International Tax Policy Extremely Poor

Press Release:
International Tax Policy Extremely Poor
Dr Gareth Morgan
11 April 2006

Today is not a great day for taxation reform. There have been some advances – such as the treatment of managed funds. But there has been an intellectual implosion in the quality of our international tax regime.

"We want a system that doesn't encourage investors to favour investing overseas over investing in New Zealand. – Dunne & Cullen

And so they’ve introduced one that favours them investing in New Zealand!

What is the logic these Ministers employ to replace one distortion with another? Especially when it is so easy to get it right so that investors are not influenced at all by taxation when making their investment decisions.

The initiative of the Ministers is most regretful, will hurt the safety of New Zealanders’ savings and plays right into the arms of the insurance industry that are searching for ways to help make their “savings” products regain competitiveness. Apart from the insurance lobby, real estate agents and Mark Weldon there would be few New Zealanders who would welcome this international tax regime.

"The winners will be thousands of ordinary, hard working New Zealanders who the government is helping to achieve long term financial security." – Dunne & Cullen.

To the extent New Zealanders’ savings are put in peril through an over-investment in this economy and through being force-fed obscure “savings” products of the insurance industry that stand ready to devour these fund flows, the Ministers couldn’t be more incorrect.

They have been captured by lobbyists, logic is the loser – as are the people of New Zealand. Portfolio Theory 101 tells us that diversification is the key to protecting wealth. Cullen and Dunne regard diversification as NZ and Australia – I wonder where they were trained.

The Ministers should have listened to their advisers that argued the importance of tax neutrality.

If they had they would have introduced a regime that allowed Kiwis to spread their risk by investing around the world and not being subject to a selective capital gains tax imposed by the IRD. From a theoretical tax perspective and considering the risk it poses for New Zealanders this decision is ill-informed and should disappoint any New Zealander who cares about the future returns for thrift, the capacity of New Zealanders to fund their own retirement and to diminish their dependence of Granny State when they do retire. Frankly it is pathetic. The insurance industry will be laughing all the way to their Australian bank.

Dr Gareth Morgan web: http://www.garethmorgan.com

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