Fran O'Sullivan: It's our own fault the foreigners are here

If Trevor Mallard really wants to be finance minister he should stop biting at the hands that feed this country.

Mallard took another swing at offshore companies last week, telling them that foreign direct investment in New Zealand should be about partnerships - "not plundering" - if it is to play a role in catalysing growth.

The ambitious Labour cabinet minister has been making a raft of speeches in the past few weeks that are clearly designed to mark him as Michael Cullen's successor.

No one could challenge Mallard's sincerity or energy.

He has been in the political business since David Lange's fourth Labour Government and has done his fair share of bag carrying.

But if he wants the top financial job, openly using words like "plunder" when describing the activities of the many foreign companies invested here is not a bright start.

Neither does it make much sense banging on about the increasing rate of the Australian commercial takeover of New Zealand - unless the Government is prepared to change the foreign ownership rules or introduce policies that will persuade more Kiwis to hold on to their firms.

The real reason so many foreign - or as Mallard would suggest Australian - investors are buying up the farm, the forest and the ocean is because we are happy to sell to them.

It is not simply because foreign investors are the only commercial entities that have their eyes on our Kiwi companies.

The reason more New Zealand-sourced capital is not being invested here is because a fair swag of Kiwi investors - who, in fact, do have the personal capital or leverage to take some major stakes - have chosen to put their cash offshore and have arranged their affairs so they do not have to pay New Zealand tax any more.

Neither has Mallard provided any hard evidence of the mass commercial rape and pillage he implies when he uses the word "plunder" to describe the activities of foreign companies.

Sure, Aussie companies use transfer pricing and other mechanisms to reduce their tax burden in New Zealand, but the way to offset that risk is to push the Australian Government into agreeing to mutual recognition of dividends or imputation credits.

There's no point either in having a go at foreign companies that come here to secure a raw material resource supply or to serve a portion of their global market by claiming the spinoff to New Zealand is limited.

In reality that is exactly what New Zealand companies do when they go offshore and buy raw materials to fuel their own business.

Foreign companies are not the only ones to play that game.

Fonterra is basically a dairy commodity exporter - and is owned by 13,000 dairy farmers. Even the New Zealand Government is in this business, exporting coal to China and elsewhere through Solid Energy.

What I think Mallard in his bones wants to do is to persuade foreign investors to get into joint ventures with bright New Zealand entrepreneurs and use their respective strengths to grow business.

Unfortunately, he tends to preach rather than persuade.

Jaw-boning foreign investors over their "plundering" at an in-house soiree arranged by the Hugo Group to help him to make some business connections is not the right stance.

Neither was it sensible to claim that the Government had to turn to the state-owned enterprises to be "engines" of economic transformation because the Australian companies invested in New Zealand weren't prepared to expand in an innovative way.

A raft of Aussie-owned companies have done just that, including, incidentally, APN, the owner of the New Zealand Herald which launched a Sunday newspaper.

It would have made more sense if Mallard had first called in the Australian companies before basically demonising them.

As this week's $14.5 billion balance of payments deficit shows, New Zealanders are living well beyond their means.

We are now crucially dependent on the goodwill of foreign investors - from the Australian companies which have bought businesses here to Japanese investors that finance our debt.

If Mallard wants to demonstrate he has the makings of a finance minister for the 21st century he needs to confront some of New Zealand's economic demons.

Competitive tax rates would help. So too would a compulsory savings scheme of the sort which creates a pool of savings that will enable New Zealand to buy up a bit more of Australia, rather than the reverse.

It is the sum total of 15 years of short-sighted governance which created the conditions that have led to a foreign takeover.

Don't blame the foreigners - they just do what we would ourselves if we were smart enough.