CTU media release
23 July 2009

Extraordinary time to cut oversight of overseas investment

This would be an extraordinary time for the Government to loosen the already fragile oversight of overseas investment, said CTU Economist and Director of Policy Bill Rosenberg. Minister of Finance Bill English said today that raising the thresholds at which screening of overseas investment in land and businesses is required was under consideration.

Dividends and other income from foreign direct investment in New Zealand contributed $7.9 billion to the current account deficit in the year to March. The huge current account deficit is being cited by the credit rating agencies in their threats to downgrade New Zealand’s credit rating. “At this time we should be aiming to be more strategic and clever about the overseas investment we accept, rather than less so,” said Rosenberg.

“We should be emphasising ‘greenfield’ investment – that is, investment in genuinely new development rather than takeover – and investment that brings in the new jobs, technology and expertise which Mr English spoke about. We should be looking for ways in which that can spin off to New Zealand workers and firms.”

“Instead there has been considerable investment in the last few years, often by private equity interests, that has been driven by closing down or selling off assets, high debt levels, and quick returns to the overseas investor. Jobs and expertise have been lost.”

“Much existing overseas investment was a result of privatisation in the 1980s and 1990s which was little more than asset stripping. In other cases, such as in the ownership of our banks, it reduced competition and reduced services to New Zealanders. Some of it has had to be bought back to maintain public services and infrastructure.”

“Other countries have higher levels of oversight, yet still attract considerable overseas investment. In Australia for example, significant takeovers can be stopped at Ministerial level when they are not in the national interest.”

“We welcome the announcement that the Government is considering a new ‘national interest test’, but it is important that it applies to all investment, and not only to that on sensitive land, and that the threshold for its use is not set any higher than the current levels.”

“We are also concerned that the Government may be considering reducing the flexibility of future governments to deal with investment proposals by removing the ability to change overseas investment rules during applications.”

“The move should be to stronger tests and more flexibility for government in selecting foreign direct investment rather than less.”

ENDS