and asked multiple questions about the impact of the reforms on the venture capital-backed tech sector but was left “disappointed” by the “dismissive responses” from the Treasury.
“For instance, when discussing the outsized potential impact of this legislation on new companies seeking VC investment, the somewhat anodyne response was ‘Treasury is aware that a larger number of entities will be captured in the updated regime’,” Professor Biercuk told InnovationAus.
“Treasury stated that the fees associated with the review regime are an impost on investors. When asked whether it would be legislated that fees could not be passed from investors to investees, Treasury responded, ‘it’s up to an individual company to secure an appropriate deal with its investors’.
“This response dismisses the standard expectations of the VC sector where the costs of a deal are generally borne by the organisation taking investment.”
Professor Biercuk also said that he asked the Treasury officials to whitelist certain countries and exempt their investors from the screening, such as the other Five Eyes countries.
“Treasury responded that they are pursuing a ‘non-discriminatory’ approach to jurisdictional enforcement. This does not comport with the clearly discriminatory nature of national security and intelligence sharing, but Treasury did not provide further clarification or justification for this gap,” he said.
There is still hope for some of the issues with the reforms to be ironed out in the detailed rules through legislative instruments, Professor Biercuk said, with an aim to make the definition of a national security business to be more specific and exempt some early-stage startups.
“We are hopeful at this stage it remains possible to better define ‘national security businesses’ to refine focus on true businesses of concern, whose disruption would indeed pose a risk to national security,” Professor Biercuk said.
“It’s hard to justify this definition for a new startup that’s been around six or 12 months and seeking international seed funding. Accordingly, we remain eager to engage with Treasury in order to craft suitable definitions that do not unreasonably burden emerging technology businesses in exciting but research-intensive areas.”