Gordon Campbell | Parliament TV | Parliament Today | Video | Questions Of the Day | Search


Key finally wakes up

14 June 2005

Key finally wakes up

“It has taken several weeks but it seems John Key has finally read the Budget Speech,” Finance Minister Michael Cullen said today.

He was responding to a statement by Mr Key on government proposals to reform the taxation of offshore investment.

“A full discussion of the options was included in the Budget Speech.

“There is no secret agenda. The objective is to introduce greater transparency into what has long been seen as an anomalous area of tax policy and – in the process – to remove an incentive for people to invest overseas rather than in New Zealand,” Dr Cullen said.

The relevant passage from the Budget Speech, pages 7 and 8, reads: Reform of the taxation of offshore investment is more difficult. Under current rules, offshore share investment is taxed differently depending on the country in which the investment is made. If direct investment is in what is called a “grey list” country, it is excluded from the foreign investment fund rules. If it is not, then foreign investment fund rules which tax accrued capital gains apply. The rules contain four methods for calculating investment for a foreign investment fund.

Consideration was given for some time to the use of a version of the risk-free rate of return method with respect to overseas investment by New Zealanders. In the end this has not been adopted. The main issue is the complexity involved in applying such a mechanism. The method is conceptually simple but quickly becomes complex in application, particularly for individual investors where investments are made at different points in a year. Moreover, the fundamental perception problem remains with respect to tax being applied even where losses had been incurred.

Instead, it is proposed to issue a discussion document within the next few weeks proposing to apply an income calculation method based on actual changes in value for investment funds, companies and individual investors. Under the proposal, the grey list will be abolished for portfolio share investment. Collective investment vehicles will be taxed on the basis of the change in their accrued value.

This would make for clearer rules, but in practical terms the results should be similar to the law as it currently applies for funds that are in the business of actively trading shares.

For individual and other investors it is even more difficult to find an approach that is reasonable without favouring direct offshore investment over investing in a fund. The approach being proposed is that individual and other investors will also be taxed on the change in value of their overseas shares, but with an annual cap so that tax is spread over a number of years to better reflect cash flow. The discussion document will propose a threshold so that those with small holdings of foreign shares continue to be taxed just on dividends received.

This will lead to accusations of extending the capital gains tax regime at present implicit in taxation on non-grey list investment. It is clear, however, that any reform of the current regime that does not penalise investment into New Zealand shares will lead to some such outcome.

The choice then is between a complex regime which tends to favour investment going offshore or a simpler regime which is more favourable to investment in New Zealand.


© Scoop Media

Parliament Headlines | Politics Headlines | Regional Headlines


Ruataniwha: DOC, Hawke's Bay Council Developer Take Supreme Court Appeal

The Department of Conservation and Hawke's Bay Regional Investment Company (HBRIC) are appealing to the Supreme Court over a conservation land swap which the Court of Appeal halted. More>>


With NZ's Marama Davidson: Women’s Flotilla Leaves Sicily – Heading For Gaza

Women representing 13 countries spanning five continents began their journey yesterday on Zaytouna-Oliva to the shores of Gaza, which has been under blockade since 2007. On board are a Nobel Peace Laureate, three parliamentarians, a decorated US diplomat, journalists, an Olympic athlete, and a physician. A list of the women with their background can be found here. More>>

Gordon Campbell: On The Key Style Of Crisis Management

At Monday’s post Cabinet press conference Key was in his finest wide- eyed “Problem? What problem?” mode. No, there wasn’t really a problem that top MPI officials had been at odds with each other over the meaning of the fisheries policy and how that policy should be pursued... More>>


Mt Roskill: Greens Will Not Stand In Likely Post-Goff By-Election

“The Green Party’s priority is changing the Government in 2017, and as part of that we’ve decided that we won’t stand a candidate in the probable Mt Roskill by-election... This decision shows the Memorandum of Understanding between Labour and the Green Party is working." More>>


Wellington: Predator Free Capital Plan

Wellington City Council (WCC), the Greater Wellington Regional Council (GWRC) and NEXT Foundation, today announced a joint collaboration to make Wellington the first Predator Free capital city in the world. More>>


Gordon Campbell: On Judith Collins’ Efforts At Self Correction

Thousands of prisoners currently in prison may be entitled to an earlier release than expected – and compensation – because Corrections has incorrectly calculated their term of imprisonment. Unless of course, the government buries its mistakes by changing the law and retro-actively getting itself off the hook… More>>


More Justice & Corrections

Sector Opposes Bill: Local Government Bill Timeframe Extended

The Minister of Local Government Peseta Sam Lotu-Iiga has asked the Select Committee to extend the report back date for the Local Government Act 2002 Amendment Bill (No 2). More>>


Get More From Scoop



Search Scoop  
Powered by Vodafone
NZ independent news