The government’s Overseas Investment (Amendment) Bill is more good than bad. It is more welcoming of incoming overseas investment.
That is good for several reasons. First, billions of dollars need to be invested in infrastructure. Second, New Zealanders need higher wage rates, but that requires higher labour productivity. Productivity could be higher if it were easier for firms to invest more capital per worker. Third, overseas investment can bring know-how, access to overseas markets and proprietary technologies
Foreign investment isn't just about big corporations buying businesses. It's about a German company bringing renewable energy technology to New Zealand, a Canadian pension fund investing in our airports, or a Singaporean firm helping a New Zealand startup expand globally.
Unfortunately, the government’s proposed Bill is timid compared to earlier hopes. A year ago, it was proposed as a bold, comprehensive reform.
One aspiration was to remove the current Act’s assertion that an overseas investor is privileged if allowed to invest in New Zealand. Other countries recognise the necessity of competing for international capital and expertise and consequently adopt a more welcoming approach.
A related aspiration was to reverse the presumption that investors must justify their transaction to the government. Instead, overseas investment should be permitted as of right, unless a good case can be made to the contrary.
Under the Bill, the “privilege” presumption against overseas investment will remain for investments in fishing quota, sensitive farmland, and housing. That is disappointing.
In addition, the inchoate test of ‘benefit to New Zealander’ will remain for such investments. This test is economically meaningless because it ignores the most obvious benefit: the money paid to willing New Zealand sellers.
When a farmer sells their land to a foreign buyer for $5 million instead of a local buyer offering $4 million, that extra $1 million is a tangible benefit to New Zealanders. The seller gets more money to spend or invest. Ignoring this benefit makes no economic sense. But that is the current situation.
A second problem with the benefit of the New Zealand test is that no one can know what improvements the hypothetical alternative New Zealand buyer would make. That turns into mere guesswork the test of whether the foreign buyers’ promised improvements offer an extra benefit.
Think of the burden of proof issue this way: imagine you wanted to open a lemonade stand, but first had to prove to officials that your lemonade would benefit the neighbourhood more than anyone else's. That's essentially what New Zealand's current system demands of foreign investors, even when bringing money, jobs, and expertise to our economy.
In contrast, the good news in the Bill is material and welcome. First, it does drop the privilege concept and reverses the burden of proof for other overseas investments. Second, it accelerates regulators’ decisions.
An application will be automatically approved at the end of 15 working days ─ unless the regulator finds a good national interest reason for holding it up for further consideration. That reduces the scope for Ministerial interference.
The said national interest test is broader and fuzzier than the Treasury’s recommended national security and public order test, largely reflecting the Irish and UK regimes.[1]
The national interest test includes economic and social considerations. The Treasury plausibly argues that its uncertainties will make New Zealand less attractive. This would work against the government’s economic growth objective.
A fundamental question is why it matters who is doing the investment. Why should investments from overseas be treated differently from domestically sourced investments?
The starting presumption should be straightforward: investment is welcome in New Zealand regardless of its source – domestic or foreign. Any discrimination between the two sources needs a reasonable justification, with remedies that match the actual problems.
Answers to that justification question should inform the differential treatment.
National security issues are a valid reason for drawing a distinction. Governments should be concerned if hostile powers gain control of potentially critical infrastructure such as telecommunications networks, transport facilities or electricity grids. The potential for surveillance and harassment of individuals, the invasion of privacy and the protection of patents are other such concerns.
The Bill allows future governments to declare a business "strategically important". That provides flexibility in such respects. There is a need to design such a power so as to reduce the risks of its misuse.
Some concerns are better addressed through other policies. Immigration and residency rules are better placed to keep out undesirable individuals. The Resource Management Act and associated plans and consenting address environmental and conservation issues for domestic and international owners alike.
In short, the current Bill represents useful progress, particularly the streamlined 15-day approval process and reduced ministerial interference. However, Parliament should consider going further.
[1] 12 July 2024 report, 7‘c) page 3.
To read the article on the NZ Herald website, click here.