Building Integrity in Australia's Investor Immigration Program
When I hear statements from vested business interests that the government should make a significant policy change “in the best interests of Australia”, my sceptical radar is activated.
And so it is we find a small, but vocal, number of fund managers encouraging changes to Australia’s Investor Immigration program which would be “in the best interests of Australia”.
What are the changes to the Investor Immigration program which would be “in the best interests of Australia” I hear you ask? The change suggested involves increasing the amount investors are required to invest in Venture Capital & Growth Private Equity (VCPE) component of the Complying Investment Framework of the Significant Investor Visa.
What impact would such a change have on the Investor Immigration program in Australia? Will such a change deliver a benefit to Australia? Should we even be concerned about this rather obscure policy dialogue?
There is a risk that changes to the Investor Immigration Program which fail to take a “whole of government” lens to the policy objectives of the program could be detrimental to building on the success of attracting capital investment to Australia and encouraging entrepreneurs to our country.
Now, more than ever, Australia needs to leverage from the talent and attributes of successful business investors and entrepreneurs as the country rebuilds its economy impacted by COVID-19.
Let me explain how this may be achieved.
Disruptive times call for disrupted thinking
It’s not an overstatement to say that we are at a pivotal time in our history in terms global immigration policy settings. This is particularly true in the case of Australia’s Business Innovation and Investor Program (“BIIP”).
The Australian Government is currently conducting a review of the Investor Immigration Program. This government review follows a report released by the Productivity Commission in Australia recommending that one of the pillars of the Investor Immigration Program – the Significant Investor Visa – should be abolished.
In its report, the Productivity Commission asserted that the economic benefits of such visas accrue mainly to the visa holders and fund managers selling assets to wealthy foreign nationals.
The review of the Investor Immigration progarm comes at a sensitive time in Australia’s post-COVID recovery strategy. There is a robust debate taking place around the future role of skilled migration in driving economic growth.
The Australian Government has observed that in a population of 25 million, more than one in four Australian residents were born elsewhere, and half of the population has at least one parent born overseas. Clearly, immigration makes an important contribution to Australia's economy and society.
However, Australia does not have a formal population policy. This is concerning at a time when so many decisions made by government based on the impacts of population demographics. In the absence of a formal population policy, Australia’s immigration program has become the de facto population policy of the nation.
Clearly the stakes could not be higher.
Australia’s Business Investment Immigration Program
The Australian Government has a long and successful history of attracting wealthy investors and business entrepreneurs to leverage their successful business history to build their future in Australia.
Australia ranks highly as the preferred location for foreign business investors and business owners. The United States has long been the favoured destination for foreign wealthy investors via its investor immigration program. Australia has historically ranked #2 as the preferred location for wealthy foreign investors. Canada and the United Kingdom also rank highly.
It's worth noting that the Canadian Government abolished its Immigrant Investor Program (IIP) in 2014 to pave the way for new pilot programs which were intended to bring high-quality foreign investments to the country. This decision followed a significant drop in support for the program from the Canadian business community.
The Australian Government have taken a different path to Canada. In its Federal Budget announced in October 2020, the Australian Government have reinforced its commitment to attracting foreign investors and entrepreneurs and will introduce changes to improve the quality of investments and applicants.
The Federal Budget confirmed that the Australian Government Business Innovation and Investment Program (“BIIP”) will focus on higher value investors, business owners and entrepreneurs and improve the economic outcomes of the BIIP.
Details on what focus this policy change takes are yet to be released. An indication lies in similar announcements made by the Australian Government around talent immigration, which indicate that preference will be given to occupations and skills which will help deliver economic recovery and supplement health related skills in short supply locally.
Integrity is the greatest gift from Government
As an immigration and talent mobility professional with over 25 years’ experience, I look to government to implement talent immigration policies which consist of three important policy pillars:
Reflect the core values of the nation
Be nation building by generating an economic return on investment
Be built on a foundation of integrity
These foundation pillars, if sympathetically applied to policy formulation, will help to generate community support and economic return for investor and skilled migration programs.
Having stated this, I believe that the most important gift of government is to ensure that immigration programs have strong integrity measures to maximise opportunities for success.
A focus on robust and transparent integrity measures will help to garner broad based community support for skilled and investor immigration programs, at a time when the community is sceptical about the role which skilled foreign nationals play in times of high unemployment.
How this impacts the Investor Immigration Program
Australia’s Business Innovation and Investment Program was introduced in 2012. Following the introduction of the Program, the majority of investor applications originated from China - government statistics confirm that in excess of 90% of all Significant Investor Visa (SIV) applications lodged between 2012 and 2015 originated from China.
A new complying investment framework for the SIV came into effect on 1 July 2015, which had the effect of significantly reducing the level of interest from China. Whilst the number of applications lodged under the SIV program has dropped, immigrants from China still account for almost 90 per cent of those granted visas under the program.
There has been widespread speculation around why the changes in 2015 triggered a substantial reduction in applications. There seems to be consensus amongst professionals closely familiar with the Investor Immigration program, that the policy shift to a more defined Complying Investment Framework impacted on the global competitiveness of Australia’s Investor Immigration program with foreign governments offering similar investor immigration programs.
The review of the BIIP by the Australian Government therefore has a lot riding on the outcome. There is no doubt that the Australian Government will carefully consider the mountain of submissions it received from the business community when it launched the review of the program.
The following four integrity measures by the Australian Government may help to better align the Investor Immigration Program with the evolving needs of Australia’s recovering economy post-COVID.
This is not the forum for a detailed policy discussion, so the measures discussed below are more integrity areas of focus than specific measures. However, appropriate policy measures within these areas of focus will help to reinforce business and community support in the program which has the potential to deliver significant capital injection and entrepreneurial talent to Australia.
Step 1: Diversify investment portfolio providers
Are the interests of Australia, and those of investor visa applicants, best served by having one fund manager offer all product offerings in the Complying Investment Framework?
The SIV program targets a particularly vulnerable group of consumers. There has been a proliferation in markets such as China of business advisors, agents, as well as SIV product based complying fund firms, who are specifically product driven in the SIV programs. This risk to consumers is heightened, in my view, if one fund manager offers all complying products.
A logical step to consider would be to separate the Venture Capital & Growth Private Equity (VCPE) component of the Complying Investment Framework to prevent it being bundled with the other components of the Complying Investment Framework.
Step 2: Return on investment tests
This is a particularly difficult area to address in a policy setting sense. The government needs to balance building an investor immigration program which is globally competitive, with the need to ensure that the program delivers a tangible return on investment for the local economy and contributes to wider societal objectives.
For investor visas outside the SIV category, the return on investment tests are applied across two primary areas, namely:
the State or Territory where the visa applicant intends to reside have scope to apply their own application requirements which reflect their local economic circumstances; and
the Australian Government applies a number of application thresholds, including a points test, across areas such as applicants age, business turnover, qualifications as well as business and personal assets.
However, once the initial temporary visa is granted, there are limited ongoing measurements applied to the contribution the visa applicant is making to Australia, and limited visa cancellation provisions.
The risk to the visa applicant arises when they apply for permanent residence following the initial period of temporary residence. However, in this case the integrity measures are applied at the point of applying for permanent residence.
Currently the return on investment focus in the SIV program relies on the criteria applied by the Australian Government to the Complying Investment Framework. The Australian Trade and Investment Commission – Austrade – is the government agency responsible for establishing the criteria applied to the Complying Investment Framework.
The Productivity Commission concluded in its review of the SIV program that the Venture Capital & Growth Private Equity (VCPE) component was unlikely to deliver a material amount of additional economic activity in Australia. Under these circumstances, raising the amount visa applicants were required to invest in this component as part of the complying investment would risk serving the interests of fund managers rather than the Australian economy.
Perhaps a better integrity focus would be to tweak the settings in the Small Caps/Emerging Companies component. This component requires applicants to make a mandatory investment of at least 30% of the A$5 million complying investment in companies with less than A$500 million market cap, ASX listed and non-listed Australian companies.
In a post-COVID economy, it is a reasonable assumption that this sector of the Australian economy is the area most likely in need of support and investor visa applicants provide a healthy injection of capital.
An additional integrity measure which could be applied to this area would require fund managers who administer this product offering to meet minimum performance measures, and for performance results to be publicly available (ideally on the Austrade website) to help inform visa applicant due diligence.
Step 3: The sins of commission
Typically, the first service provider to offer assistance to investor visa applicants is the immigration advisor. As the Investor Immigration Program has matured, there has been a proliferation of referral and commercial arrangements between immigration advisors, fund managers and other mobility and settlement services.
The Australian Government have long-established rules which require immigration advisors to declare to their clients referral arrangements which involve payment of commissions. However, is this enough to protect this vulnerable consumer group?
Government could consider further measures to increase consumer awareness, increase transparency and disclosure of professional fees, referral fees and other benefits, and other measures to improve the integrity of the program and ensure that the best interests of the consumer are served.
Similarly, measures to limit, or prevent, commissions from fund managers to immigration advisors should be considered to help ensure that visa applicants are able to make an independent decision around the most suitable providers for their particular circumstances.
Step 4: Strengthen offshore practices
The regulatory framework governing the delivery of immigration advice to investor visa applicants outside Australia is strong.
The Office of the Migration Agents Registration Authority (OMARA) is an office of the Australian Government Department of Home Affairs. As the industry regulator for Australian migration agent services the agency administers the training, registration and conduct of qualified Migration Agents.
Australian registered migration agents who work overseas are subject to the same Code of Conduct, professional development and regulations as registered migration agents based in Australia.
Legal practitioners who practice immigration law are subject to a strict professional regulatory regime administered by the Law Society in their respective State or Territory in Australia.
However, I believe that there is scope to apply more robust and regular compliance mechanisms to businesses servicing the investor visa cohort outside Australia.
There has been a number of service providers who have entered the investor immigration market who act more as aggregators rather than advisors. These organisations tend to generate most of their revenue in this area from referral agreements, which often are counter to the interests of the consumer.
In conclusion
I’m pleased that the Australian Government have reaffirmed their commitment to the Business Investor Immigration Program. There is an important applicant cohort which will have a choice of where they decide to invest their capital and build their business future.
Australia needs to compete for its unfair share of this talent with multiple developed economies. However, this should not be at the risk of building business and public confidence in the benefits such a program delivers.