Government policies can have big impact on the business sector and thereby on growth. Two such policies – infrastructure and immigration – appear to be at odds.
Infrastructure is key issue for business. healthy economy requires well-maintained roads, railway track, ports, airports, power plant and cabling – the physical assets that make it possible to travel, communicate and do business.
With history of under-investment in roading and power assets in particular, there’s an urgent need for more expenditure.
And immigration is rising in importance as skill shortages bite and more New Zealanders head for jobs overseas. Employers want more skilled, English-speaking immigrants.
But recent government policy seems destined to bring sub-optimal outcomes in both these areas. In June, the Government announced changes to the Investor Category immigration rules, specifying that investment by prospective immigrants could only be directed into government accounts, to be used to fund infrastructure improvements.
The rule changes included dropping the investor age limit from 85 to 54, doubling the amount of investment required to $2 million and requiring the money to be invested with the Government.
The stated rationale was to ensure investors were genuine. The money invested would be used by the Government to fund increased infrastructure spending.
The changes meant that private investment would no longer be allowed and the only return the investors would receive on their $2 million would be the rate of inflation.
Business NZ said at the time that this would make New Zealand significantly less attractive investment option and slash the number of potential investors.
Unfortunately for New Zealand, this has been confirmed by figures released by the Department of Labour.
When we first made our concerns known in June, New Zealand was attracting around 30 business investor migrants month. Since the changes came into force in July, New Zealand has accepted just two.
It is not hard to understand why investors are staying away in droves.
Potential investors are required to have high levels of business skills and experience yet they are forced to passively invest their money with the Government. The Treasury, in its usual understated way, describes this as “counter-intuitive”.
Previously investors were expected to show commercial rate of return, which encouraged more active involvement in the economy.
It is simple fact that people who have $2 million to invest have not earned it by investing in schemes that provide return at the rate of inflation. It is poor policy.
It is also worth considering that official papers reveal the Government was predicting 200 to 400 migrants year would use the business investor category. As result, they were anticipating significant funds being available for infrastructure spending.
As we warned, the changes have deterred investors to such degree that these expectations will not even come close to being met. New Zealand is losing access to investors’ skills and capital and virtually no money is being channelled into infrastructure.
Business NZ requests under the Official Information Act have revealed that several key government agencies warned about the shortcomings of the scheme.
As noted earlier, Treasury had strong reservations about requiring business investors to invest solely with the Government. It warned Ministers that “forcing migrants to place their funds in government option does not give them an opportunity to leverage off their personal business attributes and make their own investment decisions for their capital, which seems counter-intuitive to making business attributes requirement of the system”.
Several key agencies were worried about the funds being used for infrastructure. The Ministry of Social Development “expressed concern at the rationale for directing migrant funds to infrastructure” while Treasury concluded that the proposed scheme “may not necessarily be the best source of funding”.
This is policy that the Government should look at again. It sends the wrong messages to investors and is not helping investment in infrastructure. New Zealand business needs policies to enhance our infrastructure and labour market assets, not confound them.
In concert with our stakeholders, Business NZ will be seeking positive alternatives for policies that will improve investment and enhance our human and infrastructure resources.
Phil O’Reilly is CEO of Business NZ.
