Second round of Overseas Investment Act review juggles competing tensions

Tuesday 16th October 2018

The government wants to clear a pathway for investment in productive assets while letting the Crown block investments to protect the national interest.

Associate Finance Minister David Parker today released the terms of reference for another reform for the Overseas Investment Act. The paper notes the tension that foreign and domestic stakeholders see the screening regime as too restrictive and too slow, while some see the law as too weak in protecting New Zealand's interests.

“In the second phase of our reform we will ensure New Zealand remains an attractive destination for beneficial, long-term foreign direct investment, while examining ways to ensure prospective foreign investments are consistent with New Zealand’s national interest," Parker said in a statement.

“It is likely that a broad, but rarely used, discretion to decline approval for significant foreign investment, such as infrastructure assets with monopoly characteristics, will be introduced.”

The Labour-led coalition fast-tracked legislation to prevent foreigners from buying residential property and added forestry rights to the screening regime. The government also directed the Overseas Investment Office to impose tighter criteria on purchases of rural land.

The terms of reference for the second review say negative perceptions of New Zealand as an investment destination don't seem to have panned out with almost $5 billion of new investment between July 2016 and June 2017. Government data show direct investment in New Zealand was $116.7 billion as at June 30 compared to $113.6 billion a year earlier.

Reviewing the act will need to strike the right balance between restricting investments that are unproductive and not beneficial to New Zealand and signalling that it's a privilege for foreigners to invest in New Zealand, with the need for high-quality investment, the paper said.

The review will seek to provide a pathway for investment that supports a productive, inclusive and sustainable economy, provides for the protection of sensitive assets, and imposes compliance costs relative to the risk taken by foreign investors. Any changes should improve the predictability and transparency of the regime and any discretionary powers will need to balance the need for investor certainty and declining investments against the nation's broader interests.

The terms of reference say the review will also consider the definition of an 'overseas person' in relation to body corporates. The definition has been deemed too broad in capturing NZX-listed companies that are headquartered in New Zealand.

The review will also look at the 'benefits to New Zealand' test, including whether water extraction, Māori cultural values, and tax residency should be considered. It will also consider whether negative elements of an investment can be considered under that test.

Also to be reviewed are the investor test requirements, the level of ministerial discretion, and the treatment of land adjacent to sensitive land. The work will also seek to fix up any unintended consequences in the first round of reforms that come into effect on Oct. 22.

Whether the legislation is needed is out of scope, as are substantive issues in the first tranche of work.

The Treasury will lead the process in two workstreams, one to protect New Zealand's national interest and the other to consider all other issues in the review's scope.

Consultation is expected in the first quarter of next year with legislation likely in the middle of 2020.

(BusinessDesk)

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