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3 November 2018

Chief Reporter

HELL FREEZES OVER

Treasury Consults CAFCA On Government's Review Of Overseas Investment Act

Something unprecedented happened this week. Treasury - which has never contacted CAFCA about anything in our 40+ years of existence - contacted us and asked if we'd like to be consulted as part of the "engagement process" of the Government's second stage review of the Overseas Investment Act (Stage 1 became law in October). The initiative came from Treasury (and the Government, I'd imagine, not from CAFCA. They came to us.

Before we get too excited here, it's stating the obvious to say that Treasury and the Campaign Against Foreign Control of Aotearoa have radically different views on foreign investment. Nor is the Government proposing anything too drastic, certainly nothing to make the chronically nervous business sector in need of a lie down. The tone of the material announcing the review is that the aim is to make the Overseas Investment Act easier to use - CAFCA considers that it's too easy all ready and needs significant tightening up

And I have no illusions about "consultation" I was a railway worker during Rogernomics and was one of the many thousands "consulted" out of a job.

Nonetheless, CAFCA was happy to be consulted, (for the sheer novelty value, if nothing else) and I spent 30 minutes on the phone with several Treasury people this week. We were all on our best behaviour and not once did any of them succumb to exclaiming: "You want to make the country like North Korea, don't you?" (they'll happily leave that to Mike Hosking and his ilk).

I drew heavily on CAFCA's submission (written by Bill Rosenberg) on what became the 2005 Overseas Investment Act, specifically the recommendations.

It is still extremely relevant and informative

It is available online

The recommendations span from page 35 to page 44.

At the end Treasury asked me what three or four main points would I want to stress. I told them:

1. A national interest test (which is mentioned in David Parker's material).
2. No increase in the $100m threshold (only transnational corporate takeovers above that sum require the involvement of the Overseas Investment Office - OIO); indeed it should be reduced to $10m.
3. The oversight of the whole foreign investment regime should be taken off the OIO (which is part of Land Information NZ) and undertaken by a dedicated Regulator, one with the same independent status and statutory powers as the Parliamentary Commissioner for the Environment.
4. The whole "good character" part of the Act needs to be tightened up and defined. It is currently only applicable to individuals, including those owning and/or controlling companies. It is not applicable to the companies themselves.

I also gave Treasury the views of the three CAFCA members who, separately, have been responsible for analysing and writing up all the monthly Decisions of the Overseas Investment Office and its predecessor, the Overseas Investment Commission, for the past 30 years.

Linda Hill said:

NZ business assets and land are increasingly being acquired by i) very large listed global corporations and ii) by private equity funds. The ultimate beneficiaries are anonymous shareholders, probably changing constantly. Their interest (and the responsibility of those managing the corporation or fund), is the creating of 'shareholder value' from financial transactions. We cannot expect these ultimate beneficiaries to be knowledgeable or to share the same concerns as NZ citizens and residents about any impacts on our economy, environment, social values and Treaty responsibilities. For this reason, we need the Overseas Investment Act to include criteria that allow Ministers and officials to make decisions for us that will reflect those concerns. I suggest the following:

"That consent should not be inconsistent with or detract from the achievement of goals and purposes of environmental, conservation or climate change legislation, or the protection of nga taonga katoa under the Treaty of Waitangi."

Several consents in the past two years have put land or substantial business assets into the ownership of companies created just the week before. Other consents have been required because an extra 'holding' layer is being added to a corporate group structure. These holding companies seem to be about location for tax advantage and insulation from accountability. From the decision summaries, all we know about these shareholders or private equity investors is their 'nationality' - in places like the Cayman Islands, Virgin Islands, etc. - or that the registered address is an Amsterdam Airport building with 760 other companies. We need to think about overseas investment in New Zealand in conjunction with Treasury and IRD's current work towards global tax reform.

The 'counterfactual' approach now being applied to overseas purchases of land should also be applied to substantial business interests: will the overseas applicant bring more to the table than a local purchaser would? Relatively few of the OIO decision summaries suggest that there will be any substantial investment in development over and above the cost of purchase. And in two years of consents, I have seen just one clearly 'greenfield' business development.

This may be because of the extremely cryptic nature of the OIO decision summaries. The OIO currently seems more open and communicative, making price information available when it is no longer commercially sensitive, and responding to OIA requests. But the short formulaic summaries make it difficult for the public to understand the pros and cons of different consents. Often the full information provided to or obtained by the OIO includes data on local resources and local environments that is public (or publicly funded) and could be made available in the summaries. The OIO is now required to monitor compliance. This role will be much more cost-effective if local people, business journalists and organisations like ours are given fuller information in consent summaries.

This may be because of the extremely cryptic nature of the OIO decision summaries. The OIO currently seems more open and communicative, making price information available when it is no longer commercially sensitive, and responding to OIA requests. But the short formulaic summaries make it difficult for the public to understand the pros and cons of different consents. Often the full information provided to or obtained by the OIO includes data on local resources and local environments that is public (or publicly funded) and could be made available in the summaries. The OIO is now required to monitor compliance. This role will be much more cost-effective if local people, business journalists and organisations like ours are given fuller information in consent summaries.

James Ayers said:

"Commercial sensitivity" as a reason from withholding details of the approval could mean anything, but, in reality, means nothing. Approval should be conditional on the sale and/or purchase price being revealed.

The full application presented to the OIO (usually by lawyers on behalf of the applicant) should be made available to the public before approval is given and notified via public notices section in the relevant newspapers.

The public should be given an opportunity to object to an application via a formal submission process.

Actual and periodic follow-up/audit of the proposed benefits to NZ which were listed by the applicant as part of the OIO approval.

And Bill Rosenberg said:

Linda suggests that essentially decisions under the Act should not be inconsistent with other domestic goals. A useful way to consider this in the current Government's (and Treasury's) context is that such decisions should be consistent with the "wellbeing framework" or Living Standards Framework that is being developed by Treasury. That means that for example it should take into account the impact on social, environmental and 'human capital' (in the terms of the framework) as well as economic and financial considerations.

Perhaps make a condition that investors based in or making substantial use of tax havens or 'secrecy jurisdictions' (which need to be defined somehow) should not be given approval. Also, that investors engaged in providing cover for tax evasion/avoidance or other illegal or corrupt behaviour should lose their approvals. Perhaps even small investors could be deemed to have received a consent even if they do not have to go through an approval process, enabling it to be withdrawn for bad behaviour.

Much more ready availability of statistics and other public information. Creation of a register of overseas owned assets.

A way to tighten up the good character section would be to make clear that a corporate entity can be of bad character if it has a record of poor behaviour.

Labour (and probably New Zealand First) have long been interested in protecting 'strategy assets' (however that is defined). It would be worth supporting that and asking for it to be broader or more clearly defined than that.

Murray Horton
Secretary/Organiser

 

Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.