The Act is New Zealand’s main tool for regulating foreign investment. Its two purposes are to:

• acknowledge that it is a privilege for overseas persons to own or control sensitive New Zealand assets, and therefore require them to meet certain requirements or adhere to certain conditions when investing in those assets

• manage certain risks, such as national security and public order risks, associated with transactions by overseas persons.

Section 10 of the Act requires overseas persons to obtain consent before investing in “sensitive land”. Schedule 1 defines sensitive land as including any non-urban land of more than 5 hectares. This covers most agricultural land in New Zealand.

The bill would remove the ability for overseas investors to rely on the special forestry test when seeking to convert farm land or other land to forestry . Instead, these applications would be assessed under the benefit to New Zealand test, which is less permissive.

Some submitters were concerned that the benefit to New Zealand test is more complex, and less certain, than the special forestry test. They told us that this could discourage productive investment in New Zealand forestry. They suggested that the regulator should be required to produce clear guidance about the factors they will have regard to, and the way in which they will apply those factors, when assessing an application under the benefit to New Zealand test.

Although we agree that clarity is important, we have not recommended a specific requirement be added to the primary legislation. Instead, we have been assured by Toitū Te Whenua–Land Information New Zealand that it will review its online guidance. We note that the Overseas Investment Office (OIO) has plenty of experience applying the benefit to New Zealand test to other investments. It will consider how that guidance could better reflect the assessment process for forestry under the benefit to New Zealand test. We also heard that it holds pre-application meetings with investors, and will use these to ensure investors understand the requirements.

The Act currently contains another test relating to applications involving farm land (the farm land benefit test). The farm land benefit test is stricter than the general benefit to New Zealand test. It requires Ministers, when considering an overseas investment, to give more weight to whether the investment would create economic benefits, or include participation or oversight by New Zealanders.

Some submitters recommended that the special forestry test be replaced by the farm land benefit test. They told us that using a stricter test with a higher threshold would better achieve the bill’s goal of managing risks in conversions from farm land to forestry.

Although the bill would remove the special forestry test for forestry conversions, it would replace that test with the general benefit to New Zealand test. Therefore, applications involving conversion from farm land to forestry would continue to be treated differently than applications relating to farm land. Some of us are concerned that this would preserve incentives for foreign investors to convert farm land to forestry.

We received advice on this issue. We heard that the benefit to New Zealand test will reduce the risk of losing highly productive farm land to forestry because it requires investors to demonstrate benefits that are proportional to the land’s sensitivity. For example, highly productive farm land would require a correspondingly high benefit.

We also heard that forestry applications may struggle to satisfy the farm land test because of its focus on economic benefits. For many forestry investments, the investor makes long-term projections about economic benefits. However, these could only be realised several years after a crop of trees was planted. The regulator often discounts long-term projections because they are less certain.

We note that removing the special forestry test for forestry conversions (in favour of the benefit to New Zealand test) may reduce the forestry sector’s ability to attract foreign capital. We heard that subjecting forestry investments to the stricter farm land benefit test could exacerbate this further. We also heard that the benefit to New Zealand test would still impose the same advertising requirements across all consent pathways.

Some of us believe that the bill balances these competing objectives.

Schedule 3 of the Act lists several circumstances in which investors would not need to apply for consent. One such circumstance is where the investor would acquire a “forestry right” that covers an area of less than 1,000 hectares. An example of this is the landowner granting an overseas investor the right to harvest 999 hectares of forest (so-called “cutting rights”).

We agree, in principle, that there should be a simplified consent process for smaller investments, especially where land ownership does not change. However, because investors are not required to notify the OIO about exempt land, there is no data showing the total area of land that is subject to exemptions.

We are concerned that the total area of exempted forestry rights is unknown. This figure would provide a better picture of the total land area owned or controlled by overseas persons, and the relative market power of different entities. We think this context would be helpful for decisions makers when making decisions under the Act.

Although this is outside the direct scope of this bill, we encourage the Minister to consider whether the exemption settings, and the 1,000 hectare threshold, remain appropriate. To facilitate this, we suggest that Te Tai Ōhanga—The Treasury and Toitū Te Whenua—Land Information New Zealand explore how these transactions could be accurately recorded.