Overseas Investment (Urgent Measures) Amendment Bill

Members, when we were last in committee, we were considering Part 1. Andrew Bayly had the call and has one minute, 42 seconds remaining, should he wish to take that. He does.

Thank you, Mr Chair. I was cut in full flight talking about this bill, and particularly about how it is being rushed through this Parliament. It came into the House, was introduced on Friday, and here we are a few days later trying to ram this bill through the House.

The reason I was saying it could actually occur in this shortened manner was that there is an over-reliance on regulation-making power in this bill. The point I was noting was the Minister in charge of this bill, David Parker, was formerly the chair of the Regulations Review Committee. I know, because I sat on that same committee with him. And we did a lot of work around the issue of making sure Ministers were not ramming through legislation and relying on regulation-making powers. For people who don’t understand that term, that means that if it’s not in the primary legislation, such as this bill, the officials later, involving the Minister, can then specify the detail. Of course, that detail is never subject to parliamentary oversight, and that is how you bring about the absolute working elements of this bill.

Unfortunately, there is just an overreliance—I talked about all these different clauses, about clause 25; I talked about clause 8, I talked about clause 62, and I talked about clause 52, and these are just four examples—and that is because this Government, the Minister, hasn’t had the time to do the proper work. That’s right. It should have gone to a proper select committee stage where we heard all of these issues and wove them into the bill.

Thank you, Mr Chair. It’s a pleasure to take a short call in Part 1 of the committee stage of the Overseas Investment (Urgent Measures) Amendment Bill. I just wanted to follow on from Andrew Bayly’s point, because it is a very relevant point, and it’s quite relevant to this bill, too, because there’s huge regulation-making powers in this bill. I just want to add to a point he made about the ex-chairman David Parker. Once I had the opportunity to write some letters on behalf of the Regulations Review Committee, and I remember getting a fearful bollocking from a Minister for writing a letter to him—put me off writing them, actually; that Minister is no longer a Minister. I just wanted to make the point that there are three matters I want to talk about briefly in this committee stage. Andrew Bayly, interestingly, also, earlier on, raised the issue of the potatoes flooding the New Zealand market, and the ironic thing about that—and it’s absolutely relevant this bill—is that if it does that it’ll cause a significant distortion in the market, because when, in fact, they come in, then you’ll see a drop in potato planting in New Zealand, and, of course, there’s been some legendary famines in history caused exactly by the same thing. So if there’s no incentive to plant potatoes, they won’t be planted.

Anyway, back to the point. I want to ask the Minister briefly about some interesting stuff that goes on and that’s going on right now, particularly because of the challenges the tourism sector are facing. I have a very interesting case in my electorate where a sale of a motel—and I know we were talking about the Greymouth Motel; this is a serious motel—has been delayed because of COVID. Now, that contract was signed, but because of the extraordinary circumstances we’ve moved into, that sale has been delayed. It’s quite likely that sale may now be captured by the legislation. It would be very interesting to know what happens in that instance where we had a premature sale agreement prior to the shutdown and that sale has been delayed and will happen a little later. That’s the first thing I was interested to know about.

The other thing I think is not at all clear in this bill—and I know the bill states very clearly that overseas investors must inform the New Zealand Government of what their intentions are. I wonder what policing methods, or what ability to manage the policing of this type of investment, we have got in New Zealand. As I said earlier, I realise the bill has some stipulations in it as to what those do, but it’s very difficult to ascertain exactly what and how the Government will control or will know about those types of investment.

And, again, my question is specific to the tourism industry, not that I think many of the tourism industry businesses would qualify under this legislation as a case where the Government was interested in the investment in them. But, nonetheless, some of those specialist businesses, particularly in the adventure tourism areas, are quite interesting businesses and probably have a long-term, significant value to New Zealand. It’s just a matter of whether they’re caught up in this, and, when they are, if those investors in them are understood.

So there are a few, I think, odd things that—not odd, that’s a bad word. There are a few things that aren’t clear at all in this bill to me. I think one of the reasons they’re not clear is because the bill has been pushed through Parliament very quickly. I also understand that the third—or I suppose I could call it the long-form—version of this bill will turn up in Parliament in due course and may well be passed by the end of the year, which will put an end to—not an end, but will resolve—a lot of the issues I’m talking about.

So those were a couple of questions I had, and I think that it’s an interesting premise the bill purports. As I said earlier, there’s some things that I think are hugely important in New Zealand, and later on, in the discussion on the committee stage, we’ll talk about the fishing industry, maybe, because there is quota and things like that which are specific to New Zealand, and I think they should be retained and definitely need to be perused by legislation like this. So there are some things that I think are very useful. So, Mr Chair, that’s my lot, thank you.

If I could respond to the last two contributions, briefly. In respect of regulation-making powers, the main regulation-making power that is new in this is the ability to increase the threshold. It actually relaxes the restrictions by increasing the threshold. The other companion bill actually narrows regulation-making powers, which, in respect of sensitive land, are very complex and wide-ranging at the moment. We agree that that’s wrong that they sit in regulation-making power and think they should be in the primary legislation.

In respect of Mr McKelvie’s question, I mean, I think the tourism asset issue is a very interesting one, and we don’t really know how that’s going to unfold yet. It is possible, as the member has suggested, that there could be businesses that are important to the long-term interests of New Zealand’s interest in our tourism industry that might make us want to pause before we allow all of those—or particular ones of those—to pass into overseas ownership. Unless we pass this legislation, we don’t have the ability to scrutinise on that basis. That doesn’t mean to say that they should all be declined. I also reinforce something I said earlier: that we do have to make sure that this process is quick so that we’re clearing the vast majority of transactions quickly, and, if there are the occasional ones that need a bit longer focus, they need to be dealt with within a reasonable period as well.

Thank you, Mr Chair. I mean, the first obvious question to ask in relation to this is what possible confidence could the Minister for Trade and Export Growth give to the business community that the process will be fast and efficient and reasonably costless, because every example of bureaucracy that has been handled by this Government has not been quick, and the overall effect of the overseas investment approach—and I acknowledge that that has been something that’s been a problem for a number of years—has been anything but quick. So I’d be interested to know on what basis he is confident that it would be quick and efficient and easy for businesses to get clearances under this regime, because, remember, we’re not just talking about large businesses of scale; we’re talking about every business.

We’re talking about the hairdresser in Eketāhuna or Invercargill or the—

💬 Hon Member: Closed by COVID.

What?

💬 Hon Member: She’s closed by COVID.

Oh, she’s closed. She closed already. Sorry, but maybe the local cafe in Taumarunui, the pie shop in Taumarunui—all these businesses may be struggling—

💬 Hon Member: What about Parnell Road?

Certainly in Parnell Road they could be struggling because they haven’t got the visiting ships. All these little businesses could be struggling—a lot of them are struggling throughout this country at the moment as we’re going through a severe economic challenge. And the simple and most important thing that businesses need access to is capital, is equity sometimes—

💬 Hon Member: Customers.

Well, customers first. Well, customers would be handy but, of course, you know, the refusal to open up the economy quickly makes it difficult. So all the customers in the world will come along and that would be great, but businesses are still struggling.

So there’ll be a number of businesses, small and large, up and down the country, that will be looking for extra capital. If it comes from domestic savings, that’s well and good, but there will be many that will turn to overseas. And it may well be, as I keep referring to, the sister-in-law or the brother-in-law who lives in India or China or the US or somewhere else that’s related to the people that own businesses or that they know—their acquaintances. Or it could be much broader in terms of financial markets. If we make it difficult—and, mark my words, it will be difficult because you have uncertainty around a 10-day period—and, if, for whatever reason, somebody thinks there’s something at issue, it could be 40 days. You’ve got to get some advice before you send in all your bits and pieces, and it adds costs and uncertainty and it puts sand in the gears of investment that we need to save jobs in this country. That’s what this is all about. It’s about saving jobs and encouraging investment for people to grow.

So I’d like to know what confidence he’s got on that. I’d like to know what effort has been made to understand the costs of this, both direct cost to the businesses involved and cost to the administration—so somewhere, somehow there has to be an army of bureaucrats. We’ve got no idea—no idea how many businesses will be caught by this. The officials told us they had no idea how many thousands of businesses get equity infusions from offshore when we’re talking about the 500,000 small businesses in New Zealand. We’ve got no idea. But somewhere an army of bureaucrat officials in Wellington will have to go through all these and triage them, as the previous Minister said. How much is it going to cost the officialdom; how much is it going to cost the businesses themselves—so that we have a sense of whether it stacks up?

Like I said—we said it all at the start—yes, there may be an argument for large and consequential businesses, but to include everybody is extreme. And the Minister stands up and says, “Oh, well, Stuff has been sold for $1.” Well, it’s not impossible to design a regime that has a threshold around the revenues of a company: $100 million - plus revenue or 500 employees. There are different ways to cut this rather than including, potentially, every single business in the country and making it more difficult for businesses to get access to the capital and equity infusions that they need to stay afloat and to keep employing New Zealanders. And on that basis, there are three or four useful questions that I’d like to hear some answers to. Thank you.

In respect of the process, the member Paul Goldsmith, in posing the question, summarised my answer by saying that the triage period is intended to be 10 working days, and the whole process, if it went into a longer process, would be an additional 30 working days. The form of initial application is an online form, two to three pages long, and there is no application fee.

In respect of the time frames for overseas investment processes generally, that is a fair criticism that there is currently no statutory time frame. The other bill actually introduces them through a regulation-making power to set those so that applicants can have some certainty that these things won’t go on for ever, because that is a fair criticism and a longstanding criticism of the existing process that I accept is valid, notwithstanding that time delays are actually lower now than they were a couple of years ago.

In terms of the ideas as to different revenue or employee thresholds, it’s quite difficult at the moment in respect of large international tourism businesses. Some of what was formerly large could, at the moment, have very low revenues; could be unprofitable; and could have laid off just about all of their staff. So we thought that—

💬 Hon Paul Goldsmith: If you’ve got no revenue and you have no staff, there’s nothing.

“No revenue and no staff, and therefore there’s nothing.”, he said; well, there is actually. Sometimes some of these firms have actually put themselves into abeyance—the member will have seen reports of that—and that could be the wise thing to do. Indeed, some of these firms have very little choice but to do that in these difficult circumstances. I’m not critical of them for doing so, but it does show that it’s difficult to set other thresholds. Because we are uncertain as to what is the proper threshold, we’re going to keep it under review—and we’ve got a regulation-making power to increase that threshold, and an obligation to assess that after, I think, 45 days.

I move, That the question be now put.

Thank you, Mr Chair. First of all, I thank the Minister for standing up and answering some of those questions that my good colleague the Hon Paul Goldsmith put to him. I think one of the responses was a question that I was going to just ask a little bit more about, because at the moment anyone making an application for a foreign transaction in New Zealand has to go through a very, very expensive Overseas Investment Office form-filling exercise based on a counterfactual argument. And, as Minister Parker just said, what is proposed is a two- to three-page form, and I understand it’s going to be an online form. I think that one of the questions I’d like to put to him is: how do you know that you’ve actually got sufficient information to make a proper judgment? And, you, Minister Parker, being the only Minister who under this proposed bill will be the Minister responsible for making that godlike decision—and so the design of that form is absolutely essential. Of course, again, I don’t want to harken back to his regulation-making power, but I hadn’t referred to this one—this is the fifth one. This is going to be—because we recommended it; well, some members did—that clause 52 could authorise the manner in which the notifications and how the forms are going to be set up, in effect.

So my question is has the form design been prepared? Is it available today? Because I presume this bill is going through the House this afternoon. So is the form available right now? And, if he is, I’d very much appreciate the opportunity if the Minister could stand up and elucidate all the key aspects of that rather than talk generically, because I think that’s absolutely essential for people—not only the people who will advise those foreign investors but also for foreign investors themselves.

The other thing—yesterday, I spoke on the Budget and I went through some of the gross elements of spending that to me seemed incredibly wasteful. I highlighted that the Prime Minister’s department—that she is going to get another $6 million to $7 million for some issue, and her house, Premier House, is going to be repaired. Then probably the one I found most interesting is that in the Budget there was $6 million set aside for after the election for the re-establishment of new ministerial offices and their staff—6 million bucks. I made the point yesterday, you know, that if we get into that situation in matter of a few months’ time, I don’t think we’re going to need that 6 million bucks. We’re probably going to hand it back. But what I didn’t see in there—I did see something for the Commerce Commission, but I saw nothing in the Budget for the Overseas Investment Office. I would have thought you are now going to have to review every single transaction, all the staffing requirements, the people—that is just a phenomenal amount of transactions that will have to go over your desk, Minister. And yet you will be required to have advice, no doubt—unless you will do it in a divine right, but I presume you’re going to be relying on officials to advise you on each transaction based on the two- to three-page form. And so the issues are, (a), the staffing requirement, and, secondly, the cost of that. You’ve just said that you’re not going to pass on that cost, so that’s a net cost to the Government. So I’d really like to hear a little bit further from the Minister on those questions.

I can assure the member that there was additional funding provided to the Overseas Investment Office in respect of these processes. In respect of the form, it will be in place before the bill comes into effect, which is two weeks after Royal assent is given.

Just a short call to ask a question of the Minister for Trade and Export Growth. I understand that in a previous answer, you gave a rationale around borrowings and you gave a rationale around the size of what could trigger, under the current legislation—the Overseas Investment Act—$100 million, and you said that can be lower now, but borrowings are exempt. What happens, Minister—and I’m talking about small businesses, again, because this is what I’m most worried about—when somebody gets through the hurdle, goes online, fills out the form, gets approval in 10 days, assuming it goes well, and gets the borrowings in? Are they able then, later, just to simply transfer that? That borrowing could be changed into equity and other things—

💬 Hon Member: Convertible loans.

—convertible—at a later time, even before the Act is extinguished. So when the Act’s extinguished, those borrowings would be subject, I presume, to the Overseas Investment Act—

💬 Hon Member: No.

They’re not? They stay the same—OK. What I worry about, with the greatest respect—and I think you’ve said it—is that these processes, notoriously, take a long time. The number of people that have come to me and said “Oh, I can’t do this, and I’ve been to the overseas investment situation. I’ve spent tens of thousands on lawyers, and it’s taking months and months and months.”

My issue is that we don’t have months and months and months at the moment, because there’s a lot of uncertainty and people will be looking for all types of equity, all the borrowings they can get. What I am concerned about is, yes, they can get through the hurdle with the borrowings, but is there going to be another hurdle? Are you saying to me—as we are, today, in this Chamber—that that won’t present another hurdle at a subsequent point?

So I’d like a bit of clarification, but I can’t see in my initial reading of the bill as to what that means. But what I don’t want is people being trapped into something where we’re going to do borrowings or we’re going to get a situation now where the equity somehow comes in and then somebody says, “Oh, that can’t be changed at a future date to equity or be converted.” So I’d like you to comment on that, please, Minister.

A convertible note would be caught, borrowings aren’t under this bill, and it is also the effect of this legislation and the allied bill that borrowings are not covered in the future. They are covered by the current regime, but from the time this is passed and that other bill is passed, they are not covered for the future.

That is the issue that my colleague quite correctly highlights. As you’d know as a commercial lawyer—and I refer to you, the Minister for Trade and Export Growth—the type of structuring of equity, debt instruments, and quasi-equity instruments is really quite a complicated issue. Even when you’re talking quasi-equity, you could be doing convertible notes, you could be doing warrants—all that sort of stuff. There are a myriad of those instruments, which you know.

CHAIRPERSON (Adrian Rurawhe): Do you want to yield to the Minister and he can answer?

No, I’ll just finish this. So the issue with that is the Minister wants to capture—the intent of this is to capture—these relevant transactions. So one is, depending on the foreign investor, if they want to get around the regulations and you’ve only got a two- to three-page form, they can structure it in a way to get around. It would be hard for you to detect, sitting in the office, even if you have got an army of Overseas Investment Office advisers beside you to work out what is the nature of the instrument and whether it’s captured.

The second thing is you quoted the example of the media transfer for $1, and that’s your rationale for not putting a minimum threshold on it. See, again, if the value of the transaction is $1, it is very likely that you will take a view on it when you’re considering the proposal—I’m talking to the Minister here, Mr Chair—because it’s such a low value of a transaction. So that transaction might have occurred at $1, but as part of paying only $1, they are assuming $200 million of debt in the company. So, actually, it might have been a very significant transaction, but, on the face value, $1, it doesn’t sound like much. But if it was a $200 million assumption of liability, or the liability were put aside and you were paying $200 million up front for the equity, then that would attract a lot of attention.

So what I’m trying to highlight is the way that the deal is structured and the type of instrument you use, which is a very complicated area and yet you’re saying you can do that in a two- to three-page form, which you obviously haven’t yet completed—the Minister said it would be available in two weeks’ time. I’m just wondering how the Minister expects to be able to do adequate service in terms of the intent of this bill.

In respect of the simplicity of the form, I envisage it will ask something like total assets, liabilities, number of employees, nature of business. And, if we need any more information than that, then we can put it through a longer process, but that will allow a relatively easy process. Of course, in the case of the Stuff group, that would have showed large assets, large liabilities, low net assets, a large number of employees, and I would have thought that most members would have thought that, in respect of that, they could envisage purchasers of that asset that they didn’t think were in the national interest of New Zealand. I think that is a good example of why at this particular point in our history we might need this power.

I move, That the question be now put.

The question was put that the amendments set out on Supplementary Order Paper 507 in the name of the Hon David Parker to Part 1 be agreed to.

Amendments agreed to.

The question is that—

💬 Matt Doocey: Party vote.

CHAIRPERSON (Adrian Rurawhe): I’ve actually started the question, so I’m going to finish it. The question is that Part 1 as amended stand part. All those in favour say Aye; to the contrary No. The Ayes have it.

💬 Matt Doocey: Party vote.

CHAIRPERSON (Adrian Rurawhe): You’re very—you’re lucky. Party vote called for.