Last week, a lawyer at one of the leading firms told me his team is advising an overseas client on an investment here. They have just toned that paragraph down, he said, because it is no longer true. That is not because the law has changed, but because promises made by various parties during the campaign for the 7 November election would undermine property rights.
This should interest Australians, whose companies own all four of New Zealand’s big banks and one of its two big supermarket groups.
A country’s reputation for the rule of law does not depend solely on current law itself. It can be damaged be political signalling alone.
On 23 September, The New Zealand Initiative, the think tank I run, published an open letter from 51 business leaders asking every party to respect private property and freedom of contract. We wrote that “threats can discourage investment before any law changes”. I had not expected a law firm to echo our concerns so directly.
National, the largest party in the governing coalition, wants to break up Foodstuffs, the locally owned grocery co-operatives. It would put Foodstuff’s New World supermarkets and Four Square corner stores into one company and its Pak’nSave discount warehouses into another.
Labour prefers to split the co-operatives’ wholesale business from their stores, while the Greens would buy 120 supermarkets, compulsorily, and run them as a state chain.
The Greens and New Zealand First also want to restructure the power companies, which both generate and sell electricity. The Greens would cancel mining permits already granted. Labour will not rule out cancelling exploration permits. Of the main parties, only the free-market ACT party wants none of this.
Older New Zealanders will find all this familiar.
As prime minister until 1984, Rob Muldoon froze wages, prices and rents, and never hesitated to intervene in a market he did not like. The reforms after his defeat made New Zealand famous for giving up interventionism. Now the old toolkit is back, with more support across Parliament than Muldoon ever had.
Awkwardly, this is happening under a government that appointed New Zealand’s first minister for foreign direct investment. Last year it set up Invest New Zealand, modelled on Ireland’s investment agency, to tell the world that New Zealand would be “saying yes to investment”.
Two of its three coalition parties are now campaigning on a rather different message.
Investors are used to rules changing. They can live with a new tax or a tougher regulation because they can factor it in. But a government prepared to reach back into what people already own is a different matter, because nobody can put a price on that.
The government’s new retirement village rules, announced in September, will force operators to repay departing residents within nine months, but only under contracts signed a year after the law takes effect.
Labour wants three months, and it wants the rule to cover all 56,000 existing residents as well. It is a popular promise: more than 41,000 people signed a Consumer NZ petition for a three-month limit. Operators say repayments currently take seven to eight months on average.
Existing contracts were priced on terms both sides agreed, with operators repaying a departing resident once the next one had moved in and paid. Rewriting them retrospectively would force operators to find the money before a unit is resold, and they warn that residents would end up paying for it.
A mine or a power station takes decades to pay for itself, so investors in a country that votes every three years have to trust that the rules will survive many changes of government.
For Australian investors, the signals are confusing. Australian companies own all four of New Zealand’s big banks and one of its two big supermarket groups.
New Zealand First wants to buy one of those banks, BNZ, from National Australia Bank and merge it with the state-owned Kiwibank. The party’s leader, Winston Peters, puts the price at more than $7.5 billion. Never mind that NAB has said BNZ is not for sale.
Chris Bishop, one of National’s most senior ministers, called the idea a “fantastical proposition”. That may be so. But it is New Zealand First policy, and National may depend on the party to form the next government. Peters, whose party is in cabinet, insists: “This is not nationalisation – this is taking back our country.”
With supermarkets, it is the other way round. Neither National’s plan nor Labour’s would touch the Australian-owned Woolworths. Both are aimed at the local co-operatives.
And so, in banking, being Australian makes you a target, while in supermarkets it makes you a bystander.
Far more people were asked to sign our letter than eventually did, and several of those who signed gave their names but not their employers’. In some industries, nobody was willing to sign at all.
Many of those who declined told me: “I couldn’t agree more, but I can’t sign this.”
In a country of five million people, the minister whose policy you have just criticised is someone you will deal with again soon, possibly when they are deciding how next to intervene in your industry. The same goes for the opposition spokesperson, who could be the minister after 7 November. You cannot run away from politicians here.
Finance Minister Nicola Willis complains that she has “felt the full force” of supermarket lobbying. In this campaign, though, the pressure runs the other way. It is politicians who are picking out individual companies, because attacking supermarkets and banks wins votes when grocery bills and mortgage payments hurt. Anyone who argues back risks becoming the next target.
That is the backdrop against which New Zealand law firms must now advise foreign clients on how safe it is to invest here. That advice is less reassuring than it used to be. It will not improve on 7 November, whoever wins, because most of the parties have already told investors the lines they are willing to cross.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
A country’s reputation for the rule of law does not depend solely on current law itself. It can be damaged be political signalling alone.
On 23 September, The New Zealand Initiative, the think tank I run, published an open letter from 51 business leaders asking every party to respect private property and freedom of contract. We wrote that “threats can discourage investment before any law changes”. I had not expected a law firm to echo our concerns so directly.
National, the largest party in the governing coalition, wants to break up Foodstuffs, the locally owned grocery co-operatives. It would put Foodstuff’s New World supermarkets and Four Square corner stores into one company and its Pak’nSave discount warehouses into another.
Labour prefers to split the co-operatives’ wholesale business from their stores, while the Greens would buy 120 supermarkets, compulsorily, and run them as a state chain.
The Greens and New Zealand First also want to restructure the power companies, which both generate and sell electricity. The Greens would cancel mining permits already granted. Labour will not rule out cancelling exploration permits. Of the main parties, only the free-market ACT party wants none of this.
Older New Zealanders will find all this familiar.
As prime minister until 1984, Rob Muldoon froze wages, prices and rents, and never hesitated to intervene in a market he did not like. The reforms after his defeat made New Zealand famous for giving up interventionism. Now the old toolkit is back, with more support across Parliament than Muldoon ever had.
Awkwardly, this is happening under a government that appointed New Zealand’s first minister for foreign direct investment. Last year it set up Invest New Zealand, modelled on Ireland’s investment agency, to tell the world that New Zealand would be “saying yes to investment”.
Two of its three coalition parties are now campaigning on a rather different message.
Investors are used to rules changing. They can live with a new tax or a tougher regulation because they can factor it in. But a government prepared to reach back into what people already own is a different matter, because nobody can put a price on that.
The government’s new retirement village rules, announced in September, will force operators to repay departing residents within nine months, but only under contracts signed a year after the law takes effect.
Labour wants three months, and it wants the rule to cover all 56,000 existing residents as well. It is a popular promise: more than 41,000 people signed a Consumer NZ petition for a three-month limit. Operators say repayments currently take seven to eight months on average.
Existing contracts were priced on terms both sides agreed, with operators repaying a departing resident once the next one had moved in and paid. Rewriting them retrospectively would force operators to find the money before a unit is resold, and they warn that residents would end up paying for it.
A mine or a power station takes decades to pay for itself, so investors in a country that votes every three years have to trust that the rules will survive many changes of government.
For Australian investors, the signals are confusing. Australian companies own all four of New Zealand’s big banks and one of its two big supermarket groups.
New Zealand First wants to buy one of those banks, BNZ, from National Australia Bank and merge it with the state-owned Kiwibank. The party’s leader, Winston Peters, puts the price at more than $7.5 billion. Never mind that NAB has said BNZ is not for sale.
Chris Bishop, one of National’s most senior ministers, called the idea a “fantastical proposition”. That may be so. But it is New Zealand First policy, and National may depend on the party to form the next government. Peters, whose party is in cabinet, insists: “This is not nationalisation – this is taking back our country.”
With supermarkets, it is the other way round. Neither National’s plan nor Labour’s would touch the Australian-owned Woolworths. Both are aimed at the local co-operatives.
And so, in banking, being Australian makes you a target, while in supermarkets it makes you a bystander.
Far more people were asked to sign our letter than eventually did, and several of those who signed gave their names but not their employers’. In some industries, nobody was willing to sign at all.
Many of those who declined told me: “I couldn’t agree more, but I can’t sign this.”
In a country of five million people, the minister whose policy you have just criticised is someone you will deal with again soon, possibly when they are deciding how next to intervene in your industry. The same goes for the opposition spokesperson, who could be the minister after 7 November. You cannot run away from politicians here.
Finance Minister Nicola Willis complains that she has “felt the full force” of supermarket lobbying. In this campaign, though, the pressure runs the other way. It is politicians who are picking out individual companies, because attacking supermarkets and banks wins votes when grocery bills and mortgage payments hurt. Anyone who argues back risks becoming the next target.
That is the backdrop against which New Zealand law firms must now advise foreign clients on how safe it is to invest here. That advice is less reassuring than it used to be. It will not improve on 7 November, whoever wins, because most of the parties have already told investors the lines they are willing to cross.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
7 comments:
The circumstances leading to Robs decisions were different to what they are now. He acted in what he thought were the best interests of OUR country.
He is not here to defend his decisions.
NZ is again in a difficult situation but has not been helped by past governments of left or right.
We need to make decisions for New Zealand not global controllers.
Don't forget that Ardern , during Covid, required commercial leases to be reviewed in favor of the lessee.
I don't believe that any of our leaders in recent times have truly had the best interests of all NZers in mind - focus for a moment on the massive handouts to Maori in both monetary and power terms.
I take umbrage at the contributor taking a low shot at a former PM who volunteered to protected NZ and the world in WW2 as did my own father and grandfather.
Before NZ'rs switch on any electrical appliance just quietly consider where we would be without the "Think Big" electricity dams and infrastructure that PM Muldoon focused on .
The NZ Initiative complains about threats to property rights giving the example of potential retrospective laws aimed at big retirement village firms. So where was the NZ Initiative making the same complaint when this government DID in fact pass retrospective law wiping Mike Smith's private court action against Fonterra, which is an Initiative member? At the time a former Initiative staffer was PM Luxon's Chief Policy Adviser. But we get it. The public gets it. Property rights are only worth defending for this lobby group when its the property of big companies, not the property of ordinary NZers who aren't rich and powerful. Its this attitude that may cost the right re election. I tried to stop National making such a mistake to save the Party from itself & its low quality advisers & help it retain the trust of every day NZers, but until a few months ago when Luxon saw the light, I failed.
We have already seen in the oil and gas sector how the investment tap gets turned off when politicians interfere. Should a coalition of left-wing parties get elected on 7 November, new investment will dry up, and what does remain will demand a higher return to compensate for the political risk. About 20% of the money for residential mortgages and business debt comes from overseas.
And people wonder why mortgage interest rates are higher in NZ than in the banks’ parent companies home country!
New Zealand and Australian banks have the same funding sources at the same international rates.
The difference is the additional risk premium for the New Zealand market.
Expect it to widen further after the election.
Anon 1253 you’re talking about out the 25 years when they had the green light, and didn’t find anything? You’re living in a fantasy world, mate.
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