NZ Herald 1 July 2006

AI’m sure you’re right. We still have a Parliament, various government departments, roads and so on, which cost a certain amount to run whatever the size of the population.

This doesn’t apply only to government. Most of New Zealand’s advantages and disadvantages over other similar countries can be attributed to our smaller population.

In many areas — from the arts to consumer goods — we have less choice. Many of us, though, are willing to trade that for the ease with which we can find a deserted beach. Having to pay more tax per head may be part of the deal.

AI hope many others have, too. Next Friday, July 7, is the deadline, so those who haven’t made submissions yet had better get a move on. Send them to: [email protected] or mail to The Finance and Select Committee Secretariat, Bowen House, Parliament Buildings, Wellington.

A tip from Mt Maunganui investment adviser Charles Tomlinson: “Try not to denigrate the people involved. Focus on the proposed tax, not the politicians themselves.” I quite agree. Abusing people never wins them over.

Abusive or not, though, let’s get those submissions in. I really believe that the more the committee receives, the more pressure they will feel to change the proposals.

You can be sure the professionals are having their say, too. Says Cam Watson of ABN Amro Craigs: “We cannot remember a time when the entire investment advisory industry in New Zealand has been so united against an issue, along with a number of independent special interest groups like the NZ Shareholders Association.”

Which leads me to the submission from Shareholders Association chair and accountant Bruce Sheppard. Some excerpts:

• “The passing of this bill will not affect me personally to any degree except to the extent that my professional income will increase.”
• “Every new complex band-aid to the Tax Act creates new avenues for avoidance and mitigation…. Remedial bills will be required.”
• The exclusions of Australian shares and GPG “have been included for political rather than principle reasons, and this is a dangerous reversion for New Zealand. We have not seen such deliberately targeted politically motivated tax and exemptions since the Muldoon years.”
• “The assumption that investing in foreign equities in some way has a favourable tax treatment is false. In summary this bill will create more investment inequities than it solves both between asset classes and investment structures, and the tax evil that is purported to be fixed by this bill is a figment of the government’s imagination.”
• “Of those who directly invest in Grey List countries… a considerable number will choose to migrate their capital to NZ. It is unlikely that this will find its way into equity markets as pricing is already at historical highs, although a short-term equity price bubble could be fuelled. More likely the flow of investment capital will find its way into net bank liquidity and demand deposits and/or residential property. In effect, both will fuel the property market, one will be demand lead and the other will be mortgage lending lead.”

The next reader’s letter, a submission that she also sent to me, backs up Sheppard:

AComplexity, as much as higher taxes, is obviously worrying many, including top accountants, I hear. I’ve received heaps of letters from readers asking questions about their circumstances that I can’t answer, so I quite agree that much guidance will be needed from Inland Revenue.

Unless, that is, the government sees the light and sets aside its proposals to change international tax. As another reader’s submissions says, “The whole issue of whether, and if so how, capital appreciation should be taxed needs to be considered as a separate issue outside this bill.”

AIt’s quite true that any time investment decisions are distorted by unequal taxation, investors won’t get as high a return for a given level of risk.

Finance Minister Michael Cullen apparently agrees. “We believe it is important to remove distortions in investment decision making,” he said in a recent speech.

The only trouble is that he thinks the changes will remove differential tax treatment, but that is true only in some situations. In others, the changes create inequalities.

How have we come to this, when intelligent people on both sides see things so differently? That must be a sure sign of extreme complexity.

As for your reference to the Titanic, Henry Wadsworth Longfellow wrote about a “ship of state”. Hmmm.

AAccording to calculations by ABN Amro Craigs, the market capitalisation — the value of all the shares — in the Grey List countries is about 82 per cent of the world total.

That doesn’t leave much room for the rest of the world. And, as you say, many of the other markets are riskier — although officials in France, Switzerland, the Netherlands and Italy might object to that label.

It seems pretty obvious that, if the Grey List goes, most New Zealanders who continue to invest offshore will still concentrate largely on the three giants, US, UK and Japan.