Labour details tougher policy on foreign purchases of NZ land and monopolies. Cunliffe eyes 'dirty float' of NZ$, lower land prices, and talks wealth taxes. Your view?
By Alex Tarrant and Bernard Hickey
Most applications from foreigners to buy rural land in New Zealand would be turned down if Labour got back into power, leader Phil Goff has announced.
Labour outlined its new 'foreign ownership' policy, saying foreigners would not be able to buy land parcels bigger than five hectares, unless economic benefits were to stay onshore.
"We will force would-be buyers of New Zealand rural land to invest in New Zealand and our people by bringing jobs, transferring technology, increasing exports or bringing other benefits for New Zealand," Goff said.
Under the policy foreigners would not be able to own more than 25% of monopoly infrastructure, such as airports and seaports, if their interest were more than NZ$10 million.
Asset purchases over NZ$100 million would also need government sign-off. See the full details of the policy here.
Meanwhile, Labour Finance Spokesman David Cunliffe spoke in a Double Shot interview with Interest.co.nz (see above) in more detail about the policy, including the proposed restrictions on ownership of monopoly assets such as electricity lines networks and railways.
"You don't want to sell out control to the jugular veins of your economy, otherwise others are able to extract monopoly rents or make decisions that potentially might not be in the national interest," Cunliffe said.
He also acknowledged the imposition of such restrictions on foreign purchases of New Zealand land would and should reduce land prices "to some extent."
"Hopefully that process will be managed and be gradual. The days of farming for capital gain rather than the downstream value of the products that are produced are and must be over," he said.
'Dirty float'
Cunliffe also talked about the need for a 'dirty float' of the New Zealand dollar where the Reserve Bank intervened in the currency markets, as well as using supplementary tools.
Labour would investigate a "tax wedge on aggregate inbound financial flows as a potential monetary policy complement to the Official Cash Rate," Cunliffe said, although a Brazilian style tax on foreign investment in bonds was not Labour policy yet.
"Why are doing this? Our exporters are being killed. We've got a Kiwi dollar approaching 80 USc and a Aussie dollar that reached US dollar parity. It's against the background of a global currency war potential which could see the US dollar fall further and the New Zealand dollar continue to be a cork in the ocean," he said.
"It's just not OK or possible for a small or medium or large exporter to hedge away that risk. Business people need to be able to plan within reasonable how they are going to face global currency markets. There are a number of different models. What we are proposing is New Zealand moves away from a free and ultra-pure float to a 'dirty' float where the Reserve Bank is intervening more often and more aggressively to put up the costs and risks on speculators."
Wealth taxes
Cunliffe said Labour was still considering its policy on wealth taxes, when asked about a capital gains tax or a land tax.
"Somebody is going to have to provide the means to both grow our economy and protect some of the most vulnerable," he said.
Fed Farmers concerned
Meanwhile Federated Farmers president Don Nicolson said the group was waiting to see the detail of Labour's new policy.
“Things are not black and white. It’s incredibly complex so the last thing we need is for it to be interpreted overseas as a possible political veto on foreign investment," Nicolson said.
“We have to be very careful about the signals we send. 82 percent of the $17.2 billion New Zealand Superannuation Investment Fund is for instance, invested overseas," he said.
“What’s also missing is a real debate around the principles underpinning foreign investment. Somehow we’ve skipped to solutions instead of understanding why we allow direct foreign investment into New Zealand and why New Zealanders invest overseas.
“In 2009, Kiwis were the sixth largest ‘foreign investors’ in Queensland, buying 2,669 land parcels worth almost AUD60 million, according to Queensland’s Foreign Ownership of Land Register.
“I think if the shoe was on the other foot, you’d have many people crying foul.
“It’s why our starting point is not in the negative but the positive. Irrespective of whether they’re from Manila or Manitoba, the New Zealand farm system can be made better by the people who enter it from outside of New Zealand."
'Populist politics'
At his post-cabinet press conference on Monday afternoon, Prime Minister John Key labeled Labour's move as populist politics. See the full story here.
"That will require companies that are listed, like Auckland Airport…to actually have a limit on their foreign shareholdings," Key said.
"That will mean that foreigners, if they go up to their limit, and the company has 25% of their shares foreign owned, then those foreign owners will be able to sell to other foreign owners, but the domestic market would not be able to sell their shares to foreign owners."
"My view would be, yes we want to own a significant amount of assets, if we can. The surest way of completing that objective is for New Zealanders to save more, for New Zealand to be a competitive economy and plus to invest in their own assets."
Key said the rebalancing that had taken place over the last 18 months had put New Zealand in a stronger position for that.
"If New Zealanders save more, they'll buy more New Zealand assets."
Here are Goff's comments in his speech to the Labour Party conference:
We need more savings, and our innovators and exporters need more New Zealand capital. We will bring them together.
Labour will go to next year’s election with clear plans that go further than New Zealand has gone before in lifting our savings and investment.
We have to, because we need to own more of the wealth generating economy.
New Zealand cannot spend our way to prosperity.
We cannot borrow our way to higher incomes or to better jobs.
Instead of selling New Zealand off, what we need to do is make it more attractive for New Zealanders who have something to save to put more into New Zealand.
We will back Kiwi firms.
When we build new trains for Kiwirail, we will look first to build them in Dunedin and the Hutt Valley by Kiwis who have the skills to do it.
Increasing our savings will allow us to own more of our future.
It is time we reconsidered what we get from the sale of farm land offshore, and what are the costs.
Kiwi farmers are the most efficient in the world.
We are not going to make them more efficient by making more of them overseas owned.
Selling off our farmland won’t increase production or export earnings.
There are big overseas buyers with money to burn who want to control and own the supply chain for food production.
Instead of adding value to production here in New Zealand, they could decide to do it overseas.
That would cost us jobs.
They’re coming here to buy what’s currently ours and they will be doing it more often.
We are more vulnerable as land values fall.
Assets like the Crafar farms have been put up at the behest of banks.
But what is in the banks' interest is not always in the wider interests of New Zealand.
We are at risk of our land being priced on an international market beyond the reach of New Zealanders.
When New Zealanders have to compete against overseas buyers, we have to ask ourselves - what will happen if the prices paid lock us out of owning our own land?
Where does it end up if we say to ambitious young New Zealanders that you can only buy into our best and productive assets if you come from overseas or you are born into a wealthy family.
That is not the New Zealand I want.
No overseas person has the right to buy our land - it is a privilege.
It is a privilege we have granted too easily.
Today you have my commitment that Labour will turn the rules on selling land to foreigners on their head.
We’ll guarantee that New Zealand’s interests are put first.
We will reverse the presumption that any foreign purchase of our rural land is good for New Zealand.
This will mean that rather than most applications from foreign buyers going through, most will be turned down.
Buyers will have to prove that selling land to them will be good for our economy.
We will force would-be buyers of New Zealand rural land to invest in New Zealand and our people by bringing jobs, transferring technology, increasing exports or bringing other benefits for New Zealand.
These rules will apply to sales of rural land over 5 hectares.
We will also introduce new rules around investment in monopoly infrastructure to guarantee these crucial assets, such as airports, seaports and water services remain in New Zealand hands.
And of course, Labour will stop the privatisation of our public assets.
We’ll keep them community-owned and therefore New Zealand-owned.
We don’t believe the sale of our farmland or monopoly infrastructure is in our interests.
But other foreign direct investment is and we encourage it.
If you want to buy into New Zealand, then you will have to bring something to offer New Zealand.
If you do, we will welcome you.
And if you don’t, we won’t let you.
I’ve spent many years representing New Zealand around the world, and no country I can think of would find the rules I am proposing unusual.
Here are the comments from Federated Farmers
Federated Farmers is looking forward to receiving the detail behind Labour’s newly announced foreign investment policy, as it similarly awaits detail from the Government.
“Federated Farmers wishes to take a principles approach to foreign investment in farmland, as it will be a major item before our November National Council,” says Don Nicolson, Federated Farmers President.
“Five hectares may be in the Overseas Investment Act, but as a farmer, five hectares might as well be 50 square metres. It’s important we understand the detail behind Labour’s new policy and for that matter, the Government’s recently announced changes.
“For us the property right is sacrosanct. What is farm policy today, could tomorrow become shares in a New Zealand company or for that matter, a unit in Takapuna.
“Things are not black and white. It’s incredibly complex so the last thing we need is for it to be interpreted overseas as a possible political veto on foreign investment.
“We have to be very careful about the signals we send. 82 percent of the $17.2 billion New Zealand Superannuation Investment Fund is for instance, invested overseas.
“The Government is itself borrowing $413 a second, or $250 million a week, to help take the sharp edges off the recession. Doing that may help insulate the domestic economy but it massively increases pressure on the already high Kiwi dollar.
“Appreciating the vast amounts of foreign money coming into New Zealand makes you look at an ATM machine in a whole new light.
“What’s also missing is a real debate around the principles underpinning foreign investment. Somehow we’ve skipped to solutions instead of understanding why we allow direct foreign investment into New Zealand and why New Zealanders invest overseas.
“In 2009, Kiwis were the sixth largest ‘foreign investors’ in Queensland, buying 2,669 land parcels worth almost AUD60 million, according to Queensland’s Foreign Ownership of Land Register.
“I think if the shoe was on the other foot, you’d have many people crying foul.
“It’s why our starting point is not in the negative but the positive. Irrespective of whether they’re from Manila or Manitoba, the New Zealand farm system can be made better by the people who enter it from outside of New Zealand.
“That’s why refining Federated Farmers policy on foreign investment at our National Council will be led by principles,” Mr Nicolson concluded.
(Updates with Fed farmers comments, Key comments, Cunliffe comments)
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