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Scrap foreign investment rules, for country's sake – think tank

A think tank has called for restrictions on foreign direct investment (FDI) to be removed, saying the country risks driving away overseas capital that could otherwise be invested in business.

The report, Open for Business: Removing the barriers to foreign investment, is the final in The New Zealand Initiative’s series on FDI regulation. It says New Zealand has an overly restrictive regulatory structure on inward capital flows, particularly relating to rural land.

The Overseas Investment Act 2005 requires overseas investors to prove they are of good character, willing to provide an ongoing financial commitment, as well as demonstrate their business acumen and experience. They also must become residents in New Zealand in order to acquire any rural land over five hectares – rural land covers 99.2% of the country’s land area.

"One of the curiosities is that the 'home country' [the UK] doesn't have any opposition to foreigners buying land, the US has no screening programme and post-purchase rules only," co-author Bryce Wilkinson told the launch event in Auckland.

"We want to have a public debate about thether there is an issue of substance about foreign investment. It's hard to find a solution to an unidentified problem."

In their report, Dr Wilkinson and researcher Khyaati Acharya say New Zealand already has a robust set of laws relating to immigration, business activity and financial and national security that are not enhanced by the additional protections provided by the act.

The OECD ranks New Zealand as having one of the most restrictive FDI environments in the developed world.

 “Foreign investors in New Zealand employ people, and contribute to the economy and increase our tax base. They are a benefit to our country but we subject them to the most onerous bureaucratic hurdles," Dr Wilkinson says.

“If similar restrictions were placed on New Zealanders investing overseas, we would be outraged, and yet we have no qualms at using this double-standard at home.”

The report’s general recommendations are that, if New Zealand is to prosper, the regulatory regime should aim to:

  • create an attractive investment climate for domestic and international investors alike;
  • maintain existing policing of tax laws relating to transfer pricing and thin capital but align and reduce company and the top personal tax rates as fiscal circumstances permit;
  • be neutral between overseas and domestic investors, just as other countries should not discriminate against New Zealanders investing in their jurisdictions;
  • protect New Zealanders’ freedom to sell their property, not infringing on that except for a sound public interest reason, and not unfairly burdening individual property owners in those cases;
  • embody a presumption in favour of proposed transactions between a willing buyer and a willing seller; and
  • be focused on remedying identified gaps in other laws that cannot be better addressed by amending those laws.

More specific recommendations are to:

  • eliminate the general prior approval screening requirement;
  • amend the act to recognise the gain to the New Zealand vendor as a national benefit;
  • narrow the definition of sensitive land; and
  • abolish the requirement to demonstrate business acumen or financial commitment.

What do you think? Should restrictions on foreign direct investment be removed?  Click here to vote in our subscriber-only business pulse poll.

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RAW DATA: Open for Business: Removing the barriers to foreign investment (PDF)2.65 MB

Comments and questions
43

Has Mr Wilkinson ever tried purchasing land in China? When they open up their land for purchase, I'm comfortable with changing our rules.

Agreed - Wilkinson simply wants to accelerate the great sellout of NZ to China to feather his own nest. Once it's all sold there isn't anything left. Those espousing 'investment' may as well replace that word with 'rape'. These foreign groups are only interested in profit - at the expense of all else, people, environment, future. Don't give in to them. The current rules are weak enough.

Comments like this only highlight how invalid most fears about FDI actually are. What is the preoccupation with continually equating investment with 'corrupt' Chinese? Seriously? Do you realise how tiny a proportion total investments from China constitute in regards to total FDI in New Zealand? The overwhelming majority of inwards investment comes from Australia. The statistics are not difficult to find. I suggest backing such ludicrous claims with tangible data. Secondly, what 'group', aka business is NOT interested in profit? And profits are not only sought after by overseas firms...domestic firms need to make profits too. Since when was just 'breaking-even' the ultimate goal?

Of course they're interested in profit, just as NZ firms who invest overseas are. The problem with that is what exactly?

How many times do we have to educate readers like you? No one can purchase land in China including their own citizens. There is no such thing as a freehold land there. All land belongs to the Chinese central govt.

I do know that Dirk - I lived there for several years. I don't see how that changes my original point though.....

I have an investment in a company that has a 50 year lease and right to renew for 50 years, in China. If our business makes $1,000 a year (for 1,000 years), then the Present Value of that profit (assuming a 10% discount rate), in the first 50 years is $9,915, the NPV of the next 50 years is $84, and beyond 100 years $1.

so whether our buisness owns the land or leases it for 50 years, does not really impact on the value to our business.

Your point is that because another country has stupid rules we should too?

Agreed. If anyone can explain how this double standard is in NZ's interest I'd be very interested.

Chinese citizens can buy property on long term lease.

Fonterra can and does invest a lot of money in companies that control Chinese diary farms.

Try this: it involves not cutting your nose to spite your face.

If China (or anywhere else) implements daft, welfare-reducing policies, it makes no sense at all for NZ to follow them. Economics is not a game of tit-for-tat.

So, is it OK if Americans, Brits, Europeans, or Aussies buy assets here? Just curious....

Anon - the "but I can't buy land in China" line is probably the stupidest argument to bring to this debate as nobody is able to purchase land in NZ either. What we pay for is the first right of use of the land, not the land itself.

Think of a lease with the total cost paid upfront instead of installments.

In NZ the crown maintains ownership of the land, as does the government in China.

So your point is that if a communist authoritarian gov't does something (regardless of the negative effects, which is to stop development capital coming in), then we should do it too? What are you going to suggest next, the strict censorship of news just like North Korea?

Agree with making legitimate business investment bringing fresh capital, IP and most importantly trade connections to NZ business should be whole heartedly encouraged and supported by NZ.

Simply selling rural land to foreigners is pointless, adds no value, creates long term (meaning intergenerational) strategic risks and should remain banned. Try buying a farm in China.

Similarly the sale of established NZ businesses to foreign investors (usually by tired founders wanting to cash up) is pointless and adds little or no value.

Most of what this self appointed tink tank says is neo liberal dogma focused more on the self interest of existing asset owners than the long term benefit of NZ. The sale of land offshore is single generation thinking. Its focused on individual rights for the current generation of asset owners. I am not a great fan of everything Maori, but one thing they certainly have right is intergenerational thinking.

All good stuff,but don't treat FDI investors in the same and shameful way in which our authorities have treated Dotcom!
paleo martin

We need to follow this prescription if we are to grow.
This will require a reduction in xenaphobia,which will be difficult for some of us.
liberte

Xenaphobia = fear of Warrior Princesses?

Really agree with comments on Xenaphobia and love Ewan's response. We need to mix it in the world with an open heart. But selling land offshore is a one time economic sugar hit leaving future generations with an invisibles drain.

Why do you think Chinese interests are buying food assets and influence in the Pacific and Africa? They can see ahead, see the long term strategic value. Allowing current land owners to cash up at inflation driving prices to offshore interests has no long term value to NZ Mr Liberate. In fact the opposite. Similarly with selling out businesses to "dumb money" investors.

Let's focus on JVs and partnerships with real two way value creation. Let's bend over backwards to get "smart money" investment. And let's rent to non residents. Smart money does not care that much about owning the premises.

In reply to analyst-
This could be a good way to go.
What I am in favour of is getting capital into NZ,given our lack of Domestic Investment Capital(DIC) as a result of government/reserve bank failed policies.
liberte

Double standards - reflected throughout NZ society, and embedded in out national Anthem - God Defend NZ

Great to they can leverage it up - pay next to no tax and provide little value...

Adds no value to NZ and all the profits sent offshore and we become tenants in our own country.

No value? These people are investing in New Zealand, we aren't just giving it away.

Anything like Africa - they bring their own labour force. Nothing in it for NZ

It's an ideological approach that will quickly sort out those supporting it as being in the minority in this country.

Silly ideas, plain and simple.

Since when was sharecropping a road to economic prosperity, and land ownership a road to poverty?

New Zealanders DO NOT need to be become uniformly renters and sharecroppers of land owned by people who are not heavily invested in the future of NZ society.

We are but a small nation and we really should treat other nations investment into NZ as they treat our investments in their nation. NZ is doing a splendid job of negotiating free trade agreements, but that doesn't necessitate dropping ones trousers first.
Does it?

Nice one bo.

Actually, I don't think NZ should have free reign in investing in other nations, likely third world pillaging from their locals. Shareholders always end up winning at the top of the chain, compared with the locals.

Same thing here in return with foreign ownership.

But hey - were already pretty much Owned by non resident foreigners in our busines and housing market, so it's pretty much a dead fish late on the fire alarm. Rainbow warriors, Ww1 Japanese on our shores, no different to them being here today. Least we forget.

That's what happens when you people vote for a profit first people second wall st wolf share broker - for a prime minister.

He's like agent smith smiling assassin. Only sees digits and numbers in people.

Take one look at that art photo of his daughter with all those squid tentacles in her womb area, pretty poignant to what he has done to the youngest nation on earth.

Beads and Blankets were accepted as payment for land because they were thought to be highly valuable.
What we really need to do is think very hard about why land is so valuable and get into the minds of those who want to buy it and the future concepts of value to make sure we are not selling our childrens children short.

The only NZers who will benefit from this are old baby boomers like Bryce Wilkinson, looking to feather up the nest and grab what they can for themselves while the good times still roll.

Once the great hurrar is over, and the china cubbard has been sold bare, then what are the next generations of NZers going to do?

What ever happened to being a bit patriotic? To protecting our interests and our peoples interest? Why is our first resort just to sell our kids and grandkids down the river?

Thanks to the likes of Mr Wilkinson, young NZers are going to face an uphill batle buying assets back against foreign interests leveraged to the hilt on cheap credit whilst offshoring profits to avoid paying tax.

Why do we make it so hard for ourselves?

From the lesson of history.
All land is held "in common" and was defined as such in the Magna Carta. Your land title deed is and always has been, a "license to occupy". On those terms Foreign Direct Investment is a cash payment for that license. The land goes nowhere!

Absolutely correct Scribe! Everyone on here who uses the "but I can't buy land in China" argument forgets that no one can buy land in NZ either.

When we pay for land we are merely paying for the first right to use it; kind of like a lease except that everything is paid upfront.

The crown maintains all ownership of the land itself.

So it's OK to borrow offshore (because as a nation we borrow more than we can save) and get demanded for interest (unless we default), but getting foreign capital in (which only receives dividend/return if the capital is put into productive use and generate profit) is all bad?

Can someone walk me through the logic please?

Luckily I am not fixed to one point and I have ability purchase an airline ticket so I can go overseas to accumulate capital at a greater rate than I could ever hope to in NZ.

I can then leverage it using lower interest costs than I would pay at home. I can then use favourable tax vehicles to purchase assets in my home country off the provincial rubes that inhabit the shaky isles that don't understand how international finance works.

The advantage foreigners have is they don't have to purchase the airline ticket in the first instance.

I come originally from Scotland where anyone can buy and sell land without restriction. It has a fairly similar to New Zealand in terms of topography, population numbers and rural/urban population spread.

There are many highland estates and working farms bought by the very wealthy who never, or seldom, visit them. Indeed, more than half of Scotland is owned by fewer than 500 people. They are often people who have their primary sources of income tied up in other businesses, sometimes other countries, and who buy these estates to ‘play the squire’ when the whim takes them.

The results can be disastrous for the local population.

These landowners do not inject the life into local economies that sustains a rural population the way that people who have a commitment to the country do. The jobs, when there are some created, are often seasonal and unskilled. There are many instances of those who have bought and then ‘abandoned’ their estates to mismanagement or no management.

All the usual problems occur – local rural populations are decimated because young people cannot afford to remain there to eke a living from the dull employment opportunities offered. Rural schools close and services disappear because of insufficient population.

On the other hand, lands which have come under community ownership or ‘management buy-out’ are thriving and growing economically.

You have no idea what the people of Scotland would give to have the purchasing restrictions that we have here in New Zealand. Be happy to retain the status quo.

Think tank sponsored by ... large offshore corporations.... WAKE UP

Why did I just know instinctively that Bryce Wilkinson would be the one saying this?

The NZ Business Roundtable lives again. And it continually prioritised the interests of big business- - no matter the disclaimers to the contrary

All the specious, far Right theories in the world don't disguise the fact that our country is being bought out under our feet...

The price of everything... but the value of nothing....

Tenants in our own (what was our own) country indeed...

The country can't be bought unless you wish to sell. Or probably in your case you have nothing to sell except an opinion.

Of course the notion of "individual property rights" should trumpet any sense of community, nationhood, strategic interest.

Aren't you all supposed to be off looking for John Galt?

Bryce Wilkinson is saying 'Scrap foreign investment rules, for country's sake', which is promoting selling of NZ property/land.
NZ property will end up owned by overseas governments and pension funds, with the labour done by Phillipine workers... wait a minute I think has already happened.
It seems a few very wealthy NZ people and NZers in high places just want the property/land valued up as high as possible in NZ (even overinflated?), so they can sell out and keep playing their 'games'.

Just a minute there you guys, who exactly is selling - is that not relevant.
Kiwi's also seem to have an eye for a good deal. Not a one way street.

Best example is the Banks
$2.5b going offshore each year