KEY POINTS:
Papers reveal Treasury tried to persuade the Government there was nothing to fear from foreign ownership of Auckland International Airport and strongly warned against any Government intervention in its sale.
Finance Minister Michael Cullen yesterday released Cabinet papers and Treasury advice on the Government's intervention in the bid by the Canada Pension Plan Investment Board to take 40 per cent of the airport.
Just days before the offer to airport shareholders was due to expire, the Government rushed through a change to the rules under the Overseas Investment Act.
The change allowed ministers to consider the benefits of keeping "important strategic infrastructure" in local hands when deciding whether to veto overseas investments. The bid was controversial, and the change was made after public opposition to the sale, despite the majority of the airport shareholders approving it.
The Cabinet papers reveal Treasury was heavily critical of the Government's intention to intervene, warning any intervention would make others wary of investing in New Zealand.
It said there might be a case for restricting ownership of some sensitive assets. However, its view was that overseas owners would have the same interest in the future success of Auckland airport as local shareholders.
"We also note that foreign investment in airports around the world is not uncommon. For instance, Infratil [A New Zealand company] itself owns airports in England, Scotland and Germany".
"It is therefore difficult to see foreign ownership creating a significant threat to New Zealand's national interest."
However, Dr Cullen dismissed Treasury's concerns in his final proposal to Cabinet, saying the view that overseas owners' interests would align with New Zealand interests was "a view which I regard as open to question".
Yesterday, National deputy leader Bill English said the Cabinet papers proved Labour's last-minute intervention was a political move.
"They overrode all the official advice. Michael Cullen was looking for any excuse to get the political result he wanted, and the papers show they were willing to make any decision for their own political benefit even if it was a risk to the economy."
In a statement yesterday, Dr Cullen said it was "no surprise" that the Government and the Treasury had disagreed on the issue.
"We rejected, for example, Treasury's view that the interests of a major overseas shareholder - who in this case would have been a somewhat passive investor - would likely align with New Zealand's national interest."
The papers show the Government's original plan was to rush through legislation which would restrict foreign ownership of the airport to 49.9 per cent.
However, Dr Cullen backed down after Treasury said it would breach New Zealand's free trade agreements and imperil others under negotiation - including the FTA with China.
It said the law change would "likely seriously diminish the attractiveness of New Zealand as a country with whom others choose to enter into FTA trade negotiations with".
Treasury also warned that while there were less risks in the change to the Overseas Investment Act regulations, it was not specific to Auckland airport and could be abused by future governments, because it was easier to veto investments.
In the proposal to Cabinet, Dr Cullen said this fear could be mitigated by the "very narrow" range of assets the new criteria would apply to.
The Government has since resisted calls to draw up a list of strategic assets which it would apply to.
Mr Cullen said National had discussed taking the legislative ownership restriction path, but the Treasury advice showed this was unworkable.
"National needs to clarify what they would really do, if anything, to protect strategic assets."
HALTING THE SALE
WHAT HAPPENED
In March, the Government rushed through a change to the criteria for deciding whether to veto overseas investment bids. The regulations under the Overseas Investment Act now allow ministers to consider the benefits of keeping "important strategic infrastructure" in local hands. A month later, the Government vetoed the Canada Pension Plan Investment Board's attempt to buy a 40 per cent shareholding in the airport.
WHAT THE TREASURY SAID
"Such an intervention would create considerable disruption and uncertainty. By affecting investors' property rights and reducing value, it may cause investors to be sceptical of the certainty of New Zealand's regulatory environment and more wary of investing in New Zealand firms."
WHAT MICHAEL CULLEN SAID
"Much of Treasury's concern in based on the belief that overseas owners' interests will align with those of New Zealand interests - a view which I regard as open to question."
