Government to flip 'burden of proof' to encourage overseas investment

Saturday, 12 October 2024

Change could see more land and businesses foreign-owned, but Government will have ‘flexibility’ to call-in investments for detailed scrutiny.

The Government is set to reverse the current the burden on proof on foreign investors to show their investments would benefit the country, in a bid to encourage more overseas investment.

The Overseas Investment Act states that it is “a privilege for overseas persons to own or control sensitive New Zealand assets”.

But the Cabinet has agreed to “reverse that presumption that investing in New Zealand is a privilege and that investors must justify their transaction to the Government”, Associate Finance Minister David Seymour told The Post.

“The new starting point is that investment can proceed unless there is an identified risk to New Zealand’s interests.”

Associate Finance Minister David Seymour says that unlike larger economies, New Zealand can’t afford to “close itself off”.

The Government would issue a government policy statement to that effect, he said.

The United States State Department last year said that New Zealand had an open and transparent economy and foreign investment was “generally encouraged without discrimination”.

“Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas,” it noted.

The Campaign Against Foreign Control of Aotearoa reported that overseas investors owned nearly 30% of all company equity in 2020, citing research from broker JBWere, and 18% of the country’s net wealth in 2021.

The latter proportion appears to have increased since, due to falling house prices.

But Seymour noted the OECD ranked New Zealand the “most restrictive” among its 38 member countries in its Foreign Direct Investment Regulatory Restrictiveness Index in 2020.

The OECD is no longer updating that index.

It was also ranked 26th out of the 38 countries when direct foreign investments were measured as a percentage of GDP, as of 2021, Seymour also noted.

That didn’t “sound so bad until you consider the size of our economy”, he said.

“The United States, with its massive internal market, could afford to close itself off, but it is more open than us and gets more investment as a percentage of GDP than us.”

Attracting more overseas investment was a vital part of the Government’s economic strategy, he said.

All investments that are currently screened, including applications to buy farmland, would continue to be screened, Cabinet has agreed.

But the Overseas Investment Office would fast-track assessments with the assumption investment could proceed unless risk factors were identified, by “consolidating” its investor test, the ‘benefit’ test and the national-interest test.

The Government will have the flexibility to “call-in investments for detailed scrutiny on a case-by-case basis” and impose conditions or block investments where there were risks to New Zealand’s national interest, Seymour said.

BusinessNZ chief executive Katherine Rich said the US State Department’s seemingly favourable comments did not reflect reality as BusinessNZ saw it.

“Business New Zealand has been very aware for a long period of time that we are not welcoming to foreign direct investment.

“We need to be if we are to have any chance of fixing the major economic problems we face,” Rich said.

Its response to the Government’s announcement was “alleluia, to the direction of the proposals”, she said.

“We are yet to see the detail, but it's been embarrassing for a long time that New Zealand has been ‘loser-last’,” she said, referring to its position on the OECD’s FDI Regulatory Restrictiveness Index.