Attracting US Investors to Australia: The Opportunity is Now

Firm action is needed now to remove unnecessary regulatory burdens on business and incentivise US investors to choose Australia as their preferred destination. This report outlines practical recommendations to remove these burdens and drive forward the Government’s deregulatory agenda.

Foreign investment plays a vital role in Australia’s economic prosperity by bridging the gap between what Australia saves and invests every year (equivalent to ~4 per cent of GDP on average over the last few decades). The success of the US and Australian economies are particularly intertwined, with US activity in Australia contributing around seven per cent of our total annual economic output.

In 2021 widespread uncertainty from a confluence of events - most notably the COVID-19 pandemic - has motivated businesses to reevaluate their organisational structures and foreign operations. Australia should capitalise on this changing environment to position itself as a prominent destination for US investment and to increase our share of outward US investment, particularly in the Asia-Pacific region.

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The opportunity is now to pursue deregulation and encourage US investment into Australia

The urgency to act now is exacerbated by issues closer to home. These include plugging the fiscal gap left by unprecedented fiscal and revenue measures, encouraging investment to address sluggish productivity growth, and geopolitical developments in the Indo-Pacific region.

The Government’s identification of deregulation as a key focus area, and the establishment of the Deregulation Taskforce within the Department of Prime Minister and Cabinet, is welcome. COVID-19 has seen greater urgency and the application of pragmatism in cutting through red tape and further regulatory reform can attract increased investment from our trusted, strategic ally, the United States. The direct costs of compliance with regulation across Australia is equivalent to around 5 per cent of GDP every year - Australia can’t afford to get regulation wrong.

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Firm action is needed to remove unnecessary regulatory burdens on business and incentivise US investors to choose Australia as their preferred destination

Our new report together with The American Chamber of Commerce in Australia outlines practical recommendations to reduce regulatory burdens to US investment, driving forward the Government’s deregulatory agenda and supporting the country's post-COVID-19 economic recovery.

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Attracting US investors to Australia

A wide range of areas of importance to US investors was considered before settling on a short list of practical changes with the capacity to effect meaningful change, fast, for US investors in Australia. We propose the Government should prioritise a change in regulatory culture and a series of micro-reforms to reduce red tape which hampers investments.

A change in regulatory culture - to align regulatory actions with the government’s deregulatory agenda

Even the most fit for purpose regulation relies on the regulator implementing the intent of that regulation and ensuring the burden that regulated entities experience is proportionate to the risk being mitigated.
In the current environment, enhanced risk tolerances to encourage investment should be reflected in the everyday decisions made by regulators - small changes leading to large system wide impacts when viewed in aggregate.
There are already promising examples where COVID-19 has created urgency to drive regulatory culture change. However, there are examples where regulators can sometimes be too risk averse and hesitate to make timely, investment friendly decisions.

Targeted micro-reforms - to reduce red tape which hampers business and investment

As Australia looks to continue the transition from a COVID-19 management phase to recovery throughout 2021, it is critical that regulatory changes made today have a tangible impact promptly.
For this reason, the focus of this report is on regulatory culture and micro-reforms. In comparison with economy-wide reforms such as GST and Industrial Relations Reform - these are likely easier to change, easier to obtain cross-agency and departmental support and faster in delivering their intended outcomes.
Reforms, discussed in more detail in the report, span four main areas; the Foreign Investment Review Board, talent, tax policy and regulatory simplification and the removal of duplication. Together, these have potential to draw more investment from Australia’s trusted strategic ally, the United States.

The Foreign Investment Review Board (FIRB)

The FIRB’s critical role protecting our national interest must continue unimpeded - but there are opportunities to better target the regime to not unduly deter productive, US investments.

Talent

A strong supply of talented, mobile labour is a prerequisite for most multinationals before investing in a foreign country.

Tax policy

A range of tax policy reforms could help reduce businesses’ administrative burdens and make Australia an even better place to invest and do business.

Regulatory simplification and duplication.

Australia requires a well-functioning, efficient, and targeted regulatory system that operates efficiently across federal and state jurisdictions.