The Productivity Commission's Register of Foreign owned Water Entitlements report today notes
In response to community concerns and a perception of rapidly rising foreign control of water assets, the Australian Government introduced the Register of Foreign Ownership of Water Entitlements (the Register) in 2017 to provide transparency about the level of foreign ownership of water. Under the Register, foreign persons are required to notify the ATO if they acquire a specified water asset or if there are changes to their foreign status or water entitlement holdings ....
In addition to some personal details, registrants furnish information on:
- the type and terms of the water right held
- when and by whom the right was issued
- the State or Territory and water system the right relates to
- the characteristics of the water resource
- the percentage of foreign ownership of the resource
- the sector in which it is used.
The ATO holds this information in the ‘basic part’ of the Register, which is not publicly available but can be shared with some authorised users for specific purposes. The ATO also prepares a statistical summary of Register data — termed the ‘statistical part’ — which provides an overview of the level of foreign ownership of water nationally, by State and Territory, by type of water resource and by sector at 30 June each year. This report is published on the Foreign Investment Review Board (FIRB) website.
The key points in the report are
- There is no compelling case for major changes to the Register of Foreign Ownership of Water Entitlements. It plays a small, yet useful, role and apart from a few tweaks should continue for now, provided its costs remain low.
- Foreign investment provides capital for businesses to grow, introduces new technologies, practices and technical expertise, and enables Australians to enjoy higher standards of living than they otherwise would.
- There is support for foreign investment within the agricultural and mining industries, but a sizeable share of the broader community has some unease with foreign investment. Foreign investment can also be conflated with other water market concerns, such as water market manipulation.
- The Register requires foreign persons to notify the ATO if they acquire a specified water asset or if there are changes to their foreign status or water entitlement holdings.
- It shows that of the share of Australian water issued as entitlements, about 11 per cent is foreign owned.
- The transparency provided by the Register helps maintain community confidence in Australia’s approach to foreign investment. It gives ministers, government agencies and other interested parties an authoritative source of information on foreign ownership of water entitlements in Australia. There is no other source for this information.
- The information provided by the Register is sufficient for its limited purpose.
- The high level summary of Register data contained in the statistical reports published by the ATO provides the necessary transparency. These reports are generally clear and easy to use.
- Compliance and enforcement activities are proportionate to the minimal risks associated with non compliance.
- There is not a compelling case to provide more granular information on foreign ownership, such as at the water source or catchment level. Such information could risk being used to identify registrants, violating confidentiality provisions.
- There is no alternative approach to the current Register that would provide the appropriate transparency at a lower cost.
- There is scope for some tweaks to the current Register.
- The statistical reports should include data on the proportion of foreign owners of water entitlements that also hold agricultural land. This would be of low cost and improve the effectiveness of the Register.
- The statistical reports should clarify several misperceptions, including by clearly stating that registration is compulsory, and that foreign ownership need not entail foreign control.
- The States and Territories should link to the Register from their water information portals.
The Commission's Findings and Recommendations are -
Rationales for the Register
F 3.1 A TRANSPARENCY RATIONALE
There is a prima facie rationale for a transparency mechanism, such as a Register, to maintain community confidence in foreign ownership of water entitlements. In the absence of a transparency mechanism, the Government may be more likely to be pressured to make (small) adverse changes to the foreign investment regime and water policy settings.
F 3.2 THE REGISTER CANNOT ADDRESS COMPETITION ISSUES IN WATER MARKETS
The Register cannot — and nor is it intended to — respond to problems with the efficient and fair operation of water markets. Anti competitive conduct, where it exists, should be dealt with through competition or water market policy.
F 3.3 THE REGISTER DOES NOT SUPPORT POLICY DEVELOPMENT OR ADMINISTRATION
Information from the Register is intended to support policy development and administration. However, the Commission has not been able to identify a tangible use of Register information for these purposes.
How is the Register performing?
F 4.1 THE REGISTER PROVIDES TRANSPARENCY BUT IS LITTLE KNOWN
The information contained in the Register and published in the statistical reports prepared by the ATO is appropriate for its narrow function. It provides clarity on the level of foreign ownership of water entitlements. However, there is a low level of awareness of the Register in the community and its information is sometimes negatively portrayed.
F 4.2 PRIVACY RESTRICTIONS ON ACCESS TO DATA ARE APPROPRIATE
Privacy restrictions on access to Register data help to preserve its integrity by maintaining registrants’ trust in the ATO and the foreign investment regime more broadly.
F 4.3 THE STATISTICAL REPORTS ARE ACCESSIBLE AND USER FRIENDLY
The statistical reports are accessible and user friendly. However, some terminology requires prior knowledge of water market concepts. Current explanatory materials risk not being understood by those unfamiliar with water markets. There have been delays in the release of the statistical reports due to the ATO’s quality assurance processes. However, Register information is not time sensitive.
F 4.4 ADMINISTRATION IS LOW COST AND SUPPORTS DATA INTEGRITY
Administrative costs of the Register are low, estimated at no more than $0.5 million a year. Included in this cost are activities necessary to support the integrity of Register data.
F 4.5 CURRENT COMPLIANCE AND ENFORCEMENT ACTIVITIES ARE SUFFICIENT
The ATO’s approach to compliance and enforcement has been targeted towards raising awareness of the Register. Enforcement activities have been limited but sufficient, in part reflecting the low risks associated with non compliance.
F 4.6 LOW COMPLIANCE COSTS, BUT THE REGISTER ADDS TO COMPLEXITY
The direct compliance costs created by the Register are low. However, it contributes to a complex set of regulatory requirements in both agriculture and foreign investment, imposing indirect costs on foreign water entitlement holders.
Reconsidering the Register
F 5.1 THE REGISTER SHOULD CONTINUE
There remains a small, yet useful, role for the Register in reducing pressures for adverse changes to foreign investment and water policies. Although the benefits are difficult to measure, they plausibly exceed the Register’s administration and compliance costs.
F 5.2 ADAPTING STATE WATER REGISTERS WOULD NOT BE COST EFFECTIVE
State and Territory water registers should not be adapted and used in place of the Register of Foreign Ownership of Water Entitlements. The registers vary significantly in coverage, terminology and frameworks used to record ownership information. Simply adding foreign ownership information to the existing, separate registration systems would entail moderate costs and be less effective than retaining the Register. It would be prohibitively expensive to recalibrate and align the different systems to enable them to provide nationally consistent estimates.
F 5.3 SURVEYS WOULD NOT PROVIDE A COMPLETE PICTURE
The Agricultural Land and Water Ownership Survey, last conducted by the ABS in 2016, provided information on the level of foreign ownership of water assets, but at a lower level of detail than the current Register. It was relatively expensive to run, and would not meet the Government’s objective at a lower cost than the Register. Other existing government information sources, such as ABS agricultural and foreign investment data sources and ABARES farm surveys, are not suitable for adaptation and use in place of the Register.
F 5.4 THE REGISTER’S MEASURE OF FOREIGN OWNERSHIP IS REASONABLE
The Register uses a reasonable method for measuring foreign ownership, which is based on the definition specified in the Foreign Acquisitions and Takeovers Act 1975 (Cth).
F 5.5 MINING WATER ENTITLEMENTS SHOULD NOT BE EXCLUDED FROM SCOPE
Although some water entitlements used in mining have different characteristics and purposes than other water entitlements, they should not be excluded from the Register’s scope. Retaining a comprehensive scope adds to the Register’s credibility.
F 5.6 GEOGRAPHIC INFORMATION IN THE STATISTICAL REPORTS
The geographic breakdown of information in the statistical reports provides sufficient transparency to support confidence in the maintenance of Australia’s foreign investment and water policy settings. There could be scope for the ATO to provide further geographic information on foreign ownership in the southern Murray-Darling Basin. The ATO, in consultation with relevant federal and state government agencies, could conduct further work to explore the feasibility, cost and merit of this proposal as part of the development of the forthcoming Register of Foreign-Owned Assets.
F 5.7 THE CASE FOR PROVIDING ADDITIONAL DATA
Most proposals to include additional information — such as on the size and structure of entitlement owners — in the statistical report would not further the Register’s objective and would entail additional cost.
F 5.8 NO CASE TO MOVE TO ‘REAL TIME’ PUBLICATION
Updating the statistical report online in real time would provide few benefits to users but would create material costs and difficulties for the ATO and registrants.
R 5.1 LINKING TO THE REGISTER FROM STATE WATER REGISTERS
All State and Territory governments should ensure that their online water registers and related portals provide a link to the Register of Foreign Ownership of Water Entitlements. They should also ensure that their water licence application processes inform applicants of the requirement for entitlement holders who are foreign persons to register with the ATO.
R 5.2 THE SHARE OF REGISTRANTS THAT HOLD LAND
In future statistical reports, the ATO should specify the share of water registrants that also hold agricultural land.
R 5.3 CLARIFYING CONCEPTS AND AVOIDING MISUNDERSTANDINGS
The ATO should revise the statistical reports or develop release materials to highlight or explain:
- that registering is mandatory
- the concepts of foreign ‘owned’ and foreign ‘controlled’ entitlements
- the distinctions between water market concepts, such as entitlements and allocations, and total available water resources
- the distinct characteristics of the use of water entitlements in the mining sector.
