A statistical gap was revealed by Finance Minister Bill English, as public passions ran high over sales of New Zealand land to foreigners in general and dairy farms to Chinese interests in particular.
No one knows how much New Zealand land is foreign-owned. Officials keep count when foreign purchases are approved, but they don’t know how much land has been sold by foreigners.
News media have been reporting that an average 82 hectares of agricultural land day has been approved for sale to offshore investors in recent years. They quoted Overseas Investment Office figures showing 235 consents for foreign investment in agricultural land were approved between July 1 2005 and July 1 2010.
The approvals were for foreign investors to buy either financial shares or physical assets on agricultural land. More than 150,000 hectares of agricultural land has been approved for sale in the past five years.
The commodity boom and bright outlook for agricultural prices make this land increasingly attractive to overseas investors, as an Institute of Economic Research discussion paper pointed out.
The paper looked at another data set to put matters in perspective. Foreigners had $293 billion invested in our $187 billion year economy in March 2009. Statistics New Zealand data show the stock of land-based foreign holdings was $4.8 billion in 2009 (one percent of the 2009 total). Around $27 billion (nine percent) was invested in manufacturing and $192 billion (61 percent) in finance and insurance.
Much of New Zealand’s inward foreign direct investment comes from Australia. Investment from China is too small to be reported separately.
The institute believes there is broad support for further trade liberalisation through the World Trade Organisation or free trade agreements, because Kiwis know that when other countries remove subsidies or tariffs on the goods we export, we become more competitive and this lifts our income. We also want to be able to invest in overseas projects and travel freely for business purposes.
But some elements of globalisation discomfort some sections of the public.
The paper cited migration and foreign direct investment. In the case of foreign investment in land, public misgivings have been potent enough to prompt revisiting of the Government’s review of foreign investment rules.
Prime Minister John Key reflected the public mood: “My concern is about what I see potentially unfolding and that is quite large tracts of New Zealand land coming available for sale rapidly and the consolidation of those farms in foreign hands and whether that’s in New Zealand’s best interests, and my view is, it’s not.”
The Government therefore was thinking about tightening the rules on farm sales to foreigners. When the review was launched last year, it aimed to further liberalise the rules to encourage investment flows into country unable to meet its own capital needs.
Bill English seemed more relaxed than the PM: “Anecdotally lot of them [foreigners] come here, they buy the land, they figure out you can’t make much money out of it and it’s long way to come and look at it, so they sell out and go. We’re not even sure how much of our land is owned by foreign investors.”
The public was unlikely to be mollified. At that time around three-quarters of respondents to TV3 poll said they wanted overseas investment rules tightened. But the institute discussion paper said restricting overseas investors’ access to the New Zealand economy would increase our country risk premium, causing borrowing costs to rise for households, firms and the Government.
New Zealand didn’t have the capital market depth to afford to be picky. Given New Zealand’s debt levels, restrictions would reduce economic growth and income – “hardly sensible way of trying to close the gap with Australia”.
Obviously these economic arguments were not understood or were being rejected by majority of people and, as English said of the land ownership statistics, “the public debate would benefit from more information”.
Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.
