Overseas Investment Amendment Bill (No 3)

We come first to the Overseas Investment Amendment Bill (No 3). The question is that Part 1 stand part.

Mr Chairman, if I might just assist the committee by putting this bill into the context of the other pieces of legislation that have recently been passed. There have been a number changes made to the overseas investment regime since 2017. The first was to ban overseas buyers of existing New Zealand homes, with some exceptions, including an exception relating to new builds that are going to be rented out. There was at the same time a revised letter of direction that was provided to the relevant ministry, by the then Minister responsible, that tightened up how the different competing regulatory criteria for investments in rural land would be dealt with.

The next change was a change to bring within the purview of the Overseas Investment Act forestry investments in the form of forestry registration rights, which until that time were outside of the regime. The next change of significance that was made was an emergency bill that was passed in response to COVID, which introduced a national interest test and took the threshold for screening to zero whilst we saw how things rolled post-COVID.

And then the next piece of legislation is the bill that we now have, the effect of which is to provide a national interest test, which I am sure we’ll go into in a bit more detail, that is enduring and doesn’t rely upon the COVID powers legislation. The other major change that is made by this bill is to put in the primary legislation similar provisions to that which were in the letter of directive so that the more restricted regime that we have in respect of overseas investment and sensitive farmland is slightly more narrowly defined than previously, but that those provisions carry forward into the primary legislation so that any future change relies upon this House changing the law rather than a future ministerial directive letter.

Thank you, Mr Chair. I think we can have a reasonably straightforward committee of the whole House. There are, as far as I can tell, no amendments by the Minister—is that correct?—coming out of the Finance and Expenditure Committee. The select committee I think made some sensible changes to the bill, particularly around the application of the national interest test that the Minister just referred to.

I think there are two objects for this bill. One is to appropriately manage our sensitive assets in a manner that doesn’t undermine New Zealand sovereignty, but also to make the process of applying for approval under the Overseas Investment Act more straightforward and more easy. I think largely we’ve done that—we’ve certainly made progress towards that—but I think there is more in that area that we can do.

The particular issue I want to raise is in respect of farmland, because there are three aspects of the bill that relate to rural land—farmland. One is a recognition that there are different types of farmland, essentially—that some farmland is more equal than others, if you like—that that which is designated from a zoning perspective is actually not very good land, it’s not productive, it’s not being used for farming, but there is a quite significant test that needs to be met before it can be used for something else. I think these changes are really sensible. On the other hand, for that which is genuinely farmland, the requirements to advertise farmland transactions in New Zealand before the agreement to sell the land to an overseas person is entered into—to the degree that one might believe that there are significant risks in that area, I think that is a safe enough amendment.

What worries me and the National Party about this bill is that in our attempts to protect farmland, we haven’t addressed the significant change that was made by this Government in—I think it was—about October 2018 for farmland being converted into forestry if it was 999 hectares or less. We, in our second reading speech and in the select committee report, expressed our concern that that wasn’t the case. Now, I think it’s really important to stress that our concern is not around forestry, per se. Forestry is going to have a very important role to play, as it already has, and certainly from a climate change and net zero perspective there’s no doubt that both native and exotic trees will continue to have an important role to play. The question is whether the market is distorted by the ease with which overseas investors can purchase farmland for converting into forestry, and I think we’ve seen significant changes in that practice since the 2018 amendment was made.

Where we’re concerned about that—if the goal of this bill, at least in part, is to protect farmland, then we should be considering an amendment to the bill to do just that. So I have just tabled an amendment in my name that, effectively, deletes the relevant section in the Overseas Investment Act that does that. I’ll just let the committee know what that is—that is the insertion of a new clause 8A of the bill that, effectively, deletes section 16C of the Act—that was the “Conditions for consents relating to sensitive land that will be used for forestry activities”. That was the amendment that was made to the Act in 2018. If we are genuine about both ensuring that our very highly productive land is used in the best manner it can be and also providing the appropriate protections for New Zealand farmland from overseas investors—if that is indeed what one wants to do—then we shouldn’t have this sort of carve-out for a transition of use from farmland to forestry.

So with those comments, as far as I can tell there isn’t anything that I particularly want to amend, and I want the committee to consider this, because if we are, as I say, keen to protect farmland, this amendment is necessary.

Thank you, Mr Chair. Following on from the Hon Michael Woodhouse, it is of concern to the Green Party that this streamlined regime for forestry has led, since the law was changed, and it was in October 2018—that there have been significant purchases by overseas companies of farmland for forestry purposes. There is a Supplementary Order Paper in my name on the Table to reverse the change that was made in 2018 so that if an overseas company or person is seeking to buy farmland for forestry, that has to go through exactly the same benefits test and assessment that buying farmland for other purposes would.

I point to the case of New Forests Asset Management. They have acquired some 77,000 hectares in less than four years. They started in 2015 with no land for forestry, and now they’re New Zealand’s, as I understand it, third biggest private landowner. Of our top 10 private landowners in terms of area in Aotearoa New Zealand, four of those are forestry companies.

In terms of forestry investment, ensuring that it does have a benefit, particularly with the difficulty that some processors have had in ensuring that logs are supplied to them for the creation of jobs locally—that could be part of the benefits test if land being purchased for forestry had to undergo exactly the same assessment that farmland being purchased for other purposes did. It would put everything on an even playing field.

The change was made in 2018 because of the representations of New Zealand First. It was seen as encouraging more forestry to meet the billion trees objective, but given that there has been, under this Government and the last, quite a significant expansion in forestry, in our view it is past the time for these special privileges to be given to overseas companies. Given that 70 percent of our forestry industry are overseas companies, we just question the need for this privileged pathway and would ask the Minister in the chair, David Parker—there was the suggestion in the last term that this regime would be reviewed. If the House does not support the Supplementary Order Paper, when is that review likely to occur, and what would be the scope for that review?

This has got quite an interesting and somewhat convoluted history.

💬 Hon Michael Woodhouse: It’s called a coalition agreement.

The member said “It’s called a coalition agreement.” Actually, not quite. We discovered, when the prior National Government signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), that they were locking New Zealand into the screening of asset classes that were already in the Overseas Investment Act regime, as at the time the agreement came into effect, not at the time the agreement had been agreed in principle.

When we came to power, we found that the screening regime did not, in effect, cover forestry, as it did not cover residential housing. And unless we change the Overseas Investment Act quickly, New Zealand would, effectively, have had to pay a very high price to fix that, because we would have found ourselves in breach of not just CPTPP but other agreements that leveraged off it that had been signed in earlier years, including the free-trade agreement with China and various other free-trade agreements, under the most favoured nation clause, which carries the best investment protocols from subsequent agreements into earlier agreements.

So we had two issues that we needed to resolve urgently. One was the inclusion of house sales, because if we hadn’t included that in the investment screening regime, we, in effect, wouldn’t have been able to later, and we did that quickly. And the other gap was in respect of forestry. Now, purchasers of freehold and leasehold interests in forestry were already included in the Act, but forest registration rights, under the Forestry Rights Registration Act, were not. And by that time, it was already clear that in order to avoid the Overseas Investment Act requirements relating to freehold and leasehold, some overseas investors were already using the forest registration right path, which was not regulated. A forest registration right can last for multiple rotations. It’s not limited to a 30-year period or anything like that. So unless you had forest registration rights in the overseas investment screening regime for forestry, there was, effectively, no control of it.

The Government then moved to close that loophole, and the member is right that there were negotiations with other coalition partners at that time. There were also discussions with the industry, because the industry and other members have been right to point out that the forest-growing industry is dominated by overseas owners in New Zealand and has been for some decades. They were nervous that we were, effectively, going to close down that investment industry, and they came to the Government and said, “Look, OK, we accept you need forest registration rights within the new system, but in order for us to agree that, can you have a relatively light-handed approach to how you do give effect to the regulations under the Overseas Investment Act, once they are put in there?”

We agreed to that, as a Government, then, and we brought forest registration rights within the ambit of the Overseas Investment Act. But then we had, as the Hon Eugenie Sage noted, a relatively light-handed approach, and still have a relatively light-handed approach, to their ability to get an approval under the Overseas Investment Act.

Now, because we’ve got them in the regime, under our free-trade agreements, we can change the rules about that in the future. We have actually preserved policy space for this Government or any future Government to address those issues. At the moment, we aren’t proposing to tighten those rules and we will be voting against the amendments that are on the floor here, in respect of those issues. There are some other issues which have arisen since we introduced that, relating to both carbon forests and the use of highly productive lands for forestry. And sometimes those overlap; mostly they don’t. But if members want me to go into that more, I’m very happy to give a more fulsome explanation of some of those other complexities, but I won’t do it on this particular call.

Mr Chair, thank you, and I thank the Minister as an explanation of what happened through the Trans-Pacific Partnership (TPP) that the National Government signed up to, and then an agreement that largely was the same, without the US and a couple of very minor provisions in it, that went through the House.

He’s conflating two issues, however. He is correct that actually unless the Government had given itself the ability to control various things through the Overseas Investment Act when the revised TPP came into effect, it would not be able to do that in the future, and so the Government went and did that. We had long debates about that previously, but the issue around the settings of forestry compared to other classes of land are contrary to that view. In fact, it has nothing to do with that at all.

I hear that the Minister has said that it happened because of their negotiation with New Zealand First. But the Minister is aware, as is everyone else in the country, that New Zealand First is no longer here. So the question that the Government needs to answer, in deciding not to support the amendment put up by the National Party or indeed the Green Party, who, by the way, in deciding to take this provision away—one must remember they voted for it, or it wouldn’t have been there previously in the previous Parliament. But the question that the Minister must answer is: what is the difference between 999 hectares of dairy land and 999 hectares of sheep and beef and 999 hectares of forestry land?

Because my understanding of the way that the law has changed by the last Government with the Greens, who now want to reverse it—they can yell over there, but it only happened because they voted for it in the previous Parliament. So, to the Minister, the only difference is that if somebody from overseas wants to come and buy a dairy farm of 999 hectares, they don’t need approval as long as they put it into forestry and they’re going to. So all this amendment put forward by the National Party does is say that all land should be treated the same in this situation, whether it’s dairy or whether it is sheep and beef or whether it is for forestry or the intended use thereof. The Minister may want to take another call. We’d be interested in: is my interpretation of the Act as it is in place correct; and, if so, what is the difference and why are the Government now not changing it if this was done merely because New Zealand First was there?

Well, I think I already said that it wasn’t solely because of New Zealand First. It was partly because of a discussion that we had with the industry. But other than that, the member’s description is broadly correct, and there is a proper policy debate to be had in the future as to whether forestry should be in there on the same basis as other rural land or on some intermediate position between where they are currently in the law and where the amendments that have been proposed by the National Party and the Green Party would have us. But we’re not proposing to do that on the fly in the committee stage of the House. That’s quite an important policy question and, therefore, we’ll be voting against that.

I would, though, note that this is not about carbon forests. It was actually intended to be! It’s just one of the ironies in life sometimes that we got it right, perhaps, in respect of carbon forests accidentally. I was always concerned that if we gave the same—as the Minister, the Hon Shane Jones, used to say—primrose path to consent to carbon forestry, we would be giving an inappropriate leg-up to overseas investment in carbon forestry at a time when New Zealand carbon markets were not mature. And partly because of some problems that there have been in carbon markets in the prior decade, I was worried that New Zealanders undervalued what we had in our carbon potential in our forests and we might see that rapidly transferred to overseas owners, as we had seen investment in forestry, per se, in the prior decades. So I personally didn’t want carbon forests to have the primrose path.

Now, for reasons of coalition at the time, we actually thought we were, but then we discovered that the legislation referred to a “crop of trees”, and Crown Law advised the Government that because the way in which the forestry rules under the Overseas Investment Act referred to a “crop of trees”, a crop of trees is cropped just like a field of wheat is cropped. If you have a permanent forest that is a carbon forest, it isn’t cropped, and therefore, despite what we thought we were doing, we actually didn’t include carbon forests—

💬 Hon Michael Woodhouse: Oh, don’t you love lawyers!

Ha, ha! Well, I do love lawyers, actually. Yeah, I do love lawyers.

💬 Chris Penk: The first sensible thing he’s said.

💬 Dr Duncan Webb: Most lawyers—most lawyers.

Most lawyers, yeah. So the issue has already narrowed to production forests rather than carbon forests.

The final point I’ll say, before I sit down, on this particular issue is that there is also a concern expressed that some forests, be they carbon forests that haven’t gone through the easy consent pathway or production forests, and be they carbon forests or production forests that are New Zealand owned or overseas owned—there’s a proper concern as to whether it’s too easy to plant them on higher classes of land.

This is partly a socioeconomic question. There are some districts in New Zealand where councils want more controls on where forests are planted. The answer to that issue actually doesn’t lie under the Overseas Investment Act. It lies under the Resource Management Act and under the National Environment Standards for Plantation Forestry. And we in the Labour Party at the last election said that we are going to address that community concern by making it clear or clearer that councils can have controls in their plans on where forests are planted so that they can make a planning decision that they don’t want trees on the more highly productive lands.

In truth, the statistics show that some of that concern was misplaced because, you know, not many people plant trees on more valuable horticultural land, for example, or good dairy land, because it’s not an economic decision to make, but the solution to that issue lies in planning laws, not the Overseas Investment Act.

Thank you, Mr Chair, and I thank the Minister for his explanation. I just want to start on that last point about the economic benefit stuff, because, actually, whereas the Minister said he hasn’t seen a lot of examples of that, where it is happening is with overseas purchasers, because the bar to investment is lower with forestry and, therefore, it may be—and it is, it’s proven economically viable for the conversion of highly productive farmland into forestry if the barrier to investment is lower, and that’s what section 16C does.

The question I have about the explanation in respect of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is why, if that were necessary—and I’m still confused about why this was, sort of, partly a coalition agreement if we needed to comply with a certain trade agreement, why a coalition partner would be relevant at all. But why is it that we comply with the CPTPP when the land is 999 hectares? Would we be, therefore, in breach of the CPTPP if the land being considered for purchase was 1,001 hectares, for example? The last part of that question is actually related to other free-trade agreements (FTAs). We’ve got China, we’ve got South Korea, we’ve got the Regional Comprehensive Economic Partnership, we’re in negotiations with Europe and the UK. What do those FTAs say about this issue?

In respect of the first point that the member made about overseas investment in forest, the extent that they’re carbon forests, there is no primrose path. They aren’t getting the easy route through, so they have to go through normal processes as they would do for farmland. Officials can tell me if I’ve got that wrong, but I think that’s correct. In respect of the member’s question about would it make a difference whether it’s 999 hectares or 1,000: no, not pursuant to our trade agreements. That rule is actually found in our overseas investment legislation, not in our free-trade agreements. What the free-trade agreements say is that, at the date of the agreement, existing classes of investment that are screened can be screened but no new investment classes. So if we didn’t have forest registration rights being screened, they could never be screened, but they are now in there to be screened, whether it’s freehold, leasehold, or forest registration rights, because they’ve been added. The Government of the day can change the threshold as they see fit, because that is within the parameters of our free-trade agreement, whether it’s the CPTPP or any other earlier agreements.

💬 Hon Michael Woodhouse: So we could lower it to 10 hectares, potentially.

Could do.

I find it richly ironic that here we are in the Chamber debating a bill that is supposed to be about improving the Overseas Investment Act framework, and it does some good steps in that regard, but the Minister in the chair refuses to acknowledge the significant issue we have emerging in rural communities throughout New Zealand in relation to forestry. The premise of the Overseas Investment Act is that investment in New Zealand should occur where it can be demonstrated that it is of benefit to New Zealand, and there are a series of rather complex steps that overseas investors must go through in order to demonstrate that benefit. The counterfactual test is to compare what will this investment mean versus the status quo, and yet with that set of rules—that set of ground rules—there is also an exemption for one class of investment. The playing field is tipped very heavily toward forestry investment by exempting overseas investors who wish to invest in exotic forests—in pine trees—from those same tests.

The impact of this in rural communities throughout our country has been clear, because when you say to investors around the world, “Actually, you can’t just come in and buy up our farmland. We’re going to make that pretty tricky for you. We’re going to put in a lot of restrictions, but, by the way, if you want to buy farmland and convert it to pine trees, then we’ll make it pretty easy.”, well, it’s pretty obvious what’s going to happen. It’s pretty obvious what has happened, which is that overseas investors who want a slice of our country have purchased land for the purpose of converting it to forestry, and the impact of this matters.

It matters to rural communities, who impress upon me and my colleagues that they are seeing a very changed environment in which they are living. They are seeing that lands that have been used for productive farming for generations, farming and producing food, is now no longer being used for that purpose, but it is being planted in pine trees. All of that might be OK—it might be OK—if we could honestly say that the same rules apply to everyone, but the problem is the same rules don’t apply to everyone. The playing field is tipped towards this kind of forestry investment, and what rural community leaders say to me is, “We are very worried that the current Government doesn’t see the impact this is having.” They don’t see that we now don’t have enough people to allow for rural schools, in some instances, because the labour force needs of this land converted to pine trees is so much less than the farms that were there previously. They’re not allowing for the significant environmental effects these sorts of pine tree plantations may have in the future.

What I think people hoped was that when Labour campaigned at the last election, saying that they would put in some allowance for communities to restrict where this sort of conversion might happen, they thought Labour might follow through on that, and they thought that Labour might actually see this problem. But, of course, Labour haven’t followed through on that, and so the vehicle that remains is this Overseas Investment Act and the exemptions therein.

Now, the Minister has alluded to the coalition arrangements in the last Government that led to this clause, and what I would put to this committee is that there is an opportunity on the Table right now, in the form of Michael Woodhouse’s amendment, which would allow us to relevel the playing field, and no one need go to Winston Peters nor Shane Jones for permission. In fact, we now have Eugenie Sage, for the Greens, acknowledging the perverse impact that this unbalanced playing field is having.

So, in fact, the only defenders of the exemption in this Act to encourage mass conversion of productive farmland into pine trees are the Labour Party, and I stand in this Chamber on behalf of the rural communities throughout New Zealand who have contacted me and said that it’s not fair. Well, we agree with them. It’s not fair, and the Minister should do something about it. He has that opportunity.

I think the irony for most people from rural communities who speak to that member would be for them to reflect on the fact that her party first of all denied there was any need to change the Overseas Investment Act in advance of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership being signed and weren’t planning to change it before it came into effect, and they would further find it ironic to know that the National Party voted against the changes to the Overseas Investment Act which brought forestry registration rights within the ambit of the Act. Had we not done that, there would be no limit at 999 hectares or 1,000 hectares, there would be no ability to reduce it in the future or increase it to any other number, and the effective ability of the Government to deal with these issues would have been constrained.

So although I hear the loud calls from Nicola Willis saying “Oh, woe is New Zealand!” in respect of this issue, we’ve actually preserved the ability of any future Government to do exactly that, and I don’t need to say anything more about the other issues. I’ve already covered the other issues in full.

The question is that the Hon Eugenie Sage’s amendments set out on Supplementary Order Paper 37 be agreed to.

The question is that the Hon Michael Woodhouse’s tabled amendments, deleting clause 25 and inserting new clauses 8A and 25A be agreed to.