Robert Ennever | Bendemere Books

Why must we have Foreign Investment in Australia?

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Published on Tuesday, 29 July 2014 10:53

WHY MUST WE SELL OFF THE FARM?

The argument frequently put forward by those who advocate the loosely regulated and easily by-passed criteria for the sale to foreign nationals or companies of much of Australia’s scarce farming land or the rights to mineral, gas and oil resources, is that as a nation we lack the necessary funds to develop such projects.

           I suggest this is a false premise and that the true reason for the sale of our heritage is greed!  Pure, unadulterated greed! Governments assert that it will create jobs that otherwise would not be created; that Australians are reluctant to invest in such developments; that we lack the expertise or technology to carry to fruition works of such magnitude; mostly that Australia does not have the capital necessary to do the job.

          These assumptions ignore the great achievements of which we Australians can feel so justly proud, achievements we financed, planned and executed ourselves, achievements which have made us the nation we now are. The Murrumbidgee Irrigation Scheme, the Snowy Mountains Scheme, the Ord River Scheme, the Sydney Harbour Bridge, these and a host of other projects are a testimony to what Australia can manage given leadership, government support and private sector drive and initiative.

           So where do the funds come from?

           Latest figures indicate there are funds in excess of a trillion dollars locked up in superannuation funds, funds utilized by banks for forays into foreign markets, take-overs and expansions, sometimes at a loss, and loans where prudence was replaced by a desire to write larger bank books and thus ensure fatter bonuses.

           Another effect of these superannuation monies was to grossly inflate the stock market. With the advent of compulsory superannuation investors and fund managers had to look for investments in which they could place the vast amounts flowing in. The options open to them were mainly restricted to bank term deposits, the share market and government bonds. While security was important, the paramount consideration was to obtain a return which would cover their not inconsiderable management fees and still provide a return for the superannuates.

          Term deposits provided no growth component and, after adjustment was made for inflation and tax, the net return was not exciting. Other than the greater security of government bonds, much the same criticism applies to them. That left shares.

           In buoyant times, with bull markets in the ascendancy, a large proportion of superannuation money was poured into the share market with a corresponding rise in the share price of companies which in many cases had not in any way increased their intrinsic value. This forced, but unfounded, rise in the share market inevitably lead more investors and fund managers to jump on the band wagon with a consequent further inflation in share prices. Subsequent events have demonstrated the dangers of this approach.

           Could we consider this as a possible alternative?  What if the federal government were to do this?

Suppose it were to issue a Special Government Development Bond. And suppose this Bond were to incorporate the following:

1. An absolute government guarantee.
2. The ability to be traded on the market.
3. The value of the bond to be indexed and to rise with inflation.
4. The rise in value of the bond to be exempt from capital gains tax.
5. The interest payable on the bond to be half-a-percent less than the rate payable by the banks on term deposits, BUT
6. The interest realized on the bond be taxed at a flat rate of 15% where liable for tax.
7. All superannuation funds should be obliged to hold at least 20% of their total funds in these bonds.

          The above suggestion would undoubtedly upset the banks and would almost       certainly cause a flow of funds away from banks into such bonds. So what would then happen to the monies invested in a bond with so many advantages.

          The Government would set up a Development Bank and, subject to strict guidelines, provide loans to approved infrastructure and development projects at an interest rate half-a-percent lower than the prevailing private bank rate.

          This would release the trillion plus of funds presently locked up, to be utilized for the benefit of all Australians and remove the need to sell off that which can never be replaced, our land and resources.

Robert Ennever