The industry should be in no doubt that this will be a year that is significantly different than any we have experienced previously.
Understanding the new Government and building relationships with a number of new Ministers is the first and most obvious challenge that the industry faces. Experience to date indicates that the new Government is open to approaches from this industry.
The new Government has quickly come out of the starting blocks. They have already delivered on their promise to superannuatants with a little bit extra. Do not be surprised if we soon see legislation impacting on taxation on employer contributions to superannuation schemes. As a result the small taxation benefit for higher income earners may not appear as we expected.
The ISI has found two unexpected allies in the post-election briefing papers from the Ministry of Social Policy and the Inland Revenue Department. The Ministry’s paper contained excellent references to the fiscal problems from an ageing population and the effects this will have on Government to support NZS and health costs. These papers also reminded the new Government of the need for superannuation policies that are sustainable and carry with them consensus of all interested parties. Much of this reinforced the ISI "Wake-Up Call" research.
The IRD papers contained references to distortions created by the current capital gains tax boundaries. They referred to compliance problems resulting from complex taxation legislation and also drew Government’s attention to the fact that the financial services industry, in its widest sense, is already the largest tax-paying group in the country.
We are encouraged that IRD have taken up a number of major issues that we have been bringing to Government’s attention. Both the Ministry of Social Policy and the IRD papers provide a foundation from which we will continue to lobby for change.
The ISI paper to Government on TET is progressing well. We are seeking input from a number of related groups including ASFONZ.
The issue of Registration of Advisers has died as a consequence of NZ First not achieving a position of power within the new Government. We should view this as only a respite. It will reappear, not necessarily this year but some event or politician will bring this back to the fore. In my view the industry needs to take a stronger position in respect of self-regulation of advisory standards, not because I believe there is a problem but to take the high ground and avoid inevitable attacks in the future.
At the moment we have three irons in the fire with the Securities Commission. Number one is the review of funds management practices. This review will generate publicity for the fund managers. When the results are published it will find areas for improvement. Fund managers need to be ready to respond quickly and positively by embracing the opportunity for improvement. The funds management industry stands to gain excellent publicity from the media and from consumer groups, if it handles the results of this review well.
The second item on which we have been working with the Securities Commission is in respect of disclosure of returns in Investment Statements. We believe the Securities Commission proposal that both actual annual rates and annualised rates need to be disclosed, is an unnecessary additional request for a fund manager.
The third point relates to a class exemption for unit trusts and superannuation schemes and Section 37A(1A)(c)(i) of the Securities Act, the requirement for directors’ certificates for refresher statements extending the data beyond 9 months. In its submission the Institute of Chartered Accountants acknowledges that a problem exists but the remedy they prefer is to amend the Act, a process that will be lengthy and does not address the need for an urgent answer. The ISI will continue to press for the class exemption as an interim step with amendment of the Regulations to follow. The Institute of Chartered Accountants is a strong body and their submissions will undoubtedly carry some weight.
All of these issues are well covered in the Securities Commission quarterly newsletter The Bulletin.
In the ongoing tray, we continue to progress a range of outstanding taxation issues with IRD (the majority involving unit trusts), most which have been ongoing for some years. In order to progress we have, with the support of IRD, developed a priority list and we are progressing those which do not appear to need amendments to the Act at this point. I think this process is called "attempting to eat the elephant in small bites".
As the year progresses, expect to have the opportunity to voice your views on Government proposals for savings and superannuation, the outcome of the Securities Commission Review of Fund Management Practices, and changes to taxation legislation to either reduce existing distortions and/or compliance. The industry needs to respond decisively and with a united voice. We cannot afford the type of cock-up that occurred with the TOLIS legislation. As Girol Karacaoglu at Westpac used to remind me "there is nowhere for the industry to hide on these issues".
Vance Arkinstall is the chief executive of the Investment Savings and Insurance Association.
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