Law firm Bell Gully has questioned the Government's proposed overseas investment rule shakeup and new powers to veto deals, saying that could create investor uncertainty.

After Associate Finance Minister David Parker yesterday launched public consultation on changes to the legislation, Bell Gully issued an analysis. Andrew Petersen, Glenn Shewan and Luke Becker said this was the second phase of reforms. This following the anti-foreign house buyer ban.

The flaw in the new proposals was removing the benefit to New Zealand test and leaving decisions up to ministers to decide on proposed deals, giving them potential veto rights.

"We are concerned about the impact of completely removing that test and replacing it with a national interest test where the ministers have a broad discretion without any guidance or parameters around the exercise of that discretion," the Bell Gully people said.

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"This has the potential to create even more uncertainty for investors than the current benefit to New Zealand process," they said.

Act leader David Seymour said yesterday giving ministers wider powers to reject overseas investment would create a hostile environment for overseas investment and would make New Zealand poorer.

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Act Leader David Seymour is slamming the Government's national interest test plan

"New Zealand already has some of the most restrictive rules for foreign investment in the world, according to the OECD. Foreign investment is often accompanied by new technology and boosts production, wages and job creation," Seymour said.

Ministers could have the power to deny a business sale on the grounds it would be damaging to the economy.

But the Bell Gully analysis generally welcomed the spirit of changes.

"Bell Gully is pleased to see the Government undertaking such a comprehensive review, having previously advocated for a number of the proposals that the Government is considering.

"The consultation includes issues relating to land that adjoins sensitive land, the treatment of NZX-listed companies and fundamentally New Zealand entities, and exemptions for small ownership interest changes.

"The second phase of reform follows the changes made to the act in late 2018 which simplified forestry investments and banned the purchase of residential property by overseas persons," the analysis said.

Replacing the national test with ministers' decisions would examine economic or other benefits, any risks to national security, public safety, international relations or other national interests, the extent to which risks can be mitigated by consent conditions or other legislation and any other matters that they consider relevant, like an investment's environmental or cultural implications, Bell Gully noted.

Parker cited the 2008 rejection of the Canada Pension Plan Investment Board's proposed takeover offer for Auckland International Airport and Cheung Kong Infrastructure Holdings' acquisition of Wellington Electricity's network the same year as two transactions that could have triggered consideration under a national interest test.