A bill granting the Government temporary screening powers on some overseas investments has passed its first reading debate at Parliament.
The Overseas Investment (Urgent Measures) Amendment Bill was introduced under urgency following the adjournment of the Budget debate on Thursday.
Urgency is a tool the Government can use to pass legislation more quickly than normal and it's commonplace after the announcement of a budget.
The effect of Covid-19 on the economy has created new foreign investment risks which the Government aims to minimise along with a second bill, the Overseas Investment Amendment Bill (No.3).
"Falling enterprise values are increasing opportunities for overseas investors to acquire ordinarily productive firms or strategically important assets at fire sale values without Government scrutiny," said the Minister for Trade and Export Growth David Parker.
"That reduced value may not reflect the importance of the business to our economy, and interim controls are needed to protect our national interest. Some of those businesses may be best kept in New Zealand ownership to help our recovery.'
The full details can be read online here but in summary the bill will:
- Temporarily requiring foreign investors to notify the government of transactions so these can be assessed
Any investment that grants more than 25 per cent of an existing business, increases an existing level of control or results in the acquisition of more than 26 per cent of a business' assets can be assessed by the Government to figure out if they're against the country's national interest.
"Instead of the normal threshold of at least $100 million, the temporary threshold will be zero," said Parker.
"It's what Australia's done too. This screening power will allow the Government to assess these transactions and, if necessary, consider whether they're contrary to New Zealand's national interest or whether they should be approved, perhaps on conditions."
The power will be reviewed every 90 days and only lasts while Covid-19 continues to have a significant impact on the country's economy.
- introduce a national interest test
This is described as a "backstop tool" that will be used rarely and only if the Minister responsible for the Act decides it's necessary.
"The Government doesn't have sufficient ability to block transactions that are contrary to our national security, the function of our democracy, and other core national interests," said Parker.
- Removing screening requirements for transactions that pose little to no risk
This part of the bill aims to open up investment by getting rid of some "red tape" said Parker.
"It does this by addressing screening of purchases by majority New Zealand owned and controlled entities, investments in land that are caught up currently but have little economic, cultural, or environmental value... an example is land that sits next to a reserve, like a sports field, that's currently caught."
- allow for temporary regulation-making powers
Covid-19 has required the Government to adapt its response as the situation evolves so the bill also allows for temporary powers to make regulation to address any issues that might come up.
" These powers include, for example, the ability to allow modifications or exemptions from the consent requirements while the emergency notification power is in place," said Parker.
What the MPs say
The National Party opposed the bill at first reading with its finance spokesperson Paul Goldsmith saying there are concerns around the absence of a threshold.
"It seems to me that I struggle to understand how the tranquillity of the realm and the interests of New Zealanders would be badly affected if a company worth a million dollars or less was sold to anybody in particular.
So the absence of any threshold means that what we're seeing, potentially, is sand being thrown in the gears of the flow of investment into this country."
National MP Gerry Brownlee said it was "fascinating" that the first bill introduced after Budget 2020 would "stop a flow of capital into New Zealand" while National MP Judith Collins said small and medium sized businesses would " end up closing if they can't get investment."
Labour MP and chair of the Finance and Expenditure Committee Deborah Russell said the bill strikes a balance between inviting foreign investment and protecting vulnerable assets.
"The intention is that this bill has a sunset clause; that the powers in it be subject to regular review," said Dr Russell.
"It is, in many senses, an urgent measures bill, but it's also a temporary bill—temporary, because we would not want to have settings that discourage foreign investment in place permanently, but we do need them at this time."
The bill passed its first reading debate with Labour, New Zealand First, and the Green Party in support. National, the ACT Party and Independent Jami-Lee Ross voted against it.