A defining moment in time
Saturday, September 2nd 2000, 2:35PM
There are three major issues at the present. Not surprisingly two have to do with the old bogey, tax, and the other, New Zealanders' investment concubine: property.
The Securities Commission's decision last year to allow people to promote UK domiciled unit trusts in New Zealand has focussed attention on the inequitable tax treatment of local funds.
The bottom line of the situation is that an investor who buys a UK based fund gets a more favourable tax treatment than one which puts their money into a New Zealand fund.
The issue has once again split the industry and both sides have been lobbying the Minister of Finance. The end result is one which is becoming the norm for the industry.
Because it can't agree on anything (for example Tolis, the superannuation fund withdrawal tax and now UK funds) the minister is left with no choice but to maintain the status quo (which of course is seen as a victory for one side of the argument).
The end result of this move is that a greater proportion of New Zealanders' investment dollars will end up offshore. That, according to some parties, will result in loss of tax revenue for the New Zealand Government.
A second tax issue also has the same affect. What is happening now is that at least three managers have made funds for the local market, however have chosen to base the funds in Australia because of the tax advantages. Macquarie's Gilt Edge Access Account is Australian as it means that withholding tax doesn't need to be deducted. Meanwhile ANZ Funds Management and now Money Managers (see First Step story later this week) have funds in Australia for tax reasons.
The third big issue is, once again, syndicated property. The catalyst is the biggest player in this sector, Waltus.
The company's decision to try and merge 29 syndicates into one fund naturally has pros and cons to it. As the protagonists argue the proposal addresses some of the fundamental structural concerns which have been evident for many years. That is good.
The issue concern remains the same. If investors take a big hit on syndicated property it will be the financial planning community which suffers the most, not the promoters. Such a hit would be a severe blow for advisers as many of the big name firms have pushed these products hard, and it could be argued some have built their businesses on fat commissions paid by syndicators.
A major failure in the syndicated property market would do to the financial planning industry what the 1987 sharemarket crash did to equity investors.
That said it is worth pointing out that not all syndicates are dogs. Many have met investor expectations and some have far exceeded them.
With all three of these issues there needs to be a satisfactory outcome which protects New Zealanders and the investment business in this country.
In years to come we may all look back on this point in time and say it was a defining moment in determining where the industry (and investors' money) goes. Let's hope we look back on it fondly.
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