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Treasury flags tough foreign investment changes

Lachlan Maddock
— 1 minute read

Treasurer Josh Frydenberg has flagged massive changes to foreign investment rules as Australia’s geopolitical climate becomes more complex.

The Treasurer has flagged three changes to Australia’s foreign investment laws as the country grapples with a changing geopolitical climate and potentially subversive foreign actors. 

“Today’s reforms to our foreign investment framework are the most significant since the establishment of the act in 1975,” Treasurer Frydenberg said. 

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The reforms fall into three key areas. There will be a new national security test, which will subject foreign investors – not just government investors – to review if they attempt to invest in what is viewed as a “sensitive national security business”. That definition will cover businesses in the telecommunications industry and those already covered under the Security of Critical Infrastructure Act.  

The Treasurer will also have a new power to call in an investment if it creates a national security risk and the business is not already viewed as a sensitive national security business. The Treasurer will also be able to impose conditions or force a divestment “in a very limited number of exceptional cases” – for example, if the activities of an acquired business change substantially.

The second reform will strengthen the compliance and integrity framework with heightened penalties and a stricter enforcement regime. The third change will streamline the approval process for “passive investments” – investments that are so small that the investor will gain no influence over the operational decisions of the entity. 

The threshold for scrutiny of foreign investment was dropped to zero dollars at the height of the COVID-19 crisis amid fears foreign actors would attempt to take over businesses that became insolvent as a result of lockdowns. But Prime Minister Scott Morrison was at pains to avoid the suggestion that the latest changes would create further tension with China, which has already taken aim at a number of Australian exports. 

“Countries make decisions on their own interests for their own rules and we respect the rules and interests of other countries so I see no reason why that should be the case,” Mr Morrison told media. “Australia will always design its foreign investment rules on that basis as other countries do so I don’t think there is anything extraordinary about that and that is what I would offer on that.”

The Morrison government will spend an extra $50 million to prepare agencies that review foreign investment for the changes.

 

Treasury flags tough foreign investment changes
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