Like sports fans who blame the coach when their favourite team fails, business leaders berate the Government and its policies whenever New Zealand’s economy rates unfavourably on international comparative tables. Tax cuts, reduced compliance costs and what-have-you are demanded to nudge us higher up the ladder – even when better-performing countries include Denmark, Norway and Sweden, where people are taxed much more heavily than we are.
The 2004 IMD World Competitiveness Yearbook, published last month, ranked 60 countries on their ability to “create and maintain an environment that sustains the competitiveness of enterprises” and – oh, the shame of it – New Zealand slipped from 16th to 18th place last year. Australia, meanwhile, was promoted from seventh to fourth place. New Zealand ranked last for environmental law and compliance obligations which hamper business competitiveness and 55th for introducing new legislation which restricts the competitiveness of enterprises.
Northern Employers and Manufacturers Association’s chief executive Alasdair Thompson blamed the Clark Government for this state of affairs. “Government policies and slow response times are undermining our business environment,” he huffed. “New compliance costs are mounting while old compliance obstacles, such as those with the Resource Management Act, are not being dealt with.”
Carter Holt Harvey warned that its plans to invest hundreds of millions of dollars in New Zealand were in jeopardy because of rising energy costs and red tape. few weeks previously, similar warning about red tape was sounded by Fisher & Paykel Appliances’ John Bongard.
Another bothersome news item at the time of the IMD survey’s publication revealed that British entrepreneur, Nick Allan, risked losing his residency. Allan had gained his permanent residency under the investor migrant category, and the rules governing this procedure require him to maintain the value of his funds above the $1 million mark for two years.
As Allan pointed out, this is silly – the rules encourage him to keep his $1 million in deposit account earning 3.4 percent interest after tax rather than plough it into ventures of the sort that generate employment and economic growth.
The Government had the good sense to respond by declaring its intention to review the rules.
Government officials for some time have been examining the Overseas Investment Act and its administration. Work is, however, still in progress an official in Finance Minister Michael Cullen’s office told your columnist. And no report has yet gone to cabinet.
Under the existing regime, foreigners need Overseas Investment Commission or ministerial consent to acquire 25 percent or more of business or property worth over $50 million, fishing quota, or in cases where deal involves land over five hectares or is worth more than $10 million, any land on most offshore islands, certain sensitive land over 0.4 hectares, and land over 0.2 hectares including or adjoining the foreshore.
A cursory glance at the press statement announcing the review suggests the rules will be tightened. The heading declared: “Iconic sites to get greater protection from ‘first principles’ review of the Overseas Investment Act.”
In reviewing OIC approvals, Cullen said the focus would be on areas causing most political concern: sensitive land (especially South Island high country and coastal land); cultural and heritage issues and the monitoring process.
Actually, the terms of reference show much broader sweep, and the press statement said the review will tackle specific questions, such as whether company purchases should be removed from the purview of the OIC and left to the normal disciplines of the Commerce Act.
The Campaign Against Foreign Control of Aotearoa (CAFCA) therefore insists the main thrust of the review is to investigate the removal of all remaining restrictions and oversight of transnational corporations setting up in New Zealand or buying other companies here. If that happened, CAFCA warned, the only law involved in checking on foreign investment would be the Commerce Act, and the Commerce Commission would have to treat foreign corporate take-overs the same as it does domestic ones. This would mean it could consider only whether foreign take-over would reduce competition.
Liberalisation of investment was an inevitable element of the US-Australia Free Trade Agreement and New Zealand is bound by several agreements relating to investment. As the OIC pointed out in briefing papers to the Government in 2002, these agreements essentially require signatories to progressively liberalise their investment regimes. “Accordingly, there may be international diplomatic ramifications if New Zealand alters its foreign investment regime, particularly if it was made more restrictive,” the OIC cautioned.
In other words, it is easier to liberalise our investment regime than toughen it. Whether more overseas investment will be attracted here as consequence is not so apparent.
Bob Edlin is regular contributor to Management.
