Report says open doors to foreign investment
EMBARGOED UNTIL 11AM, WEDNESDAY 30 APRIL
New report says open doors to foreign investment
- New Zealand needs to open its markets to foreign investments and remove bureaucratic hurdles, in line with OECD and Treasury recommendations.
- Overseas Investment Act 2005 too restrictive, particularly around foreign ownership of sensitive land.
- Report to be introduced at press conference by co-chair of the Australia New Zealand Leadership Forum, Andrew Thorburn.
Wednesday, April 30 - If New Zealand does not ease its restrictive foreign direct investment (FDI) regime, the country risks driving away overseas capital that could otherwise be invested to create jobs and contribute to the tax base.
This is the message of Open for Business: Removing the barriers to foreign investment, the final report in The New Zealand Initiative’s series on FDI regulation. It found that New Zealand has an overly restrictive regulatory structure on inward capital flows, particularly relating to rural land. The report is co-authored by Senior Research Fellow, Dr Bryce Wilkinson, and researcher Khyaati Acharya.
The Overseas Investment Act 2005 (the Act) requires overseas investors in “sensitive assets” 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 non-urban land over 5 hectares in size – non-urban land plausibly covers 99.2 per cent of the country’s land area – or face a ‘benefit to New Zealand’ test that is loaded against them.
The New Zealand Initiative’s Executive Director Dr Oliver Hartwich said: “New Zealand has much to gain if it manages to attract foreign capital, but our complicated regulations are driving foreign investors away. We risk losing out to other countries if we do not remove the barriers to foreign investment.”
The authors discovered that New Zealand already had 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. Even in the US – where national security is a significant concern – officials impose very few restrictions on foreign ownership of land.
Report co-author Dr Bryce Wilkinson said: “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. 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, our 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 we would want other countries to 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.
Open for Business will be launched with a press conference on Wednesday 30 April at 11am at BNZ’s offices in Auckland (Level 8, Deloitte Centre, 80 Queen Street). Speaking at the press conference will be Dr Bryce Wilkinson and Dr Oliver Hartwich.
Click on the links below to read the latest report, and the previous two reports in the series.