Fran O' Sullivan: Buy back the farm… or else

Feltex and Progressive Enterprises. These are the two companies that have fast become a lightning rod for anti-Aussie sentiment as reaction builds among some business people and unionists to the galloping Australian buy-up of Kiwi assets.

Feltex will remain New Zealand-owned if the ANZ Bank agrees to support the Turner brothers' bid instead of the rival Australian Godfrey Hirst proposal. But if ANZ goes the other way, there will be a big upswing among the number of business people who want to see affirmative action to stop the hollowing out of the New Zealand economy.

Even some of our more free-market minded business people are now concerned at how quickly this country is becoming an Australian branch office with all that implies: The increasing tendency of Australian companies to rely on Sydney or Melbourne-based financial markets professionals, accountant, lawyers to service their subsidiary operations. And cultural differences over the way their New Zealand domiciled operations should be run, which tends to confine their destinies to the domestic market.

Progressive Enterprises looks likely to become the template used by union top brass to whip up anti-Aussie feelings on the shop floor in their campaign to get Australian companies to pay higher wages to their employees here. With Australian average income some $10,000 more than New Zealand's rates, trade union boss Ross Wilson knows he has a potent comparison to make to workers as he uses the transtasman pay differential to underpin the broader union drive to bring back across-the-board collective bargaining.

"Do they just fall into line with the big corporate hitter from Australia?" ... is an example of the rhetoric Wilson is now using. The level of Australian ownership has now reached a point where New Zealand policy-makers will soon be confronted with a choice: either take steps to improve capital formation here by increasing the pool of private savings able to be accessed for domestic investment, or, form an aggressive "ownership" campaign to ensure more New Zealand "icon" companies stay in local ownership.

In truth any attempt to "buy back the farm" is likely to require a combination of both mechanisms, as well as making significant changes to the tax regime so that foreign owners do not face obvious incentives to shift Kiwi HQs across the Tasman following acquisition.

There are good reasons for this country's policymakers to put the "ownership society" at the top of their agenda.

As National's Finance spokesman John Key pointed out last week: One in four New Zealanders who have been to university move overseas; 50 per cent of them go to Australia. Our brain drain of 24 per cent is the worst in the Western world. "We are at serious risk of becoming a giant polytech or university for Australian neighbours."

The Government's failure to tackle imputation credits and not cut the company rate until 2007 will exacerbate the trend.

Unfortunately, the Government is too pre-occupied by the political scandals du jour, the desire to make its own state-owned enterprises "agents of economic transformation" rather than backing private companies, and, its ideological trappings, to do any of the big-brain thinking needed to come up with significant policies.

Maybe the Government believes it's in its interests for anti-Aussie sentiment to be whipped up. After all, it works on the rugby grounds and cricket pitches. Why not with business?

But that would be short-sighted.

Statistics Department figures show the stock of foreign direct investment in New Zealand remained steady between 2002-2004 before growing significantly to $77 billion at year end March 2005. Foreign ownership of the New Zealand equity market reached 41 per cent in March, according to Goldman Sachs figures.

The top 10 listed companies on the NZX have changed markedly since 1996 with, as New Zealand Institute CEO David Skilling points out, many moving their head office or primary listing from New Zealand.

Much of the overall FDI expansion has been Australian-driven, fuelled by the savings pool its citizens have built during New Zealand's decades of indecision over whether compulsory superannuation should be introduced. Private equity firms and asset agglomerators have also played a growing role in the New Zealand ownership shift.

If the Government does not tackle these issues in a focused way the upshot is likely to be that New Zealand simply becomes a nation of employees, rather than the ownership society urged by the New Zealand Institute.

Toning down the anti-Australian sentiment will be difficult - if it is allowed to get away.

Westpac chief executive, Australian Ann Sherry, conceded there comes a point in any nation's destiny where its citizens will become uneasy if too many assets are controlled overseas.

Sherry says anti-Japanese feelings fuelled by investments in the prime minerals sector, ultimately provoked her country's policy-makers to examine how the "farm could be bought back".

Achieving that aim would not be an easy feat. New Zealand no longer has a substantial Kiwi-owned bank which could fund major corporate acquisitions; neither does it have a Development Finance Corporation which could help finance the acquisition of the smaller local icons.

But there is time to rebuild such entities and increase the pool of local savings so that when the business cycle tumbles - as will be inevitable - more local businessmen like Craig and Graeme Turner will be prepared to take a chance on the Kiwi buy-back.