US investors 'concerned' by Australian policy, energy costs
22 October 2017, Australian Financial Review, John Kehoe
America's outgoing top local business representative and former senior diplomat, Niels Marquardt, has warned that Australia risks missing out on capital from its No.1 offshore investor because the nation has become less welcoming for foreign firms and workers.
In an exit interview after seven years in Sydney, Mr Marquardt said the typical "bullish" confidence of American executives about Australia had been undermined by the high cost of energy and labour.
Policy changes to foreign worker visas and taxes for multinational corporations had also made it more difficult for local executives of US multinational firms to win internal company battles for capital to be deployed to Australia, he said.
"The concern is they're finding it increasingly difficult to win those arguments for increased marginal investment in Australia," Mr Marquardt said in an interview in Washington last week.
"The biggest concern they have is the high cost of doing business in Australia mainly because of energy and labour."
Mr Marquardt retired as the head of business group AmCham Australia earlier this month and was previously US Consul General in Sydney from 2010 to 2013.
The former career diplomat was speaking in a personal capacity while on a business group trip to the US.
US biggest investor
Countering the widespread perception that China had become Australia's most important economic partner, Mr Marquardt emphasised that the US was easily the largest foreign investor into Australia.
He pointed to a US Studies Centre report that highlighted 330,000 jobs in Australia are at US-affiliated firms such as Amazon Web Services, Bechtel, Boeing, Citi, ExxonMobil and Google.
The total value of accumulated US investment in Australia was $861 billion at the end of 2016 and represented 27 per cent of the aggregate, according to the Department of Foreign Affairs and Trade.
The US injected the largest amount of new foreign direct investment into Australia in 2016 at $27.9 billion, ahead of $17.1 billion from Japan, $13.4 billion from the United Kingdom and $5.1 billion from mainland China.
China is Australia's largest trading partner for goods and services and the US is ranked second.
Total foreign direct investment into Australia declined for the past two years, largely due to the end of the investment boom in energy and mining projects.
Energy costs deter
Mr Marquardt said the energy price crisis had also deterred power-intensive manufacturers and other companies from investing in Australia.
"If any company is using substantial amounts of energy they're absolutely not competitive," he said.
On the country's industrial relations system, Mr Marquardt said: "It's a fairly talented but inflexible labour market and there's no change on the horizon there."
The Turnbull government has resisted making major changes to labour laws, with the Coalition still scarred from the rejection of John Howard's Work Choices at the 2007 election.
AmCham led an intensive lobbying effort to water down the Turnbull government's 457 visa changes unveiled in April, convincing Immigration Minister Peter Dutton to make some concessions for business executives and skilled workers.
"The extent to which foreigners are welcome in Australia has been called into question and that little mark isn't going to go away quickly," Mr Marquardt said.
Shock jock policy
"They [the government] didn't even hide the fact it was driven by talkback radio and tabloid press."
The initial proposal dropped the 457 visa length from four years to two years and removed a path to citizenship, which Mr Marquardt said had previously given certainty to executives relocating their families to Australia.
He lamented that senior executives and skilled workers, such as oil drillers, gas and petroleum engineers and Americans imported to train Australians to use US industrial equipment, had been caught up with targets such as cooks, cleaners and hotel maids.
"You caught a lot of dolphins in your tuna net," he said.
The government made amendments in June in a revised skilled visa list to address some of the concerns.
On tax, Mr Marquardt said a host of new measures aimed at multinationals were also frustrating US companies, particularly as Australia moved ahead of the frameworks being designed by the Group of 20 and OECD.
"If they're required to change their global business model for one market, they might decide not to do it," he said.
Chevron $340m loss to ATO
Australia has cracked down against corporate tax avoidance through a diverted profits tax, a multinational anti-avoidance rule and a lower GST threshold for imported goods bought online.
Targets have included digital giants including Facebook and Google, US pharmaceutical companies and e-commerce companies such as eBay.
US energy giant Chevron lost a landmark $340 million court case against the Australian Taxation Office in April for the aggressive use of intra-company loans for its North West Shelf gas project.
Asked in Washington earlier this month about US misgivings about Australia's multinational tax changes, Treasurer Scott Morrison said: "The actions we're taking are consistent with what the world is doing and we will continue to do it."
"Part of their own tax debate here [in Washington] confirms the fact that multinationals have been arranging their affairs in their interests and certainly not sometimes in the host countries' interests and not even in their country's interests."