This article was published on 3 June 2006. Some information may be out of date.

Q&As

  • All on government’s tax proposals.

QAfter following your comments over recent weeks regarding capital gains tax, and wondering if you have taken leave of your senses, we learn in last week’s column that you are not a financial advisor after all but a “writer and seminar presenter”. You must forgive us for being confused by your long standing Q&A format on financial topics.

As a writer then, why, if the government wants to encourage (1) a knowledge economy, (2) savings, (3) exports, wouldn’t it be smarter to not be like everyone else, retain our national advantage of no capital gains tax, and thereby (a) attract and hold people with brains and capital, (b) let them invest (i.e. save), and (c) earn returns overseas that eventually will be repatriated (just like profits from exports) and eventually be taxed via GST when spent? It seems as simple as ABC.

We know this government has no flair in the vision department. Hopefully the public will rise up and kill this counterproductive and spiteful legislation. Another Herald contributor, Brent Sheather, who does bill himself as an investment advisor, had it right today. I hope you had time to read his column.

AI agree that no capital gains tax is preferable to the government’s proposed changes, which would tax only some investments.

But I still think a tax on all capital gains, along with a cut in income taxes, would be better. And judging by letters I’ve received from successful New Zealanders overseas and those thinking of leaving this country because of the government’s proposals, I think such a scheme might be as good as any for attracting and keeping talent in New Zealand.

Many talented people would benefit from a lower income tax. And even those who would end up paying more tax in total wouldn’t necessarily baulk at that, as long as the system was simple and fair.

A quote from another reader is relevant here: “I live abroad in New York City after many years in London, and I can tell you the average Kiwi doesn’t think to include thoughts for his/her fellow countrymen when finance and future personal stability come into play.”

He might well be right about the ordinary person. Could it be, though, that the world’s winners — the kind of people you want to attract to New Zealand — look for the best for the country rather than the best deal for themselves?

I also agree that Brent Sheather’s column last week was good. I especially liked his point that the “fat cats” who Michael Cullen wants to tax harder can easily dodge the tax — either by leaving their investments overseas until they die or by bringing all their investments back to Australasia and putting up with the consequences of less diversification. They don’t need optimal portfolios nearly as much as the rest of us.

Sorry if I disappoint you for not being a financial adviser. But my occupations have always been stated at the end of the column.

QCan you tell me if you have formal qualifications? You are doing a fair job, and I am amazed at your ability to answer or debunk the intelligence of some reputable personalities in your column.

AI’m not sure how you know whom I’m debunking, but thanks for your comments.

My qualifications are a BA in economic history from Victoria University, an MA in journalism from the University of Michigan and an MBA in finance from the University of Chicago — all of which really help me in my work.

But I’ve probably learnt as much from three decades of covering business, taxes and personal finance for eight newspapers and one magazine in the US, Australia and New Zealand — to say nothing of what this column and its readers have taught me.

QIt’s all very well debating whether a general capital gains tax should be introduced, but what about the tax bill that has now gone through its first reading in Parliament?

That’s where the focus should remain, along with a tsunami of opposition to the flawed proposal to tax unrealised gains on share investments outside of Australasia. Otherwise it is going to happen.

At this time, there is only one sensible answer that will produce a fair result and encourage proper diversification — that is, to extend the exemption granted to NZ and Australian shares to all international listed shares on recognised stock exchanges. This should apply to all share investments whether made via managed funds or direct.

Such an approach will then allow time to consider alternatives, perhaps a general capital gains tax at a lower rate, while still allowing introduction of the change proposed to ensure that lower marginal taxpayers who invest via managed funds are not overtaxed — necessary if KiwiSaver is to be successful.

AI couldn’t agree more. It’s time to get practical, and the most practical idea is for the government to give us and itself more time.

Why rush through legislation that could have such far-reaching results, and then give people so little time to work out how it will affect them and to take wise action? Act in haste; regret at leisure.

QI am sitting here wondering how the growing opposition to the tax proposals can be mobilised into a movement that will make a difference. Maybe it could be possible via the NZ Shareholders Association, but I will support anybody who takes this initiative.

It was interesting to note that Revenue Minister Peter Dunne declined to debate the issue with Bruce Sheppard of the Shareholders Association on TV the other night, and of course Cullen wasn’t even there. But that is what is needed, a proper debate where the government is forced to defend its position.

I have been intrigued to note how muted broker criticism has been. Could this be because they have or would like to have the government as a client?

ATo take your last point first, I know of a few brokers who have yelled. Here’s one example, in a report from ABN AMRO Craigs:

“The proposed changes place (offshore share investments) at a taxation disadvantage relative to other asset classes such as domestic shares and rental properties. In our view, it will distort investment decisions and discourage diversification into global equities.

“Diversification is one of the pillars of prudent wealth management, and this tax proposal undermines that core principle.” Well put.

I agree that it’s a pity we haven’t yet seen the tax proposals debated. I hope that will happen in Parliament.

As for the Shareholders Association, Bruce Sheppard reports the following:

“The NZSA has encouraged all of its members to write to Helen, and they are. I am bombarding her with daily emails of new stuff as it comes to hand. You should get your readers to do likewise. You should forward her all your letters, all in separate envelopes. Postage is free, her mail bag needs to be full, she has to understand that this is a defining moment for her government.

“I personally will be doing a submission to the select committee as will the NZSA and GPG.” Sheppard continues. “The thrust of mine is that the playing field is already screwed against overseas investment including Grey List countries as against NZ investment, so this just makes it worse. So when they say they are levelling the playing field they are lying.”

I’m not going to take up the suggestion about forwarding your letters. The people at Parliament will realise that they all came from me, and that won’t carry nearly as much weight as if you all take the trouble to send them yourselves.

I suggest that even those of you who have questions — as opposed to opinions — about the proposed changes turn that into a submission. Why not make the point that this whole thing is horribly complex?

Submissions don’t have to be long. I was once on the receiving end of some submissions to government. We categorized them into groups — the main point of the ones in this pile is X, the main point of the ones in that pile is Y. Then we gave the powers that be a list of the numbers in each category. They certainly didn’t read every last word from every person.

I doubt if the process this time will be very different. So you might as well state your main point, or a few points, clearly at the top, and then add a bit of explanation. But there is little to be gained from going on for page after page.

Send your submissions by email to [email protected] or by mail to The Finance and Expenditure Select Committee Secretariat, Bowen House, Parliament Buildings, Wellington. You can also mail your MP. On the envelope put their name, Parliament Buildings, Wellington — and you don’t need postage when mailing to individuals in Parliament. It would be a good idea to both email and mail if you can. The deadline is July 7.

I haven’t got room to run submissions in this column, but I would be interested to receive copies of them. Last year, in the earlier round of submissions on this subject, the government received 815, of which 712 were from individuals. Let’s get it into the thousands this time.

For inspiration, an excerpt from a letter that Bruce Sheppard sent to some GPG shareholders:

“I am asking you to take direct personal action because it is important. I have always been prepared to say to those in power things that they will find unpleasant. I have been prepared to do unconventional things to achieve just purposes. It hasn’t hurt me yet, and it won’t hurt you either. I am not asking you to embark on civil disobedience, but I am asking you to tell those that can make a difference and who were elected to represent you how this will affect you and why you oppose it.”

Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd FSCL, a seminar presenter and a bestselling author on personal finance. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.