Scrap foreign investment rules, for country's sake – think tank

A think tank has called for restrictions on foreign direct investment (FDI) to be removed, saying the country risks driving away overseas capital that could otherwise be invested in business.

The report, Open for Business: Removing the barriers to foreign investment, is the final in The New Zealand Initiative’s series on FDI regulation. It says New Zealand has an overly restrictive regulatory structure on inward capital flows, particularly relating to rural land.

The Overseas Investment Act 2005 requires overseas investors 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 rural land over five hectares – rural land covers 99.2% of the country’s land area.

"One of the curiosities is that the 'home country' [the UK] doesn't have any opposition to foreigners buying land, the US has no screening programme and post-purchase rules only," co-author Bryce Wilkinson told the launch event in Auckland.

"We want to have a public debate about thether there is an issue of substance about foreign investment. It's hard to find a solution to an unidentified problem."

In their report, Dr Wilkinson and researcher Khyaati Acharya say New Zealand already has 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.

 “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," Dr Wilkinson says.

“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, the 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 other countries should 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.

What do you think? Should restrictions on foreign direct investment be removed?  Click here to vote in our subscriber-only business pulse poll.