Treasury: drop all screening of foreign investment

Acting Secretary to the Treasury Gabriel Makhlouf has hit out at critics of foreign investment in New Zealand, saying Treasury has consistently recommended removing all screening.

The British civil servant who arrived in this country 15 months ago told the New Zealand Institute of International Affairs that lowering foreign investment would be counter-productive to growth ambitions.

Small, high productivity economies relied heavily on international connections of people, capital, trade and ideas, he said.

He advocated the reduction of costs and distortions associated with capital inflows, particularly tax.

"If we are to continue to screen foreign investment, and Treasury has consistently recommended removing all screening, it needs to be kept to a minimum and under constant review," he said.

Fashionable
He said it had become fashionable to question foreign direct investment, arguing there was a loss of control of land assets and profits were exported.

The issue was really how the land was used, rather than who owned the land, Mr Makhlouf said.

Regulatory mechanisms governing land use applied to all land owners irrespective of nationality.

"Some of you might have followed the story of the big Swedish furniture outlet called IKEA, and its attempts to find a site for a store in the North Island," Mr Makhlouf said.

The company ran into so many obstacles that it eventually abandoned its plans to establish a New Zealand branch. Domestic policy settings relating to roading infrastructure, the Environment Court process and the approach of the local council managed to sink IKEA’s plans.

"New Zealand requires foreign investment to meet the gap between national savings and national investment. If the idea of foreigners earning a return on New Zealand investment is unpalatable to some, there are two alternatives -- lowering national investment or increasing national savings," Mr Makhlouf said.

A higher rate of national savings would provide New Zealanders with greater scope to own assets that they want to retain control of, and entitle them to any returns on the investment.

Commenting on the world economic outlook, he said the picture was mixed.

"While there are signs the global economy is recovering, there have been some set-backs recently. The recovery is being driven by emerging economies, in particular China and other Asian countries, and there are some additional benefits for New Zealand via Australia."

Activity in the major developed economies has been slower to rebound.