The Victorian government has railed against the federal government’s proposed reforms to foreign investment rules, saying they would damage the country’s ability to attract innovation, research and development, and investment.
The federal government unveiled draft legislation earlier this year making a series of significant reforms to Australia’s foreign investment rules.
Under the proposal, the Treasurer will be handed the power to change, block or divest an attempted investment in an Australian company by a foreign investment.
The monetary threshold to scrutinise an investment has also been scrapped, with a national security test to be applied to any “national security business”, defined as a company that “if disrupted or carried out in a particular way may create national security risks”.
These will likely include telcos, critical infrastructure operators, companies manufacturing defence technology for another country and those storing data.
In a submission to Treasury on the draft legislation, the Victorian government raised a number of concerns with the reforms saying they would damage Australia’s ability to attract foreign investment and disproportionately impact the tech sector.
It said the reforms would lead to more companies being subject to national security reviews than previously, and that they would jeopardise Australia’s ability to attract foreign investment, particularly damaging key industries such as artificial intelligence and medical technologies.
“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 research and university sector already heavily impacted by COVID-19 is likely to be significantly negatively impacted by the proposed changes, as it relies heavily on investment from foreign owned companies.
“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 could not occur at a worse time for the nation’s economic prosperity, when foreign investment is more critical than ever in supporting the nation’s economic recovery.”
Nearly a third of the $27 billion invested in Victoria from 2015 to 2019 went to the software and IT sectors, and these areas will be “disproportionately impacted by the proposed changes”, the state government said.
The Victorian government said the draft legislation would have broad and unforeseen impacts and would lead to significantly more investments being subject to review than would have been in the past.
“The broad reaching and retrospective nature of the powers risk creating a perception of increased sovereign risk for foreign investors that could result in Australia being considered a less attractive investment destination,” it said.
The legislation has broad and unclear definitions that could potentially lead to significant regulatory burdens being imposed on tech companies, the Victorian government said.
“These issues create uncertainty and have the ability to greatly impact on a company’s decision to invest into Australia and therefore negatively impacts the attraction of new and innovative technologies, reducing our economic competitiveness during a significant economic downturn,” the submission said.
The last resort powers included in the reforms, allowing the Treasurer to require the divestment of an already approved investment, would diminish Australia’s international competitiveness and impact innovative companies.
“The criteria that would constitute a change in the national security considerations of an action could mean hypothetically that a company operating in Australia that develops game changing renewable energy technology, life-saving vaccines, or numerous other market shifting technologies, may be at risk of unexpected imposition of conditions or even forced divestment,” the submission said.
“Risk, perceived or otherwise, from these changes may have significant flow on impacts to venture capital, private equity and sovereign wealth fund inflows into Australia,” it said.
“This will in turn reduce the attractiveness of conducting research and development in Australia and therefore reduce the nation’s competitiveness in key sectors of the future.”
The federal government has not yet articulated why these changes are needed at all, the Victorian government submission said.
“It would be beneficial if the Commonwealth elaborated on how the current national interest test is not sufficient to deal with the ‘rising national security concerns’ that are the stated impetus for undertaking these changes,” it said in the submission.