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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