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National will fight new taxes on investment

Lockwood Smith MP
National Party Revenue Spokesman

6 December 2006

National will fight new taxes on investment

The National Party will be voting against the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill recently reported back to Parliament, says National's Revenue spokesman, Lockwood Smith.

"National supports the objective of making New Zealand's tax system both more consistent and simple. Unfortunately, this bill adds more inconsistency and complexity. It introduces a new tax on portfolio investments in offshore companies on the basis of a 5% fair dividend rate, but treats managed funds quite differently from individuals and Family Trusts."

Dr Smith says that the new tax was a result of the Government's decision to shrink the former grey list countries - where investments were taxed similarly to investments in New Zealand - to include only Australia. He says Finance Minister Michael Cullen had claimed the new tax was not intended to tax capital gains, yet it clearly does.

"The so-called fair dividend rate is not fair at all. Most submitters to the Finance and Expenditure Select Committee argued that, if the grey list was to be abolished, the new tax should be set to reflect objectively international dividend yields. That would suggest a rate of between 2% and 3.5%. With the yield on international investments currently at 2.2%, the 5% fair dividend rate tax obviously includes a capital gains tax."

Dr Smith is calling on other political parties that have previously claimed policies against capital gains taxes, to also vote against this bill.

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"The complexity of complying with this legislation, and the fear of IRD-imposed penalties should taxpayers get it wrong, will result in many individuals simply applying the maximum 5% rate to their foreign share investments. Others will simply bring their money home to invest in our already inflated domestic property market.

"Because the earnings will be assessed in New Zealand dollars, a currency shift could see taxpayers facing tax bills when their real earnings have been zero. What's more, if their international share portfolio were to decrease in value one year, while they would not face a tax bill that year, they would face a tax bill the next year should the shares return to the same value as they started."

Dr Smith says one of the stated objectives of the bill was to remove discrepancies between individual investors and those investing through managed funds.

"The legislation fails that test miserably."


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