27 June 2014
A damning Productivity Commission report warns that the web of subsidies and assistance to business costs $15.6 billion, and suggests the threshold for Foreign Investment Review Board scrutiny should be raised from the current $248 million to the $1.1bn enjoyed by the US and New Zealand under their free-trade agreements with Australia.
The commission’s annual review recommends that the government give it a reference for a comprehensive review, including the barriers to foreign stakes in Qantas, Telstra, airports and the media.
While praising the Coalition’s refusal to grant subsidies to SPC Ardmona and Qantas, it contains other awkward findings for the Abbott government.
It has challenged the value of the new free-trade agreements with South Korea and Japan, saying they will add to business compliance burdens, and it warns against trying to promote investment in northern Australia with special economic zones.
The commission’s attack on the foreign-investment rules comes as the government is being pulled in different directions.
It is preparing legislation slashing the threshold for FIRB scrutiny of agribusiness acquisitions from $248m to $15m to appease the Nationals.
At the same time, Joe Hockey and Trade Minister Andrew Robb are planning to offer China concessions, exempting investment by its state-owned enterprises from FIRB approval up to a threshold.
The commission says the fact that only three foreign investments have been rejected outright does not reflect the damage caused by Australia’s rules.
“The way the regime is applied may act to discourage potential investment proposals from being considered or advanced to the notification stage,” it says.
The special limits imposed in industries such as the media, telecommunications and airlines stop investment options from being advanced.
The commission cited OECD findings that only Korea, Canada and New Zealand have more restrictive rules than Australia.
Although the current inquiry into the financial system could consider the issue, the Productivity Commission said it was unlikely to do so without being specifically tasked, “given its political significance”.
The commission is critical of the free-trade agreements being signed by the government, noting that the deal with South Korea contains 5205 separate rules governing what goods can gain access to its concessions.
It says Australia would make bigger gains by cutting its own tariffs, and says the bilateral deals divert trade and investment from more efficient suppliers.
It is particularly critical of the secrecy surrounding the Trans-Pacific Partnership deal being brokered with the US and 11 other countries. By the time the text is made public, it will be too late to amend or subject to scrutiny.
The report also takes aim at the Nationals’ wish for a special economic zone in northern Australia, saying “the history of special economic zones is not a positive one”.
Firms attracted by tax advantages may have no basis for remaining if that support is removed, making the subsidies permanent. It was vital that the potential net benefits were established after allowing for excessive optimism.
The review praised the government’s hard line on subsidies to SPC Ardmona and Qantas while it noted that $16m in public funds was still pledged to Cadbury in Tasmania.
Tariff assistance to industry reached $7.8bn in 2012-13, while direct budget assistance and tax concessions cost a further $7.8bn.
Courtesy of the Australian