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'Profit sent overseas' and other foreign ownership myths

Guest opinion

David Cunliffe yesterday gave a speech to the New Zealand Initiative, an economics think tank. The talk outlined the Labour Party’s economic policy. It displayed so much economic confusion that it will take several posts to get through it all. Today I want to identify a fundamental conflict between Labour’s economic goal and its proposed monetary policy.

Mr Cunliffe began his speech by saying that New Zealand businesses produce too much low value stuff. Labour wants to “support New Zealand business in the journey from volume to value”.

He then claimed that “the biggest obstacle to our exporting businesses is the consistently over-valued and volatile exchange rate. Labour has long signalled it will review monetary policy to ensure our dollar is more fairly valued to help business and lower our external balance”.

A devalued dollar helps exporters sell more overseas by reducing the price foreigners pay for our goods. For example, if the NZ dollar fell from US$0.85 US$ 0.70, what an American pays for a NZ$1,000 widget would fall from US$850 to US$700. So Americans would buy more of those NZ made widgets. But, of course, the value of those widget sales would have fallen. The reduced exchange rate increases the volume of what we sell overseas by decreasing its value – the exact opposite of Mr Cunliffe’s goal.

Such confusion would be funny, if only there weren’t a chance, however small, that these people will get a chance to act on their ideas.

Profit "sent overseas"
Many on the political Left complain about foreign ownership of New Zealand businesses on the ground that the profits are “sent overseas”. 

This is a foolish misunderstanding of what happens when foreigners buy New Zealand businesses. But not too foolish to be repeated by David Cunliffe in his speech today about Labour’s economic policy: “right now [foreign direct investment] is poorly managed, and it’s Kiwis who are losing out. Overseas investors are buying up land, farms and good companies, then sending the jobs and profits overseas”.

The value of a business depends on its expected future profits. The seller of a company is in effect swapping the profits she would have got over future years for a lump sum she gets today. The lump sum (the purchase price) represents the present value of the future profits.

When a foreigner buys a New Zealand business, all the expected future profits of the business come into the country in the purchase price. When the actual future profits then go out to the new owner overseas, there is no net loss.

In fact, the transaction must involve a net gain for New Zealand. This is because, if the purchase price were exactly equal to the present value of the expected future profits, the Kiwi owner would have gained nothing from the transaction and would not have sold. The Kiwi seller must have valued the purchase price higher than the future earnings. So the transaction creates a net gain to New Zealand.

If Mr Cunliffe does not understand this, then he learnt little from his days at the Boston Consulting Group. If he does understand it but still peddles the popular myth of profits lost overseas, well, that is even worse.

Jamie Whyte is leader of the ACT Party

Comments and questions
46

David Cunliffe is a smarter man than you, old boy

You have twisted his reasoning to suit one specific agenda and to make it look like he is a complete fool. It might be the opposite and you falling in that category

So your argument would fall over if we look at a historical situation like our banking system being owned or sold to Australian banks - BNZ being sold to NAB and National Bank of NZ to ANZ in recent years.

In the case of the BNZ ( which is very relevant as your old mate Richard Prebble was part of this process and supposed wisdom at the time ) the Government received peanuts and NAB for no further investment has made billions since - all of which floods out of the country in annual dividends. The same applies to ANZ now reaping the dividends from the merged National Bank.

What is even worse in the banking sector is that the Aussie banks control about 90% of the banking sector and extract extreme margins from their NZ clients on all products they offer - far in excess of what they gauge from their Aussie customers.

So based on the banking sector alone your theory is flaky

No point going further apart from saying that the man in the street is over being rorted by the greed and ignorance of like minded people like you.

To The Doctor's concern about dividends leaving the country, I simply copy and paste a portion of one of my old blog posts. I challenge The Doctor to explain to me where the actual outflow from NZ is of these dividends 'flooding out of the country'.

The below drops the context of my initial post, but stands on its own, regardless:

' ... I put to you this tale of two dividends.

To really set the xenophobes aflame, the first dividend of $1,000 is going from the asset sales to a family in China that have invested in Mighty River. As a businessman has previously put to me, a mad, bad, sad ‘dividend outflow'. Only, is it? The dividend is paid in NZ dollars, useless to this family, so they must first exchange it for renminbi, meaning they must find someone to sell their NZ dollars too. Fortunately for them, via the beauty of markets, though they are never going to know them, an American family wanting to tour NZ buys the local currency, transfers it electronically back to a bank account in New Zealand, and the entire $1,000 is then spent in the only place it can be: here, in the cafes, restaurants, and on services. So, as no one has answered on my previous post, I again ask the patriots, where is the outflow here? Thus where is the problem?

The second dividend of $1,000 goes to Ma and Pa Kiwi. Thank goodness, intone the Luddites, the pressure from the uninformed has ensured a majority ownership in New Zealand hands still. Oh, no. NO! Ma and Pa what the hell are you doing! Oh for goodness sake, they just used their dividend to purchase that brand new LED TV they’ve always wanted shipped here from Taiwan. Surely, mercantilists, this is a disaster? The whole $1,000 is now only growing the economy of Taiwan! Dividends used to buy imports, this is a disaster for our economy. Isn't it?

Fortunately, I shall push the narrator’s wise head in here to sooth the sweating brows of those who feel wronged. Nay, betrayed. The only thing I am attempting to show, is that just as exports are merely the cost of our imports, that in this tale of two dividends lies no argument, none, zilch, zero, nadir, against privatising and selling ‘our’ assets. And my plea is for all of you to please use your minds, and figure this stuff out, because your emoting has me imprisoned in this slave state of taxation. In other words, we all need to grow up. Plus why have you all forgotten the best way to a peaceful world, is global trade based on the voluntary transaction, and that includes cross border investment.'

...

Back to Jamie's post, good one, keep highlighting what a dangerous man Cunliffe is.

Jamie, I think you've missed the real point. I'll tell you where the 'dividends' are. Every foreign dollar 'invested' in NZ banks, business or property ultimately leaves with real tangible interest attached. And we are not talking simple millions here. When the Chinese decide NZ banks, businesses and realestate are a bad bet, or they can get a better return elsewhere, all those funds (with interest and capital gains) will be uplifted and offshored. Sadly I say this as a National supporter. Cunncliffe is right on this score and it does Keys no favour to refuse to acknowledge the real damage being done.

Richard, per the challenge I gave in my comment above yours, you have to explain, as with the foreign dividends, where the 'outflow' is in your scenario.

Those 'foreign' dollars invested in NZ banks are in NZ dollars. To repatriate them to local currencies where the foreign bank account holders can use them, they have to first sell their NZ dollars to other market participants who want to use those dollars in NZ, because in NZ is the only place NZ dollars can be spent.

So again, as with the foreign dividend (hysteria), where is the outflow from NZ? Where is the damage?

Mark with all due respect you have a rather twisted view on life

Yes from a foreign exchange perspective one receiver of NZD dividends exchanges it to another party ( in your example an American family anting to holiday here ) but you miss the point completely

IN basic terms the more revenue/wealth we retain in this country through ownership the more our economy or in your example currency ( NZD ) is worth

If BNZ was NZ owned and all the profit was retained locally the dividends wouldn't need to be converted to Australian dollars and therefore the American family would not be swapping their currency with NAB - ie there would be no foreign currency transaction to transact in respect to BNZ or its profits being transferred.

And furthermore if you don't realize the more a country retains a net benefit in foreign currency transfers the more profitable or valuable it is - even if that country or institution from that country invests offshore - eg Saudi Arabia with its oil etc etc

I am surprised that you actually believe in your logic - strange to say the least

No. You miss the point.

You admit that a receiver of NZD dividends must exchange those NZD's with another party, ie they have to sell their NZD's to someone else - for that person's own currency - with the NZD's to then be spent/consumed/invested in NZ, as they must be, but then you contradict that by saying in your next paragraph that we must retain revenue/wealth in NZ.

How has that revenue/wealth actually left NZ if NZD's can only, ultimately, be spent or invested in NZ?

If a person in Australia receives a NZD dividend to their NZ bank account, they will sell NZD buy AUD, and repatriate the AUD to Australia.

There is a physical cashoutflow of profits out of NZ and into Australia.

The person on the other side of contract may be in NZ, they may not. As NZ is one of the most traded currencies they are probably an investment bank trading the carry trade.

What we do know is the wealth created has left NZ to the foreign owner. This means the Australian will spend the profits in Australia. Simple right?

No, Bob, you've missed the point completely: your logic is off. Back up to your first paragraph: That Australian has sold their NZD (to purchase AD's). Well whomever bought the NZD's from them, has to now spend those NZD's in NZ, they can't spend NZD's anywhere else.

There is no outflow. Every receiver of NZD dividends has to sell those NZD's to some other entity, Australian, German, whatever, which can only spend those NZD's back in NZ.

No one has proven on this thread there is an outflow.

(Hopefully this goes up in the right order.)

To view it from another angle, Bob, when the Australian sold the NZD's from their dividend, did someone then destroy the NZD's? Every time you buy another currency with NZD's the NZD's go onto a virtual bonfire?

Of course not. The NZD's the dividend is issued in, have to ultimately be spent back in NZ. There's no escaping this, surely.

No outflows.

The point you miss mark, is that we know that "profits" are repatriated to Australia in this example. This is generally future investment capital.

They buyer of NZD however may not have the purpose of investment. It might be to buy granny smith some veges at Woolworths.

So there is an outflow of investment capital.

You can't make that assumption. My argument is solely the NZD dividends ultimately have to be spent in NZ, there is no outflow. Whether those NZD's are spent on consumption or re-invested in productive assets is a fact neither of us know. Similar with your assumption the foreign currency bought is 'generally for future investment capital'. Perhaps it is used to purhase goods which are NZ exports?

Mark, what about the billions of dollars profits earned by Aussie companies in NZ and repatriated to their head offices in Australia and paid as dividends to their Aussie shareholders?

Has that foreign ownership created more wealth for foreign Aussie investors who spend their billions of new wealth in Australia, or has it benefited NZ more?

Mark - hypothetical question - you are an employee in a business that you will spend 100% of your working life in - would you rather receive your salary from this business with little say in its strategic direction or investment decisions for your entire life...

Or would you rather defer part of your salary and accumulate an ownership stake in this business so you can have a say in its strategic direction and investment choices and one-day be an owner of that capital and all the benefits that ownership brings?

Your short-sighted attitude is why so many NZ business are merely multinational shop-fronts and branch offices or low value distributors of imported product.

You simply don't understand what an ownership society is and are relentlessly focussed on consumption, why we constantly run current account deficits, have extremely high levels of private debt and why no meaningful business decisions are made in this country.

My answer to your hypothetical question is that I am self-employed, hence control my own destiny. We all have that choice, which answers the rest of your question, pretty much. And what is your proof 'no meaningful business decisions are being made in NZ?'

Sorry Mark you are giving free market economics a bad name by presenting such twisted logic and sophistry.

The fundamental flaw in your argument is that you appear to be buying into the mercantilism you almost certainly reject. The flaw in the economic analysis about capital and dividends are merely technically wrong based on your apparent inability to understand international capital and trade stocks and flows and how money functions as a medium of exchange in these cases.

Foreigners spending money here are doing so in exchange for goods and services produced here. It is the foreigners who get the benefits of these purchases, after all that is what they are paying for. It would obviously be better for New Zealanders to have these resources available for consumption by New Zealanders, other things being equal. Of course other things aren't equal, the money paid by the foreigners can be used to buy goods and services from foreigners. International trade takes place because it allows gains from specialisation in production and exploitation of comparative advantages in excess of the costs of mediating and transacting the trade.

The correct argument in favour of free international capital, money, management control and investment flows is that they facilitate more productive management of capital assets and business enterprises (including the labour they employ), higher returns on capital, access to lower cost finance and investment diversification. To this list you could also mention greater opportunities for protection of assets or value from confiscation and taxation, less potential for regulatory capture of industries, facilitation of productive responses to onerous government regulations/depredations and similar public choice and jurisdictional competition considerations.

Transactions in the capital markets exchanging shares in enterprises for cash between domestic and foreign owners are, ex-ante, mutually beneficial and socially beneficial for exactly the same reasons that free transactions in other markets are. If you can't understand how the transactions work and their effects between the parties maybe better to study up on the topic before diving into these debates.

Haven't seen you around for a while David. Following the SCF trial?

No disagreement at all with your argument in favour of free international capital. But that doesn't change my argument at all; there is no capital outflow from dividends going overseas. You've haven't connected with my argumentl. (Though I hadn't realised you were a nationalistic conservative? Albeit of course you're a conservative: it's your Christianity I guess?)

Why is it 'preferable that NZer's have 'these resources' if overseas owners can get a better return that must still be reinvested in NZ? While providing jobs for NZer's to boot? The overseas owners are using these resources more efficiently and profitably in a manner that ultimately must benefit NZer's because all dividends must end up be reinvested here?

But it's late, we've been entertaining all evening, a lot drunk :) I'll catch this again some stage tomorrow or Monday.

David, re-reading your post in the sober light of morning, the argument of your last two paragraphs contradicts your opening paragraphs. What is your position on foreign ownership, and what predominantly informs it: economics or nationhood?

Mark, I've not professed the Christian religion for many years, and I'm not a nationalist or a conservative either, although I am a true believer in respecting civilised traditions, and see great value in customary law and anarchy (and believe John Hasnas provides the best exposition of this school of thought).

I don't think I will try to address your argument that dividends from NZ sources owned by foreigners must be reinvested in NZ. It appears obvious that such dividend flows can be exchanged for goods exported from NZ and consumed abroad, but somehow you don't think that's an adequate or proper explanation. Flows of money mediate flows of economic resources, and it really is economic resources flowing overseas for the benefit of foreigners that dividends on foreign investment in NZ represent. These flows are in exchange for the capital invested by the foreigners in the first place. Whether such exchanges of capital for flows of dividends are the point in dispute between opponents and proponents of foreign investment and/or open capital markets.

Somehow, it appears the same flawed logic appears when it comes to interest flows and ground rent flows, and can be seen in debates on fractional reserve banking, usury and ground rent debates. It is always so difficult to show that there is indeed enough money to pay interest, to pay rent, to service bank loans and so forth, but a correct modeling and analysis shows that there is enough money or resources, and that the true issue of concern is that economic resources are flowing to land-owners, savers, investors etc. and whether or not this represents a moral or economic problem, and if so what remedy is to be proposed.

Cheers David. What parts of this can you live with (because I don't disagree with much of what you say, though you've still not tied yourself down to whether you're for or against foreign ownership?)

Foreigners provide capital, that as a country we need - with benefits flowing from it: employment, development of assets (that can't be taken from country in case of farming and land based investments), possibly better management and expertise, et al. In return, in your words, 'economic resource' (?) flows back, because investors have to gain from their investment also. The beauty of free markets is that both parties to a transaction gain.

To perhaps go further, some questions: (1) what do you mean by 'economic resource', in this context? What is 'flowing out of NZ, specifically?' We're dancing around the fallacy of mercantilism here somehow, and I'm not too sure which of us is on the wrong side of it :) (2) you say the flow of economic resource is mediated by money, which connotes money is neutral, a simple medium of exchange ... is that what you believe?

Then getting back to my notion, every NZD issued as dividends from NZ companies, regardless of ownership, has to ultimately be spent in NZ; so there is no outflow of *money*. Do you agree with that?

So, thinking out loud, some of it half-formed, how is NZ disadvantaged when the NZD's earned by a firm must remain in the country, to purchase/use/benefit from our economic resources, or perhaps to *import* 'economic resources' (?) from other countries?

Also, in your mind, is there a difference *to NZ* between a NZ owned company exporting, and a foreign owned NZ company exporting, when the NZD's earned by those exports also must all be consumed/invested back in NZ? The only difference turns on whether the dividend flow to overseas investors is then an outflow, which gets me back to my argument, and your rebuttal to which I'm asking what is flowing out of NZ?

OT are you still keeping your blog? The last time we 'chatted' was over SCF so that was a computer ago and I've not kept my bookmarks. Can't remember what your blog was called?

Mark, It looks like we're not getting anywhere debating your domestic dividend re-investment theory so I'll refrain from clarifying the points you raise.

To avoid any ambiguity on my position, I am not for or against foreign investment, I am for freedom in capital markets, and other markets too. I don't necessarily believe that money is neutral, although my argument in this case does presuppose that money is sufficiently neutral to facilitate rather than completely preclude the effects claimed. (My theory of money is unconventional and I have come to the conclusion I lack the academic credentials and the commitment of time and effort to research, develop and public the theory.)

I have also come to the conclusion that other things in life are more important than writing articles, comments or posts: I have been getting on with doing productive and enjoyable with my life rather than doing a lot of thinking, reading and writing and not enough of living. You can check my lostsoulblog if you like but you'll find it only gets something posted on there every few months these days.

Can't disagree with any of that - well, perhaps some aspects of final paragraph, but that would have nothing to do with economics. Cheers, it was interesting.

I think what someone means when they say " money is flowing out of the country" is that the value is flowing out. Say an aussie bank makes a billion in profit and decides to repatriate it. That money in NZ dollars is presented to the foreign exchange markets. It is money that would otherwise not be moved if the bank was NZ owned. The effect of that is to decrease the value of the NZ dollar relative to the Australian dollar (and likely relative to other main currencies). That means our buying power of imports is reduced.

But according to Cunliffe and Greens NZ is being sold off to foreign investment, (with dividends overseas), so why is NZ currency getting stronger and stronger against all currencies?

(I agree with your logic, but there's a lot more happening here surely. One thing is that money is not a neutral medium.)

I believe that there are a number of issues raised in Jamie's article, but the bank example is an unfortunate one to pick on if you want to assert that his theory is flaky. While I suspect that National Australia Bank has made far more in profits than anticipated at the time of its acquisition of the BNZ, on the other hand and contrary to your assertion, the BNZ has received significant additional investment over the years. Quite aside from the matter of the ANZ purchase of the National Bank (which was a purchase by an overseas company from another overseas company - and which arguably increased NZ ownership, since ANZ has a material level of NZ shareholding, unlike Lloyds before it), and also ignoring the old chestnut about gouging customers, just how much cash in dividends do the Australian banks "extract" from their New Zealand investments? From a quick sample of 2013 financials the total dividends of the big 4 banks in NZ was less than $1 billion on total profits of close to $3.4 billion. The $993 m of dividends included preference share divs paid to external funders as well. Admittedly dividends were higher the year before.
Of course there is a good reason why bank dividends may be constrained, and that is regulation. All banks operating in this country must comply with the requirements of our banking regulator, the Reserve Bank (just as banks in most other countries are also regulated). They are required to maintain minimum capital adequacy levels and so, if their asset base grows (essential for adding value to their investments) they must either limit dividends or else "top up" their investments. What people don't realise is that the amount the Australian banks have invested in New Zealand has risen by billions over the last decade. This was especially the case in the GFC period when profits were depressed at the same time as regulator requirements tightened.
This is not the only industry to benefit from ongoing investment. When anyone goes to the Overseas Investment Office the amount of the investment recorded is that for the initial acquisition. The kind of investors we most need are those willing to keep on investing, adding more jobs. There are plenty of industries where this has indeed been the case, but the extra investment is not officially recorded. If there is an issue with David Cunliffe's preferred types of inbound investment it is that they are not so different from the Key government's effective preferences as well. While I personally think there is a strong future in the technology sector, it must be acknowledged that there are two problems: (1) just about every developed or developing country seems to want to promote tech investment and (2) the very nature of this type of investment is that the number of jobs created for each dollar of investment tends to be proportionately low compared with many other sectors (just as new investment in service industries tends to produce proportionately high levels of jobs)..
And does the OIO "rubberstamp" most approvals, as its detractors repeatedly suggest? Put quite simply, what everyone wants from a regulator is transparency and reasonably predictable outcomes. The OIO process can be time consuming and it is not cheap either, especially if the applicant needs to produce reports supporting its application. Good advisers are routinely telling any overseas investors that have a low probability of success not to bother trying - and that is what keeps the percentage of OIO approvals as high as it is.

You're right - the BNZ is a perfect example;
Of when Labour was in power and lied about the strength of the economy and the state of the Governments books
Of when National on taking power found instead of a $2 billion a surplus a $2 billion deficit
Of why National subsequently passed the law that now gives us PREFU
And of the Government needing to bail out it's own bank before 'selling for peanuts' because it had shown itself to be uneconomic.

So you're right it is the perfect example - just not of what you thought.

So it is the perfect example of the core of ACT and how they would sell their own grandmother to make a buck today to forgo 10 tomorrow?

Namely Richard Prebble and Roger Douglas?

Or alternatively the NZ coy is selling a widget for US $850 and the exchange rate falls so instead of getting NZ $1, 000 they get nz $1, 215 increasing their profit. Funds expansion or they sell the business for more. In reality probably a bit of both happena lower US $ price so more sales plus higher profits.

If cuniliffe has no grasp of business nor does this guy.

A purchaser surely pays a price that is the best price a seller can get. Future profit is a matter of pure speculation, the stuff of philosophers and astrologers, not practical business folks, and people leaving a business that has ceased to make money. The price paid is usually based in some way on the residual assets and goodwill if the company is viable- a far cry from all future profits. The same would apply to businesses within NZ just as much as those sold to overseas purchasers. The more relevant thing is that if the business continues to operate in NZ it will generate tax revenue through wages and support local suppliers and this revenue, and if he business flourishes may be worth more to the country than if retained as a local enterprise.

If a business is being sold at residual asset value (or something based around that) then that business had no future under its old management. The best thing that could therefore happen to the business is to be sold on to somebody else, and thus give the NZ employees of that business a chance at continued employment.

Foreign ownership?

How about foreign debt?

If successive governments have not pandered to the politics of greed, race and envy, NZ would be buying foreign assets - not building up foreign debts to maintain our standard of living.

Think Muldoon's scrapping of NZ Super (could be hundreds of billions of $$ in there now to look after the future), never ending destructive Maori treaty claims and extortions, election bribes like interest free student loans, billion dollar bailouts of incompetent and/or corrupt companies like South Canterbury Finance and Air NZ etc.

So challenge to David Cunliffe - you man enough to talk about reducing foreign debts or yet again, we have an Opposition leader who talk the walk but cannot walk?

You hit the nail on the head by pointing to NZ's enormous foreign debt! This is essentially due to the shortage of domestic savings, which is why the NZ desperately needs foreign investment to improve the current account. David Cunliffe conveniently ignores this. Indeed with his anti-business policies, there will be no need for him to explicitly ban foreign investment - they will simply turn to the many other countries that are more welcoming to foreign investors.

What you say would be true if foreign owners paid the same amount of local taxas local owners, but they mostly do not. They can earn more from the assets than local owners by loading businesses with debt.

Many of these businesses have accumulated losses that will last for a decade or more after changes to the thin capitalization rules were supposed to address this issue.

The upshot is foreign owners can pay more for a business than locals because they can earn substantially more from it by not paying for schools, hospitals etc.

Have a look at the accounts of some of our foreign owned forests. Track their ownership back to tax havens and have a look at the amount of tax they don't pay.

Rob, your central premise is that overseas business shifts income to jurisdictions where they pay lower amounts of tax (given in every other way tax treatment of NZ business does not change between overseas owned business operating here, and Kiwi owned ones). Two thoughts:

1. Many of such companies provide all Kiwis with valuable goods and services: example, Amazon, Google, et al. By ensuring they pay the least amount of tax they can - given tax is a deadweight cost - then we all benefit as consumers by having available lower cost, lower priced goods and services. The argument, as Labour's Clarke foolishly mooted, to 'close Amazon down if it doesn't pay more tax here', quite apart from the importance of Net neutrality, and 'freedom' plus free speech issues from governments having that much power, the argument to make these companies pay more tax is the argument they must increase their costs, thus the prices of what they sell to us. We are all, including lower income earners, worse off for that.

2. Taking you premise as granted, to play devil's advocate, then why don't we compete with other economies via tax? The one element our government does have control over. Create a low tax jurisdiction that such companies want to shift profits, and hopefully head offices, to. David Cunliffe on the other hand will create a higher taxed economy that will only create bigger incentives for these companies to shift profits offshore via circumventing the thin capitalisation rules.

I tend to differentiate new economy companies from my argument, Mark. They don't concern me as much as they seem to concern populist politicians. also that sector offers great opportunities for kiwi innovators in global markets as well

Bit when it comes to forests and utilities (many of which are natural monopolies), I see little benefit for NZ in foreign ownership and considerable downside from the hollowing out of the tax base.

It's there for anyone to look at in their accounts at the Companies Office.

Kiwis will not be able to afford these types of assets unless there is a level playing field tax treatment. In theory there is, but in practice not.

I'm not sure what the Overseas Investment Office's criteria are, but I can't help thinking that if an asset is being bought by a company based in. A tax haven, the deal should not be allowed to proceed.

IRD had a list of countries that have tax systems compatible with and similar to ours as well as a grey and black list of others that are not. The OIO should Have to consider that when making its determinations, in my opinion.

In brief...If Jamie Whyte really doesn't understand this issue of what happens to the people and spirit of country whose assets are basically taken over by overseas interests, then it's a very good indication of why ACT is once again ,deservedly,a dead duck in the water.

ACT has always been perceived as a party that knows the cost of everything - but the value of nothing.

What about overseas borrowings, dear one-eyed xenophonic Cassandra?

Who and how do you expect that to be repaid?

Have you been advocating for a stop to overseas borrowings too?

Leaving aside the economic argument that we are all better off with foreign investment, what about the cultural diversity and richness we can soak up by having other cultures here Cassandra?

It's awful watching the ugly head of nationalism rising around the world again, so many people allowing their lives and views to be determined by arbitrary lines on maps. Wars and barbarity always comes of it. Much better a peaceful world, surely, than narrow minded parochialism.

I suspect you'll say that's not what you meant, but it's always the result. And albeit irrelevant, if you look at the figures, the actual foreign ownership of NZ business and land is very low.

OT, not in relation to Cassandra's comment at all, I'm finding it so refreshing finally seeing a true classical liberal ethic from a leader of a NZ political party which has a chance of getting seats, and though I don't believe Jamie is carrying anything like all of ACT with him, which is the past has been ruled by conservatism, great to see the liberal in classical liberal being accentuated in other of Jamie's writings. (And the wonderful contradiction of seeing the Left rush to pillory a man who is far more liberal than the bigoted Left can ever be.)

Thank heaven for Mark Hubbard introducing some experience and knowledge into this debate. The other contributors. Especially the Doctor are so bound down by emotion and ignorance that they are unable to understand these transactions I have bought a number of businesses and be very assured I am buying future profits not just some assets and a bit of goodwill as assets are useless unless producing future profits.
It would be wise for the uninformed to just keep their powder dry and learn rather than rushing in to pontificate

Mr Whyte's article has a couple of serious flaws.

1. Everybody knows that monetary policy and fiscal policy can have conflicting affects. There is not a 'one tool' fixes all problems solution.

2. There are several methods of company valuation and future profits is one important factor but not the only factor.

3. NZ loses out from foreign ownership because it opens the door to transfer pricing and tax avoidance / aggressive tax planning. This is why Mr Whyte's argument is flawed. The value of net cashflow today for NZ from sales of business is therefore not equal to the future value of profits.

The IRD is losing he battle against the international owner who keeps a step ahead with more resources and ever inventive tax strategies through exploiting offshore parent entity relationships.

In support of Graeme I too have purchased several business for their future profits. Why else would you buy a business.
We do however have a problem with foreign owned companies paying sufficient tax. Profit in NZ is minimised through transfer pricing or artificially high admin charges from off shore.
Some time ago these companies would have received a letter from IRD asking what year they intended to make a profit and a full an intensive and protracted audit would follow should the answer be less than satisfactory. Why has this tactic being dropped. Mush more to be made here than chasing taxi drivers for gst.

Dear Jamie - as someone who is considering voting ACT in September I do hope that your insights and analysis will improve.

This article has many shortcomings with little understanding of how strategies are implemented long-term value is created and retained.

Perhaps the quality of this insight is a telling example of the invisible hand of the market given what BCG charges for an engagement vis-a-vis Oliver Wyman on strategy and value creation and why you were employed at the latter and Cunliffe at the former.

Having sold a business to a foreigner, I note the foreigners can structure the purchase so no profit is accountable in our country going forward.

So no cash dividend outflow, but little benefit to the country apart from GST, which end-users pay, the business collects and passes on to Government - providing a paper loss on sale is not incurred.

None of the discussion has any relevance while foreign owners are systematically using corrupt market practices to filch value from the NZ market, and evade taxes with legal loopholes. Some are even using concealed fraud on complex high levels. Others are insider trading. While NZ regulators sit there and say "cannot do a thing unless we are funded...would you mind please fund us to get a legal opinion on this?"

Dear Bob. You are spot on. NZ is getting fleeced in billions of lost tax revenue by companies engaging in transfer pricing and structured transactions to eliminate their tax liability.

Until that is stopped, NZ loses out on lost tax revenue from foreign ownership of NZ companies.

Jamie your premise is wrong ,we sell our widgets in US dollars.
On a devaluation we would receive the same US$850 not $750.

Similarly an overseas buyer will pay a premium but certainly not all
expected future profits.Why would they purchase the business if they had
given away all future profits up front.

Economically unsound. Nice sentiment but valuation is really an approximation of future cash flows. Goodwill is the balancing number between assets and price.
Mark. Your analysis is a bit silly.
And Jamie White, your argument that with a lower dollar we get less export earnings is really out of the park. Michael Porter once said it is easy to increase sales, lower the price. A lower NZ dollar allows exporters to be more competitive and to increase sales volumes and therefore total offshore earnings. The converse applies. Of course Cunnliff's dilemma is the same one that faces all governments. How to lower the dollar without depressing the economy (int rate hike) or triggering inflation (int rates and imports).