17 March, 2009
Government to simplify foreign investment rules
The government is reviewing overseas investment rules to make foreign investment in New Zealand simpler and more attractive, while at the same time protecting sensitive land, assets and resources.
Overseas investment can play an important role in economic recovery and job creation, Finance Minister Bill English said today in confirming the Overseas Investment Act review. However, the current overseas investment legislation is cumbersome and the rules are often difficult to interpret.
"While our overseas investment screening regime is not the most important factor for attracting foreign investment, we think there are significant improvements we can make," he said.
"It has taken too long to process some overseas investment proposals - as a result of the complexity of the legislation - which has added to the costs for foreign investors and may have turned some of them away.
"Current rules are complex and processing a sensitive land application involves the assessment of 27 criteria and factors. The process is too long and too uncertain.
"Some progress is being made in reducing the time and we want to reduce it further," Mr English said.
The overseas investment review, foreshadowed at the weekend by Prime Minister John Key, is part of a wider review of bureaucratic red tape led by Mr English and Regulatory Reform Minister Rodney Hide. Regulatory reform also emerged last month as an important theme from the Jobs Summit.
Many investments in land have to be screened under the Overseas Investment Act because they adjoin areas such as recreation reserves.
"For example, we've had a proposal for a rest home to be screened because it was next to a playing field," Mr English said.
There are three broad parts to the overseas investment review - which will be led by the Minister for Land Information, Dr Richard Worth:
- Putting in place some immediate measures, such as ensuring that more applications are decided by the Overseas Investment Office, rather than Ministers. This will mean that applications are turned around more swiftly. These measures will not require any legislative changes.
- Considering changes to the Overseas Investment Regulations - these changes will require Cabinet approval;
- Considering changes to the scope of the overseas investment screening regime generally, for example whether screening thresholds which determine the sorts of land considered ‘sensitive' should be changed. These changes will likely require amendments to the Overseas Investment Act.
Mr English said the review will focus on the most problematic areas of the legislation, so that unnecessary barriers to foreign investment can be quickly identified and removed. Other areas of the legislation that are cumbersome or difficult to interpret will be clarified and amended as necessary.
"In the current economic situation, access to foreign capital is particularly important for New Zealand firms. We also believe that, beyond the recession, overseas investment will make an important contribution to New Zealand's economic growth in the longer term.
"We will ensure that land of particular significance or importance to New Zealand continues to be protected. But issues such as conservation, heritage protection and walking access may already be well covered by existing legislation."
Cabinet will consider recommendations from the review by June 30 2009 and changes to the Overseas Investment Act will be open to public submissions through the select committee process.
Terms of reference for the Overseas Investment Act review
- 1. New Zealand's overseas investment screening regime influences the attractiveness of New Zealand as an investment destination. In the current economic environment, access to foreign capital is particularly important and we need to ensure that the screening regime does not unnecessarily deter or prevent initial and ongoing foreign investment. There is scope to improve the design and implementation of the current screening regime to ensure that it provides clarity, certainty and predictability for investors; ensures efficient processing of investment applications; minimises compliance costs associated with applications for subsequent investments; targets relevant concerns about foreign investments and ensures positive outcomes for the New Zealand economy.
- 2. The objective of this review is to create an overseas investment screening regime that promotes and encourages the flow of investment into New Zealand, while addressing valid concerns about foreign investment.
- 3. The review will consider the following issues:
- a. how the purpose of the Overseas Investment Act 2005 (the Act) can be restated to better reflect the importance of foreign investment to New Zealand's economic growth;
- b. how the screening thresholds for investments in significant business assets and sensitive land can be adjusted to ensure they promote the initial and ongoing flow of investment into New Zealand;
- c. how the type and scope of land defined as sensitive under the Act can be refined to ensure that only land of particular significance or importance to New Zealand is screened;
- d. how the tests that initial and ongoing investments must meet for consent to be granted under the Act, and the factors for determining benefit to New Zealand, can be altered to avoid deterring valuable investments and to minimise compliance costs;
- e. whether the current regulation making powers in the Act should be repealed;
- f. other matters as considered appropriate by the Minister of Finance, Minister for Land Information and Minister for Regulatory Reform.
- 4. The Minister for Land Information will lead the day to day work on the review of the overseas investment screening regime (the Act and the Overseas Investment Regulations 2005). The Treasury will support and provide policy advice to the Minister for Land Information in this role.The Overseas Investment Office will provide support for the review, consistent with its role as the agency with responsibility for operational matters relating to overseas investment screening.
- 5. A Technical Reference Group will be established to advise officials on the practicality of any amendments to the Act and to provide suggestions on other improvements that can be made to the Act. The Group will be made up of senior legal practitioners with expertise in applying the Act. The Group will be appointed by the Minister for Land Information. A separate Terms of Reference for the Group is attached.
- 6. Cabinet agreement to any recommendations arising from the review will be sought by the end of June 2009. The timing of any necessary legislation will be determined by the government.
- 7. I am confident that review will deliver a feasible set of options for reform and recommendations that will:
- be the minimum necessary to achieve its objectives, having assessed costs, benefits and risks;
- be as generic and as simple as the sector allows;
- use self-regulatory approaches where appropriate;
- be appropriately durable, predictable and adaptable;
- where appropriate accord with international best practice being mindful of our commitment to a single economic market with Australia;
- minimise compliance costs imposed; and
- aim to minimise adverse impacts on:
- i. innovation and investments;
- ii. competition;
- iii. individual responsibility (with appropriate risk balance); and
- iv. property rights.