Speech to Federated Farmers National Council
Rt Hon John
17 November 2010
Speech to Federated Farmers National Council
It’s a pleasure to be here this afternoon.
I’d like to thank Don Nicolson and the members of your National Council for the invitation to speak to you.
I want to take this opportunity to outline the Government’s position on overseas investment and talk about the changes we are making to the approvals regime.
In summary, we recognise the huge contribution that overseas investment makes to Kiwi jobs and Kiwi incomes.
New Zealand benefits from openness, both in trade and in investment.
However, New Zealanders have legitimate concerns about some aspects of overseas investment, particularly when it comes to land.
I share those concerns.
Good policy is a matter of striking the right balance.
We have reviewed the rules around overseas investment. For the most part, we think those rules are appropriate and the overall legislation is sound.
However, we have made a few adjustments to the approvals regime and given ministers increased flexibility to consider a wider range of issues when assessing proposed investments.
I’ll talk more about those changes later.
What I want to say first is that you, as individual farmers, and as members of Federated Farmers, have been right in the middle of recent debates about overseas investment, because a lot of those debates have been about land.
I’m sure that between you, you have some strong views and quite possibly some mixed views about overseas investment.
Unfortunately, much of the debate in recent months has been stirred up by politicians who are more concerned about getting on the news than they are about well-though-out policy.
We are likely to see more of this tub-thumping and political posturing in the lead-up to next year’s election.
Politicians who were unwavering advocates of trade and investment when they were in government have somehow turned into defenders of Fortress New Zealand while in opposition.
Their views appear to have changed 180 degrees, for the sake of politics.
That is a shame, because at stake here are New Zealand jobs, New Zealand incomes, and New Zealand futures.
The reason we allow investment to flow between countries – both into New Zealand and out of New Zealand – is because it benefits New Zealanders.
We don’t do it for any other reason – we do it because we benefit from it.
In particular, overseas investment in New Zealand creates jobs, boosts incomes, and helps the economy grow.
Overseas capital can make things happen here that wouldn't otherwise happen, grow businesses that wouldn't otherwise have the means to grow, create jobs that otherwise wouldn't exist, and pay wages that are higher than they would otherwise be.
Overseas capital makes New Zealand a vastly more productive country.
So there is absolutely no way we could enjoy the standard of living we do without overseas investment.
And part of that standard of living is being able to afford the education, law and order, and health services that our families want.
A recent study concluded that overseas investment in New Zealand lifted national income by around $5 billion between 1996 and 2006. That is an estimate of the return to New Zealand from overseas investment, over and above the cost of paying interest and dividends on that investment.
One example of where overseas investment benefits New Zealand is the wine industry.
We are rightly proud of New Zealand wine.
Our top wines are among the best in the world and last year we exported over a billion dollars worth of wine. Wine exports are now 25 times what they were a decade-and-a-half ago.
Since the year 2000 the number of wineries in New Zealand has almost doubled, and the industry directly employs 6,000 people.
This expansion of the wine industry into one of our most important export industries has largely happened because of overseas investment.
That investment has not just been into big producers, like Montana, but smaller wineries like Craggy Range, Sacred Hill, Dry River and Te Awa.
Overseas investment has allowed the industry to grow exponentially, and also develop from being a small and family-based sector into a more capital-intensive and technologically-advanced industry with real global connections.
Overseas investment also plays a positive role in New Zealand agribusiness, providing a vital source of capital for ongoing expansion and growth. PGG Wrightson, Synlait, CRV Ambreed and Anzco are good examples of such investment.
Overseas investment in New Zealand agriculture also leads to a valuable exchange of expertise, as in the case of PGG Wrightson and Agria, and access to highly lucrative markets, as we have seen with Synlait and Bright Dairy.
Investment is a two-way street, however.
New Zealand businesses and individuals are themselves investing abroad.
There has been considerable investment, for example, by New Zealand dairy farmers in overseas farms. Fonterra, of course, has processing facilities in a number of different countries.
A free flow of investment also allows New Zealanders to diversify their savings across different countries and different industries. Most of the savings that are in the Super Fund, for example, and in many KiwiSaver funds, are invested overseas.
In fact, the total amount of equity investment into and out of New Zealand is surprisingly balanced. According to the latest figures, New Zealanders have around $53 billion of equity invested abroad while overseas investors have $61 billion of equity in New Zealand.
So international flows of investment – both into and out of New Zealand – are very important for our standard of living.
I do understand, however, people’s concerns about overseas ownership of New Zealand land.
I’m sure most people have these concerns from time to time, because as New Zealanders we have a very real and very profound sense of attachment to the land.
For one thing, our economy is based on agriculture so we recognise and respect that the land has an important economic value.
We also have a strong tradition of aspiring to own land – our own house, section, lifestyle block, farm, or block of native bush. We are not entirely comfortable as tenants – we want to put our roots down and call some place our own.
We also value outdoor pursuits – tramping, hunting, fishing, camping and picnicking – and even when we don’t do those activities, we like the fact that we could if we wanted to.
Our tourism marketing is very focused on New Zealand’s natural beauty, and we’re proud of it.
I have recently said myself that we don’t want to end up in a position where New Zealanders are tenants in their own country.
So I think the fact that people are concerned with overseas ownership is perfectly legitimate.
But we should be careful not to let those concerns get out of hand.
For a start, about a third of New Zealand – including our most iconic land – is protected by being in the conservation estate. So no-one from overseas can come in and buy Mt Taranaki or the Franz Josef Glacier, for example.
Second, it is a simple fact that land can’t change nationality. People can change nationality, of course, and factories can be relocated overseas. But a piece of land in New Zealand will always be here in New Zealand.
Because it will always be here, the use of that land will always be subject to New Zealand laws and regulations. And ultimately we as New Zealanders get to determine what those laws and regulations will be.
Third, and contrary to what some people might think, there hasn’t been an acceleration of overseas sales in recent years.
In fact, as at a couple of days ago, only 11, 203 hectares of land has been sold so far this year. That is certainly well below the peak of 380,000 hectares that were sold in 2006.
Fourth, the issue of whether businesses and properties are owned by New Zealanders or people from overseas, is for the most part, squarely in our own hands.
What I mean is that no-one can be forced to sell their business to an overseas investor, just as no farmers can be compelled to sell their land to foreigners.
Obviously with mortgagee sales or receiverships things get a little more complicated but, in general, people who feel very strongly that New Zealand-based assets should remain in New Zealand hands are free to sell only to New Zealanders.
Moreover, New Zealanders can always buy land and other assets back. What makes that difficult isn’t the rules around overseas investment, it is the fact that New Zealand has a poor savings record and therefore a relatively small stock of capital available for investment.
If, as a country, we saved more, we would own more of the assets in New Zealand, including land, as well as being less in debt to overseas lenders.
Finally, there are specific safeguards contained in the Overseas Investment Act and in the regulations which the government makes under that Act.
Over the past year or so the Government has been
reviewing this system of rules, to make sure we have got the
balance right between three key objectives:
• welcoming desirable investment, in recognition of the benefits it brings for New Zealanders
• providing a stable investment environment, where the rules are settled and everyone is clear about what they are; and
• addressing public concerns about overseas investment, particularly in regard to land.
This review has come to three conclusions.
The first conclusion is that the Overseas Investment Act is a fundamentally sound piece of legislation.
The Act makes it clear that it is a privilege for overseas people to own or control sensitive New Zealand assets.
In particular, it lays out that
foreign investment in land is only acceptable if it
substantially benefits New Zealand, according to a range of
factors which include, among other things:
the creation of new job opportunities in New Zealand
• the introduction into New Zealand of new technology
• increased export receipts for New Zealand exporters
• the introduction into New Zealand of additional investment for development purposes
• increased processing in New Zealand of New Zealand's primary products
• protection of native bush and other indigenous vegetation; and
• protection of game species and walking access.
In addition, farm land has to be offered on the open market so that New Zealanders can bid for it as well.
These are very stringent criteria.
In fact, these are the very same criteria that Phil Goff was trying to pass off as brand new policy a few weeks ago. I welcome his endorsement of the current provisions of the Overseas Investment Act which, of course, was passed by his government back in 2005.
The second conclusion we came to in this review was that the existing process – not the key rules themselves – was too slow, cumbersome and costly.
We therefore made some changes last year to simplify some of the less-important regulations, cut red tape and speed up processing times for applications.
Those changes have been very effective. In the year to date the average time for processing an application has dropped from 63 days to 42 days.
The third conclusion we came to was that a couple of additions should be made to the existing rules.
These additions would make sure that all public concerns about overseas investment, both now and in the future, could be covered off under the rules.
So the Government is adding two more factors that ministers must consider when they assess the benefits of a proposed overseas investment in New Zealand land.
The first new factor is very wide-ranging and looks at whether New Zealand’s economic interests will be adequately promoted by overseas investment.
This will allow ministers to consider, for example, whether any of our key exports are in danger of being controlled by an overseas entity, or whether there are non-commercial motivations driving a proposed overseas investment.
The second new factor is a “mitigating factor” which looks at whether the investor has a meaningful commitment to New Zealand involvement in the running or oversight of the investment.
That could include, for example, part ownership with New Zealanders, appointing New Zealanders to the board, or listing on a New Zealand exchange.
These two new factors will be weighed up alongside all the existing factors when ministers consider applications for investment.
We are also going to outline the Government’s policy on foreign investment more clearly by amending the Directive Letter issued to the Overseas Investment Office.
This will make things clearer for both the Office and for overseas investors.
So in conclusion can I stress that we allow overseas investment to flow between countries – both into New Zealand and out of New Zealand – because it benefits New Zealanders.
With the appropriate checks and balances in place, this investment is good for jobs, wages and growth.
After reviewing the overseas investment regime, and making some amendments to it, the Government is satisfied that we do now have the appropriate checks and balances.
I wish you well for the rest of your Council meeting.