AusPol / Economics / Policy

Red herrings block foreign investment

Last week Treasurer Scott Morrison decided to block the acquisition of S. Kidman and Co. Limited because it would be “contrary to the national interest”.  Kidman has 10 cattle stations across South Australia, Western Australia, the Northern Territory and Queensland comprising over 100,000 square kilometres of land.

The Coalition government frequently claim that “Australia is open for business”, yet this is the second time that this government have blocked a major investment in the agricultural sector citing “national interest” concerns (whatever that term actually means). Indeed, one of the first major economic decisions made by former Treasurer Joe Hockey was to reject a $3.4 billion takeover of GrainCorp by the US company Archer Daniels Midland.

The Treasurer has the power to block acquisitions and takeovers under the Foreign Acquisitions and Takeovers Act 1975, and acts under advice from the country’s official gatekeepers, the Foreign Investment Review Board (FIRB). There is currently a Bill before the Parliament which will make the legislation even more onerous for foreign investors. Chinese, Korean and Japanese investors in agricultural land will have their purchases vetted by FIRB at a threshold of $15 million. The Labor opposition will move amendments in the Senate to increase this to $50 million – the same threshold that applies to Singapore and Thailand courtesy of Howard-era free-trade agreements.  Why single out investors from these countries?

The Kidman decision was immediately criticised – including by the Treasurer’s own colleagues. Trade Minister Andrew Robb described the decision as “political” and suggested it was irrational. As reported in the Sydney Morning Herald:

Mr Robb said Australia had “always depended on foreign investment for agriculture, because no bugger here will put money into the sector”.

“You can’t get an Australian investor to put money into agriculture for love nor money,” he said. “Even sophisticated Australian investors won’t put money into it. Agriculture is too long term for them, even though it’s our great strength.”

Implying that opposition to the sale was irrational, he said: “I’ve heard about selling Australia forever. I just haven’t seen a farm leave the country yet.”

Asked if he was unhappy about it, Mr Robb said: “You might surmise that.”

The decision, he said, “is political”.

Of course, the response to the decision could be for the potential investors to look at acquiring individual properties – which evidences that this protectionist regulation is distorting market decisions. On a practical level, an individual acquisition could still be subject to a further rejection from the Treasurer.

The ALP’s reaction to the decision is very interesting. Shadow Agriculture Spokesman Joel Fitgibbon is right to say the Liberals are simply giving in to their junior Coalition partners on these decisions. Penny Wong takes up this theme too. Writing in The Australian, Wong gives a defence of foreign investment, with quite pointed conclusion for the Liberals:

If Turnbull wants a real break with the Abbott legacy, he should vote for an open foreign investment regime. Will the Liberals support Labor’s amendments — or vote with the protectionists from the Nationals and the Greens to impose barriers against investment?

Ouch. You might recall that in a previous post I outlined a number of examples of Labor being held hostage by the xenophobic and protectionist union movement. I can’t help but think: what would Labor’s position be if the agricultural sector was highly unionised?

There are a couple of points to be made here that often get overlooked in this foreign investment debate.

First, foreign investment in land is not a zero sum game. Instead, foreign investment is a net injection of wealth into this country. Funds for the currently Australian-owned assets will be paid to the Australian company, which will in turn use the funds to put to some other (read: more productive) use. The fact that the Australian asset is attractive to a foreign buyer probably means they can make more productive use out of it, with the potential to increase Australian employment and GDP.

Second, foreign individuals buying land – as is the case with the Kidman acquisition – is not the same as foreign countries buying land. There is a big difference.  You can’t pick up the land with you and take it anywhere, and Australian governments are no less sovereign.

Third, a related point is that the land is still subject to Australian law. A concern in the Kidman case that was cited by the Treasurer is that one of the assets – Anna Creek, Australia’s largest cattle station– is located near the Woomera Prohibited Area weapons testing range in South Australia. This is a complete red herring. Any laws that currently regulate the use and development of that land would still apply after the acquisition. Any workers employed on the land will be subject to existing Australian workplace laws, and migration laws.

Whatever “national interest” means, the economic case is clear: foreign investment is a good thing for the Australian economy – and the government’s job should be to make it easier, not restrict it even further.

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