Associate Finance Minister, David Seymour says the Government has committed to action on overseas investment, labelling New Zealand’s current policy settings as “the worst in the developed world”.
“The truth is that, in the overseas investment game, New Zealand has been benched by international investors. Being 38th out of 38 countries for openness to investment means we’re simply not in the game,” said Mr Seymour (pictured).
“International investors report that our rules impose significant compliance costs, delays, and uncertain outcomes. That’s not to mention the potential investors who are discouraged from even considering New Zealand as an opportunity and simply go elsewhere.”
Mr Seymour today confirmed Cabinet has agreed to the principles for reforming overseas investment law.
“At the core of these principles is reversing the presumption that investing in New Zealand is a privilege and that investors must justify their transaction to the government,” he said.
“The new starting point is that investment can proceed unless there is an identified risk to New Zealand’s interests.”
He said the process will be guided by a Government policy statement.
“These changes are designed to overcome New Zealand’s position as the most restrictive out of the developed countries we compare ourselves to. I will now be developing detailed proposals to reform the Overseas Investment Act, with the goal to pass legislation before the end of next year.”
“We are 26th out of 38 for foreign investment as a percentage of GDP, which doesn’t sound so bad until you consider the size of our economy. United States, with its massive internal market, could afford to close itself off, but it is more open than us and gets more investment as a percentage of GDP than us.
“It would be bad enough if the world was standing still, but our partners, such as Australia’s Labor Government, are moving to liberalise their overseas investment settings further.”
Cabinet has agreed to amend the Overseas Investment Act according to the following principles:
- Retaining the scope of what we currently screen (including farmland), in order that the Government retains the legal option of screening all investments currently subject to screening;
- Fast-tracking the assessment process with the starting assumption that investment can proceed unless there are risk factors identified, by consolidating the Act’s core tests (investor test, benefit test, and national interest test);
- Providing the government flexibility to call-in these investments for detailed scrutiny on a case-by-case basis, and impose conditions or block the investment where there are risks to New Zealand’s national interest.
“There’s a simple equation that is holding back wage growth: workers with more capital get paid more. They work with better tools and technologies and, as a result, they are more productive. Other countries have more capital than us because we have one of the most obstructive overseas investment laws in the world. New Zealand workers have less capital to work with so they get paid less than they could,” Mr Seymour said.
“I’ve seen the difference that overseas investment can make. I once visited two businesses in the same industry on the same afternoon. Both had skilled and passionate people with good ideas. One had overseas investment, though, and benefited in two ways. They had more money for machinery, and they had more know-how for manufacturing and marketing their product by receiving knowledge from their partners offshore.
“Nearly every other developed country has less obstructive laws than New Zealand. They benefit from the flow of money and the ideas that come with overseas investment. If we are going to raise wages, we can’t afford to ignore the simple fact that our competitors gain money and know-how from outside their borders.
“Attracting more overseas investment is a vital part of the Government’s economic strategy. The decisions Cabinet has taken will ensure that New Zealand is a player once again, instead of sitting on the bench,” he said.
Infrastructure New Zealand has welcomed today’s announcement as an important step to increase the overseas investment “needed to supercharge New Zealand’s infrastructure uplift”.
“New Zealand faces a massive infrastructure deficit, estimated to be at least $200 billion,” says Infrastructure New Zealand Chief Executive, Nick Leggett.
“Central and local government funding will not be enough to overcome this, however increased access to overseas capital along with domestic private sector investment can help bridge the gap.
“Infrastructure can be an extremely attractive asset for international institutional investors such as pension funds and sovereign wealth funds. These investors typically seek long-term, stable investments, which infrastructure projects can provide.”
Mr Leggett said the infrastructure sector strongly advocates for greater use of private capital and PPPs across both large-scale and small-scale infrastructure projects.
“And while some of that investment may come from New Zealand, the reality is that for the big projects it is likely that we will need to look overseas,” he said.
“Creating a more favourable investment regime to attract global investors can facilitate increased interest in critical nation-building projects.
“The additional benefit to increased overseas investment is that it can help bring in international expertise, innovation and technologies that can modernise our infrastructure delivery and assist promote best global practice when it comes to building infrastructure that is resilient to future climate challenges and a growing population.”
As well as plans to streamline the overseas investment assessment process, Infrastructure New Zealand was also encouraged by the proposed requirement for a government policy statement.
“A government policy statement is a good idea because it means New Zealand can take a far more strategic approach to overseas investment,” says Mr Leggett.
“In areas such as infrastructure, where we desperately need an injection of overseas private capital, we can encourage it, and in other areas where it does not benefit us quite so much, we can seek to restrict it.
“Ultimately, creating the right investment environment is about striking a balance. Removing regulatory barriers to investment is important, but it is also important to ensure public transparency and maintain New Zealanders’ trust in the system,” he said.