Government’s populist panic

The Government’s decision to change overnight without warning the rules around overseas investment into NZ is surely a sign of poll panic leading to a desperate attempt at populism.

This is not just about Auckland Airport.  That deal was looking shaky anyway.  It is about having consistent rules that are not changed halfway through a process. And it is also about having a degree of objectivity about over investment decisions.

Financial journalist Bernard Hickey blogs:

The government’s decision overnight to invent a new rule that allows it to block the sale of Auckland Airport is a stunning turnaround of decades of official policy. It will hurt our ability to encourage foreign investors to come here and help us pay for our current account deficit. It is also another sign that the government is on its last legs. Fearing it may not be in power for too much longer, it is showing its true colours and is embedding its naturally anti-foreign-investment instincts into law. 

Suddenly the government has decided that selling the Auckland Airport is a bad idea. It has invented a rule that says it can block any sale of ”strategically important infrastructure on sensitive land” …

I believe there could be a lot of sensitive land out there that needs to be protected from foreign investors. After all, this land could be insulted or bruised in many ways. Are you confident that a minister of the crown can decide this for the nation without reference to Parliament or voters in an election? And will foreign investors give our government the benefit of the doubt whenever they’re considering buying an asset here on “sensitive land”?  

There are a hundred of these types of assets on this type of land. What about our banking system? There is no more strategic asset. Should the buildings with the servers hosting all our accounts be seized back by the government? I jest just a little here, but it shows the absurdity of this decision and how it could be extrapolated by an even more insensitive and insane government. For example, what about the assets of Fletcher Building. It is held in large part by foreign investors and is responsible for a good chunk of New Zealand’s public and private infrastructure building. Sounds a good enough reason to stop foreigners from owning it.

Read Bernard’s full column.  It is justifiably scathing.  This is a kneejerk abandonment of a decades old policy. And it is not a reversal after public consultation, and careful policy analysis. It is poll driven panic politics. Bernard goes on:

And finally, what was the government of a debtor nation with a current account deficit of around 8% of GDP thinking? That it doesn’t matter if we discourage foreign investment? That the foreign institutional investors will understand if we change our minds about the fundamental rules of the game right at the end of a bidding war? That they won’t mind? This is a plainly dumb thing to do when we need foreign investors to keep funding our way of life and building up our infrastructure. We spend more than we earn. We need to borrow from foreigners to do that or we need to encourage foreign investment.

What will turning off foreign investors mean for voters? It will mean higher interest rates on mortgages. When foreign investors believe we are a riskier proposition, they will increase the risk premium they demand for the money they lend us. That will increase wholesale interest rates and that will be passed on (as we’ve found in recent weeks) to us in the form of higher mortgage rates.

What on earth was the government thinking? Clearly, it was not thinking clearly at all.

And NBR Editor Nevil Gibson writes:

The simple take from the government’s decision to tighten overseas investment rules is that the country’s ports and airports will be run more by political whim than business strategy.

In a sudden move, taken a year after the first move by overseas interests to take control of Auckland International Airport, the new rules extend the ‘importance of local control’ to the approval process.

Under the Overseas Investment Act regime, two cabinet ministers have to approve changes of ownership of ‘sensitive land.’ In other words, political imperatives are paramount to business ones.

Even if one agrees with the rule change, the way the Government has gone about it is atrocious. The Canadian Pension Fund could have saved millions of dollars if it was told a year ago, the Government will not allow the airport to be sold.  They could have announced an intention a year ago to change to the rules and consult on them.  Investors – both domestic and foreign – will be very wary of a Government which acts so capriciously. And as Bernard Hickey says – the price may come in higher interest rates.