CAPITAL XENOPHOBIA II

AUSTRALIA’S CAPITAL XENOPHOBIA—‘PLEASE EXPLAIN…’

As politicians reaffirm their commitment to free trade at the G20 and APEC, they should make sure they practice what they preach.  In Australia’s case, this means reforming restrictive rules on foreign direct investment.

In a new report released by the Centre for Independent Studies on Thursday, economist Dr Stephen Kirchner argues that mistrust of foreign direct investment, or ‘capital xenophobia’, lowers Australia’s chances of attracting the productive capital that contributes to rising living standards.

The Australian government limits foreign ownership in major firms and specific assets such as Qantas, Telstra and banks. Foreign direct investment proposals are also subject to ministerial and bureaucratic discretion, creating uncertainty for foreign investors.

According to the OECD, despite two decades of liberalisation, Australia still maintains one of the world’s most restrictive FDI regimes.

 ‘The federal treasurer enjoys sweeping discretion to reject foreign investment proposals on the basis of an open-ended definition of “national interest”. This process is arbitrary, lacking in transparency and inconsistent with the rule of law,’ says Dr Kirchner in his report, Capital Xenophobia II.

‘Foreign investors face uncertainty when seeking to invest in Australia and because of this we have underperformed in attracting our share of global FDI flows. The FDI share of total foreign investment in Australia has declined steadily since 1980s,’ says Dr Kirchner.

Dr Kirchner sets out the case for reforming Australia’s arbitrary and capricious FDI regime.  He says that ‘a new regulatory regime for FDI should be non-discriminatory, treating foreign investment the same as domestic investment. FDI should be subject to the rule of law rather than ministerial discretion, to provide certainty to foreign investors as well as the resident sellers of domestic assets.’

‘Given the depth of nationalist sentiment and capital xenophobia in Australia, politicians may be unwilling to abolish existing FDI approval process, but they should at least improve its operation.’

‘Having advised developing countries to become more open to foreign investment, it is hypocritical for a developed country like Australia to close its doors to foreign investment. The Rudd government must move beyond politicised protectionism and be more open to foreign direct investment,’ says Dr Kirchner.

The embargoed report is available at https://www.cis.org.au/policy_monographs/pm88.pdf

Dr Stephen Kirchner is a research fellow at the Centre for Independent Studies.
He is available for comment.

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