The foreign buck stops here

Why does the Australian government create investment hurdles at the “border” for foreigners who want to put their money into the growth of our economy? It’s madness, when you look at where the money goes:

The work we have done internally says that, over the past decade, for every dollar of extra revenue we have got in the resources sector around 10c is spent on domestic labour; around 25c is spent on buying domestic services, imports into the resources sector; somewhere between 15c and 20c goes back to the state through royalties or taxation and somewhere between 5c and 10c goes to the domestic holders of the shares of the mining company. When you add all that up, somewhere between 50c and 60c of every extra dollar of income that comes into the country stays in the country, either in the form of taxation, profits or domestic services and labour.

Extract from Dr Philip Lowe, Assistant Governor, Reserve Bank of Australia

So what benefit is to be gained from “reviewing” their proposals at the border? That is, from making foreigner jump an investment-approval hurdle that no Australian firm faces?

No benefit whatever; in fact the opposite. As Wolfgang Kasper explained almost three decades ago in his little book Capital Zenophobia (the title was recently updated by Steven Kirchner and is available free from the Center for Independent Studies)— the regulations that require border review of investment proposals are nothing but a a costly sop to ignorant fears and luddism.

It’s not as though foreign investors are free to misbehave when they establish in Australia; no more than ‘native’ companies. We have sophisticated tax, securities, competition and company or directors’-liabilities laws and regulations that apply equally to firms that are established in Australia whatever their ownership. National treatment of foreign-owned firms after establishment effectively ensures they comply with our laws, pay our taxes etc.

What is the cost of border review of investment proposals? Prof. Tony Makin produced a nice short paper a couple of years ago for the Institue of Public affairs that sketeched a conservative estimate of the value of foreign investment to Australian households in the decade to 2006: at least equivalent to an added income of $2500 per worker per year, or a tax cut of $50 per week. What Stephen Kirchener’ paper shows is that it’s a competitive market for these benefits. Our share of the global foreign investment pool is by no means guaranteed (in fact, has been slipping rapidly). Every time our Foreign Investment Review Board spends six months picking-over a proposal from China (or even New Zealand!) investors, our stakes are likely to slide a little further.

Yet the Australian government and bureaucracy is vigorous in maintaining these review powers. In its February 2011 “regulatory impact assessment” of the Australia-New Zealand Investment Protocol, the government acknowledged that there would be great benefit (and little risk) from eliminating review of investment proposals from our close neighbour. But the “Office of Best Practice Regulation” concluded that elimination of investment review in particular cases would diminish its authority to disallow (other) foreign investments that it considered contrary to the ‘national interest’.

In other words, New Zealanders—whether or not employed—can come here at will (and welcome, too). But their money and know-how can’t.

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