John Key would have had little if any opposition when told Federated Farmers’ National Council:
Politicians who were unwavering advocates of trade and investment when they were in government have somehow turned into defenders of Fortress New Zealand while in opposition.
Their views appear to have changed 180 degrees, for the sake of politics.
That is a shame, because at stake here are New Zealand jobs, New Zealand incomes, and New Zealand futures.
The reason we allow investment to flow between countries – both into New Zealand and out of New Zealand – is because it benefits New Zealanders.
We don’t do it for any other reason – we do it because we benefit from it.
In particular, overseas investment in New Zealand creates jobs, boosts incomes, and helps the economy grow.
Overseas capital can make things happen here that wouldn’t otherwise happen, grow businesses that wouldn’t otherwise have the means to grow, create jobs that otherwise wouldn’t exist, and pay wages that are higher than they would otherwise be.
Overseas capital makes New Zealand a vastly more productive country.
So there is absolutely no way we could enjoy the standard of living we do without overseas investment.
And part of that standard of living is being able to afford the education, law and order, and health services that our families want.
A recent study concluded that overseas investment in New Zealand lifted national income by around $5 billion between 1996 and 2006. That is an estimate of the return to New Zealand from overseas investment, over and above the cost of paying interest and dividends on that investment.
Could those who criticise foreign investment come up with any practical ideas on how to get a $5 billion increase in income from domestic investment alone?
He gave examples of how investment in the wine industry, PGG Wrightson, Synlait, CRV Ambreed and Anzco had been beneficial to the country then said investment is a two-way street:
New Zealand businesses and individuals are themselves investing abroad.
There has been considerable investment, for example, by New Zealand dairy farmers in overseas farms. Fonterra, of course, has processing facilities in a number of different countries.
A free flow of investment also allows New Zealanders to diversify their savings across different countries and different industries. Most of the savings that are in the Super Fund, for example, and in many KiwiSaver funds, are invested overseas.
In fact, the total amount of equity investment into and out of New Zealand is surprisingly balanced. According to the latest figures, New Zealanders have around $53 billion of equity invested abroad while overseas investors have $61 billion of equity in New Zealand.
So international flows of investment – both into and out of New Zealand – are very important for our standard of living.
He then acknowledged that people are concerned about foreign ownership of land.
I think the fact that people are concerned with overseas ownership is perfectly legitimate.
But we should be careful not to let those concerns get out of hand.
For a start, about a third of New Zealand – including our most iconic land – is protected by being in the conservation estate. So no-one from overseas can come in and buy Mt Taranaki or the Franz Josef Glacier, for example.
Second, it is a simple fact that land can’t change nationality. People can change nationality, of course, and factories can be relocated overseas. But a piece of land in New Zealand will always be here in New Zealand.
Because it will always be here, the use of that land will always be subject to New Zealand laws and regulations. And ultimately we as New Zealanders get to determine what those laws and regulations will be.
Third, and contrary to what some people might think, there hasn’t been an acceleration of overseas sales in recent years.
In fact, as at a couple of days ago, only 11, 203 hectares of land has been sold so far this year. That is certainly well below the peak of 380,000 hectares that were sold in 2006.
Fourth, the issue of whether businesses and properties are owned by New Zealanders or people from overseas, is for the most part, squarely in our own hands.
What I mean is that no-one can be forced to sell their business to an overseas investor, just as no farmers can be compelled to sell their land to foreigners.
Obviously with mortgagee sales or receiverships things get a little more complicated but, in general, people who feel very strongly that New Zealand-based assets should remain in New Zealand hands are free to sell only to New Zealanders.
Exactly. Vendors who don’t want foreigners to buy their land don’t have to sell to them.
Moreover, New Zealanders can always buy land and other assets back. What makes that difficult isn’t the rules around overseas investment, it is the fact that New Zealand has a poor savings record and therefore a relatively small stock of capital available for investment.
If, as a country, we saved more, we would own more of the assets in New Zealand, including land, as well as being less in debt to overseas lenders.
Another very good point. If we saved more we could afford to pay more when buying.
Then there are safeguards in the Overseas Investment Act and regulations government must follow under that Act. The government has reviewed this to ensure it has the right balance between three key objectives:
- welcoming desirable investment, in recognition of the benefits it brings for New Zealanders
- providing a stable investment environment, where the rules are settled and everyone is clear about what they are; and
- addressing public concerns about overseas investment, particularly in regard to land.
This review has come to three conclusions.
The first conclusion is that the Overseas Investment Act is a fundamentally sound piece of legislation.
The Act makes it clear that it is a privilege for overseas people to own or control sensitive New Zealand assets.
In particular, it lays out that foreign investment in land is only acceptable if it substantially benefits New Zealand, according to a range of factors which include, among other things:
- the creation of new job opportunities in New Zealand
- the introduction into New Zealand of new technology
- increased export receipts for New Zealand exporters
- the introduction into New Zealand of additional investment for development purposes
- increased processing in New Zealand of New Zealand’s primary products
- protection of native bush and other indigenous vegetation; and
- protection of game species and walking access.
In addition, farm land has to be offered on the open market so that New Zealanders can bid for it as well.
These are very stringent criteria.
In fact, these are the very same criteria that Phil Goff was trying to pass off as brand new policy a few weeks ago. I welcome his endorsement of the current provisions of the Overseas Investment Act which, of course, was passed by his government back in 2005.
The second conclusion we came to in this review was that the existing process – not the key rules themselves – was too slow, cumbersome and costly.
We therefore made some changes last year to simplify some of the less-important regulations, cut red tape and speed up processing times for applications.
Those changes have been very effective. In the year to date the average time for processing an application has dropped from 63 days to 42 days.
The third conclusion we came to was that a couple of additions should be made to the existing rules.
These additions would make sure that all public concerns about overseas investment, both now and in the future, could be covered off under the rules.
So the Government is adding two more factors that ministers must consider when they assess the benefits of a proposed overseas investment in New Zealand land.
The first new factor is very wide-ranging and looks at whether New Zealand’s economic interests will be adequately promoted by overseas investment.
This will allow ministers to consider, for example, whether any of our key exports are in danger of being controlled by an overseas entity, or whether there are non-commercial motivations driving a proposed overseas investment.
The second new factor is a “mitigating factor” which looks at whether the investor has a meaningful commitment to New Zealand involvement in the running or oversight of the investment.
That could include, for example, part ownership with New Zealanders, appointing New Zealanders to the board, or listing on a New Zealand exchange.
We could look across the Tasman for a model. Australia requires the head office of at least some, it may even be all, foreign-owned Australian companies to be based in Australia and their chief executive to live there too.
So in conclusion can I stress that we allow overseas investment to flow between countries – both into New Zealand and out of New Zealand – because it benefits New Zealanders.
With the appropriate checks and balances in place, this investment is good for jobs, wages and growth.
After reviewing the overseas investment regime, and making some amendments to it, the Government is satisfied that we do now have the appropriate checks and balances.
Foreign investment in New Zealand and New Zealand investment in other countries has economic and social benefits.
Providing the interests of New Zealand and New Zealanders are safeguarded we have nothing to fear and lots to gain by enabling investment to flow freely in to our country and out of it.