Wellington, 14 May 2020 - The Government’s proposed changes to the Overseas Investment Act will only make it harder for struggling Kiwi businesses to recover after Covid-19 lockdowns, said The New Zealand Initiative.

Yesterday, associate finance minister David Parker announced the introduction of a “national interest test” for New Zealand’s strategic assets should they go on the market. The test is “fast-tracking” part of the Overseas Investment Act’s Phase 2 reform agreed upon by Cabinet last year.

However, Parker also included a temporary measure to force companies to seek OIA approval if 25% of the firm is expected to change ownership to a foreign national, or in transactions which increase a foreign national’s interest in the Kiwi company beyond 50%, 75% or to 100%.

Unlike the existing procedure – which only compels a company to seek OIA approval on investments of $100 million or more – the new measure applies regardless of the value of the investment.

Parker said the temporary change is meant to assist Kiwi businesses as they try to recover from the economic pain of the Covid-19 lockdown.

The New Zealand Initiative deplores the plan and Dr Hartwich highlighted that it will make it harder for owners of failing businesses to rescue their companies by looking for help outside New Zealand.

Parker’s plan will spook foreign investors, Hartwich said, and likely even dissuade them from making company-saving purchases which might have passed the Government’s national interest test.

“It will achieve the opposite of what’s intended. With these settings, if a foreign national invests $1000 in a fish and chip store in Havelock North, that investment will be subject to OIA approval. That’s ludicrous."

“The Government says it will only thwart such sales if it is in the national interest to do so. But the national interest test in this legislation is farcical. It ignores the prime benefit to the nation - the benefit to the seller,” Dr Hartwich said.

The OIA changes make the mistake of assuming businesses have two different values: the market value and “David Parker’s value,” said Hartwich.

Instead, the basic principle should be that New Zealanders are free to sell their assets to whom they please, unless there is a sound public interest reason to the contrary, Hartwich said.

“A meaningless national interest test is not a sound reason. Companies should be allowed to save their businesses by attracting foreign direct investment."

“At the very least, the Government should publish a professional cost-benefit assessment of its proposed measures,” he said.

The change will be reviewed after 90 days. The Government said once the temporary measures end, the national interest test will remain for any investment of more than $100 million.
 

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