New report exposes foreign investment, debt myths

Most of the fear, distrust and suspicion of foreign investment is based on inaccurate or misunderstood information, a new think tank report says.

The New Zealand Initiative, a combination of the former Business Roundtable and New Zealand Institute, has published a lengthy statistical report (New Zealand's Global Links) that exposes myths about foreign ownership, overseas debt and New Zealanders’ net worth.

Economist Bryce Wilkinson (pictured) finds that the country’s savings rate – earning more than is spent – has been positive in 38 of the past 41 years, the exceptions being 1992, 1993 and 2009.

The chronically large deficits the current account of the balance of payments during the past 25 years is a legacy of deficit spending between 1973 and the mid-1980s.

"It was triggered by large trade deficits in the balance of payments, not least due to spiking oil prices, and exacerbated by the largely ‘Keynesian' government deficit spending policy response," Dr Wilkinson says.

Since then, the investment income deficits – the $146 billion difference between what New Zealanders own overseas and what foreigners own here – has kept the current account balance in deficit.

Interest on that debt was costing the country about 5% of gross domestic product, despite large trade surpluses between 1988 and 2004.

Other “myths: exposed in the report:

Myth: High overseas debt is the result of banks borrowing for mortgages.
Fact: The money lent from a house purchase is immediately balanced by that payment being banked. “There is no net recourse to overseas borrowing for the banks as a whole.” The banks’ overseas borrowing is largely to fund the continuing deficit.

Myth: Asians are increasing taking over New Zealand.
Fact: It is Australians who have largely been taking over New Zealand. In the year to March 2012, they own 55.8% of foreign investment – up from 31.5% in March 2001. In March 2012, Asian investors owned just 3.1%.

Myth: New Zealanders are becoming tenants in their own country.
Fact: Of the 28.7 million hectares in New Zealand, only one million is owned by foreigners, while the Department fof Conservation alone owns eight million.

Myth: Foreign investment is a one-way street with New Zealand an easy target.
Fact: New Zealand has one of the most restrictive regimes in the world and there has been no obvious upward trend since 2000 relative to GDP. New Zealand investment abroad has dropped slightly from just above 13% relative to GDP in 2002-03 to 12% in 2012. This up markedly in dollar terms since the 1990s.

ngibson@nbr.co.nz