Rich foreigners need not apply
Recent calls by prominent business leaders to allow the global uber-rich to be given free access to New Zealand in return for committing to invest (say) $50 million each, reminds me of oldstyle trickle down economics.
The idea was quickly dismissed by the Government, and rightly so. The world’s wealthy have already discovered New Zealand, as any visitor to Queenstown can see. And to find out how useful they are, let’s see how many step up to help a Queenstown traumatised by Covid-19.
Some of the wealthy living in New Zealand are wonderful citizens. They’re here for the right reasons, they get what we stand for, and they get involved in our communities.
But overall, rich migrants haven’t transformed the economy. And those who have made large contributions (like Julian Robertson and James Cameron) did it anyway, without large government incentives.
The concept of ‘‘buying your way in to’’ New Zealand is anathema to our egalitarian roots. It feels like an invitation for potentially unsavoury characters to jet in, buy up trophy land, fence out the locals, raise house prices, pay few taxes and otherwise make little contribution.
The idea that foreign investment can save us is deeply rooted in our history. It came from the English until the 1940s, the Americans in the 50s and 60s, the Japanese in the 80s, and now the Chinese.
It built some much-needed infrastructure when we couldn’t afford to do it ourselves. But the problem with tidal waves of foreign capital is they also go out, leaving economic devastation. We saw the impact when Britain entered the European Union in the 1970s, and the Japanese economy collapsed in the late 1980s.
Thankfully we don’t need foreign investors as our economic saviours any more, because the reality is that we do most of it ourselves.
First, the Government has huge fiscal horsepower as we have a rainy day fund to spend. Even the most pessimistic forecasts have our debt to GDP (post Covid-19) at 50 per cent, which will be among the lowest for OECD countries.
Second, we will have enough saved locally to do all we need. In 2010, the NZ Super Fund, ACC, iwi and KiwiSaver managers had just over $40 billion of investments in total. It’s now $145b, and should be $350b by 2030. That’s a massive pool of local capital to fund recovery and growth, akin to more than 2 per cent of GDP in net new investment, every year.
This rising tide of money should lift all businesses fit to float, and fund our collective future.
Auckland Airport raised over $1b quickly from local investors. Fletcher Building did a similar thing last year, too. Neither would have been possible even five years ago.
So, the bottom line is New Zealand is entering a renaissance of growth. It will be nearly all funded by Kiwis, and will create many skilled and highly paid jobs.
The problem is that New Zealand’s biggest local investors have been investing more offshore. Five years ago, 42 per cent of KiwiSaver savings was invested in New Zealand, now it’s 37 per cent, and declining. Much of this has to do with a lack of a national strategy for investment, especially in infrastructure. This needs to change, and it can only come via government. KiwiSaver, the NZ Super fund and the ACC all have a social licence, because they benefit from taxpayer and government subsidies. The quid pro quo for government support should be more investment in New Zealand. Let’s call it the new New Deal.
Underpinning this, the government needs to keep contributions to the NZ Superannuation Fund intact, because the cost of having many more older New Zealanders in the future won’t go away. And KiwiSaver should be compulsory, so we can rely on the savings, and the growing pool of capital to invest.
Compulsion would mean no more need for incentives, allowing the government to save the $770m a year it now pays in government contributions.
The options for local investing are attractive – venture capital, private equity, government and local authority debt, the sharemarket, or infrastructure projects. All will need plenty of money, and collectively we will have it to invest.
The role of the government in where this money goes is sensitive. No-one wants politicians deciding where their KiwiSaver savings are invested. But government has a critical role in providing incentives.
The future is bright. We could all invest in the hood, and foreigners need not apply. It’s already happening in the most successful economies.