27 September, 2010
New investment rules strike the right balance
Ministers will have extra flexibility to consider a wider range of issues - including large-scale ownership of farmland - when assessing overseas investment applications for sensitive land, Finance Minister Bill English says.
At the same time, a new ministerial directive letter to the Overseas Investment Office will provide extra clarity and certainty for potential investors about the Government's general approach to foreign investment in sensitive assets.
"In recent months, ministers have carefully reviewed the current framework for considering overseas investment applications - particularly in light of issues with respect to farmland ownership," Mr English says.
"Overall, the measures I'm announcing today strike an appropriate balance. They increase ministerial flexibility to consider a wide range of issues when assessing overseas investments in sensitive land, while at the same time they provide extra clarity and certainty for potential investors and the Overseas Investment Office."
The Government last year made several changes to simplify overseas investment rules, cut red tape and speed up processing times for applications.
"In the past year, application processing times have dropped to an average of 38 days - down from 63 days in the year to August 2009," Mr English says. "That has made it easier for local businesses that need foreign investment to grow.
"The second part of our review looked at the Overseas Investment Act itself. On balance, we have decided against changing the Act, because it would cause a degree of uncertainty that would outweigh potential benefits."
However, the Government has agreed to make several changes to regulations outside the Act. They include:
- Two new measures under the benefit test used to assess investments in sensitive land:
- o A new "economic interests" factor allowing ministers to consider whether New Zealand's economic interests are adequately safeguarded and promoted. This will improve ministerial flexibility to respond to both current and future economic concerns about foreign investment, such as large-scale ownership of farmland.
- A new "mitigating" factor enabling ministers to consider whether an overseas investment provides opportunities for New Zealand oversight or involvement - for example, by appointing New Zealand directors or establishing a head office in this country.
- Providing more clarity about the Government's policy on overseas investment in sensitive assets, to be set out in a new ministerial directive letter from the Finance Minister to the Overseas Investment Office. This will provide advice to the OIO about which factors in the benefit test are likely to be more or less important in assessing particular types of investments.
These changes are expected to take effect from December. They will apply to applications received after this date and will not apply retrospectively.
The Government has also decided to retain the strategic asset test. Although the test has not been used in the two years since it was introduced, on balance ministers concluded that removing it would reduce their flexibility in dealing with investment applications for sensitive land.
"It's important that we welcome beneficial foreign investment and recognise the positive contribution it makes to New Zealand through increased jobs, capital and access to export markets," Mr English says.
"At the same time, the Government recognises there are genuine public concerns about aspects of certain types of overseas investment."
"Taken together, the changes I have announced today achieve an appropriate balance."
OVERSEAS INVESTMENT REVIEW - Q&A
•1. When are these new measures likely to be used?
The economic interests factor and the mitigating factor will apply only to foreign investments in sensitive land (such as farmland greater than five hectares or land adjoining the foreshore or conservation land). The Government will issue a new ministerial directive letter to the Overseas Investment Office to provide guidance to the office and investors. Broadly, the Government considers the new factors to be of relatively high importance to assessing investments in farmland. The Government does not expect that relatively small parcels of land, such as land bought for lifestyle purposes, will fall within this direction.
•2. What practical difference are the changes likely to have?
The new factors will allow ministers to consider a wider range of issues when assessing an investment in sensitive land. Each investment application will continue to be considered on a case-by-case basis.
•3. Why have you kept the strategic asset test?
The strategic asset test has not been used in the two years since it was introduced. However, on balance, ministers concluded that removing the test would reduce their flexibility to deal with investment applications for sensitive land. Taken together, the new measures announced today provide a balanced and appropriate framework for addressing genuine public concern about certain types of overseas investment.
•4. How can you provide both extra flexibility for ministers and extra certainty for investors?
The Government has had to balance a number of factors and we believe we have struck an appropriate balance. While the changes give ministers more flexibility, they also give investors a clear sense of what the Government views as important and where extra scrutiny will be applied.
•5. When will the new rules take effect?
We expect the new regulations to take effect in December 2010.
•6. What do the changes mean for overseas investment applications already submitted?
Applications already submitted will be assessed under the current regulations. The new regulations will be applied to those investment applications that made after the new regulations come into force.
•7. Are the changes consistent with New Zealand's international investment obligations?
Yes. New Zealand makes commitments in a number of its trade agreements, which mean that we cannot introduce new categories of investment under our overseas investment legislation. But we retain flexibility to adjust the criteria for screening categories of investment - this includes the new factors.