Openness to foreign trade and capital is fundamental to New Zealand's prosperity. If we get both aspects right, New Zealanders can enjoy the best things the world can offer and great job prospects – without emigrating. 

Foreign trade allows New Zealanders to gain the benefits of specialisation, exporting the things we are best at and obtaining the benefits of economies of scale in importing. Our standard of living depends on how well we secure these benefits.

The New Zealand-China free trade agreement on October 1, 2008 provides a dramatic example of the opportunities opened up by greater access to foreign trade. In the year ended October 2008, only 5.4% of New Zealand's merchandise export receipts were from China; for the latest year (February 2014) the share was 22.1%.  China displaced Australia as our largest source of export revenue in 2013.

Similarly, open capital markets strengthen New Zealanders global links, improving the ability of New Zealand to attract value-adding investors, get the best price for our assets and to invest freely overseas, facilitating both portfolio diversification and business expansion.  

Specifically, inwards foreign direct investment (FDI) strengthens international links, adds financial strength to the local firm and brings in new products, technologies, skills and know-how. It is good that firms like Vodafone and Microsoft are willing to invest in New Zealand. Outwards FDI enhances access to markets, technologies and resources, and improves home firms' competitiveness.

It should be obvious that New Zealand needs to compete with the rest of the world for both exports and investors if it is to prosper and thrive. However, the latest report from The New Zealand Initiative, Open for business: Removing the barriers to foreign investment finds that New Zealand's Overseas Investment Act 2005 has a strong anti-investment bias.

The Act haughtily informs overseas investors, upfront, that they should regard themselves as privileged if we deign to approve their application to invest in ‘sensitive assets’ in New Zealand. The implication is that we don't care if they invest somewhere else, like Australia.

Next, its definition of ‘sensitive assets’ is ridiculously broad. Every piece of non-urban land over 5 hectares in area, no matter how barren or infertile, is sensitive. Perhaps 99.2% of the country’s land area is non-urban.

Furthermore, an overseas interest of at least 25% in any business asset greater than $100 million ($477 million for an Australian non-government investor) is defined to be sensitive.  But sales of any business assets can be caught regardless— if ‘sensitive land’ is involved.

The Act is arguably most absurd in the case of anyone wanting to sell more than 5 hectares of non-urban land to an overseas person who does not intend to live in New Zealand indefinitely. In these cases the prime benefit from selling—the benefit to the New Zealand vendor—is excluded from the required demonstration of a benefit to New Zealand. That’s like trying to establish the benefit to New Zealand from exporting dairy products, while ignoring the export receipts. 

This level of sensitivity to overseas ownership of rural land is not in our heritage. Our economic development was built on imported people and capital. Australia is not nearly so precious and the UK, in stark contrast, is outstandingly welcoming.

While our regime is less hostile with respect to overseas purchases of ‘significant’ business assets that do not include sensitive land, it gratuitously requires a would-be overseas purchaser to demonstrate relevant business experience and acumen as well as financial commitment.

Yet, why should the Act deprive a New Zealand vendor of the ability to get the best price simply because a bureaucratic process deems the would-be buyer lacks relevant business experience or acumen? In addition, why is the commitment to meet the vendor's price inadequate as evidence of financial commitment?

Who are such provisions in the Act trying to help, at whose expense, and why? This puzzle is only heightened by asking what gaps in New Zealand's comprehensive set of laws relating to immigration, business activity, financial markets and national security, justify the Act in its current restrictive form.  Specific gaps are normally best plugged by specific measures.

As the Organisation for Economic Cooperation and Development (OECD) has repeatedly advised, few other countries have New Zealand's broad pre-purchase screening regime. The OECD has consistently recommended that it be either eliminated or relaxed, and the Treasury has long recommended its elimination. Instead, specific concerns should be identified and dealt with by specific measures. 

The New Zealand Initiative's report concurs. It proposes that New Zealand's regime should focus first and foremost on ensuring the investment climate for domestic and overseas investors alike is attractive. There should be a presumption in favour of proposed transactions between a willing buyer and a willing seller. 

We should work to secure equal treatment with local investors for New Zealanders investing overseas, and set the example in doing the same at home. We should not infringe on New Zealanders' freedom to sell their property to the highest bidder, except for a sound public interest reason, and in such cases we should not unfairly burden the vendor.

A replacement regime should focus on remedying identified gaps in other laws that cannot be better addressed by amending those laws.

Less far-reaching options for change include narrowing the definition of sensitive land, acknowledging that a gain to a New Zealand vendor is a benefit, and abolishing the requirement to demonstrate business acumen or financial commitment.

In the light of all these objections to the Act, the onus of proof for keeping our highly regulated regime should be on those who want to keep it. If other countries can prosper with much less intrusive regimes, surely New Zealand is capable of doing the same.