Vance Arkinstall is the chief executive of the Investment
Savings & Insurance Associationby Vance Arkinstall
Sir Winston Churchill once said - "It is better to be making the news than taking it; to be the actor than the critic".
That statement very much reflects the opportunity that the industry enjoys this year.
After a decade in the wilderness there is at last the prospect of significant and positive progress on a range of savings policy and taxation issues.
Late last year the Finance Minister Michael Cullen released the Inland Revenue Department's (IRD) work programme which contains virtually all of the unit trust taxation issues that we have been pushing to have addressed.
The time it has taken to get this recognition is frustrating, but to have these issues included on the work programme is excellent news. In resolving taxation problems the simple fact is - you can talk with Government and the officials as often and as long as you like, but until you get recognition on the work programme almost certainly nothing further will happen.
The Investment Savings and Insurance Association (ISI) board and committees have been building strong relationships with a number of key IRD and Treasury officials.
I have no doubt that the increasing confidence of the officials in the industry has assisted with finally getting these problems recognised. We will find solutions that will result in changes in tax legislation to remove a number of compliance problems. This work will be on the detail and will not attract any particular attention outside the industry.
The ISI has consistently called for a major taxation review to find long term solutions to the many taxation barriers and disincentives to savings. We are therefore delighted with the McLeod Taxation review and the fact that both the Terms of Reference and the invitation for submissions contain specific reference to "promoting higher savings", "inconsistent taxation of offshore investment by New Zealanders" and the observation that "most countries provide tax incentives for retirement savings." However, progress will take time and no change will occur within the current Government term.
The financial services industry currently contributes approximately 40% of the Government's tax take. We therefore have a big stake in any reforms that result.
The McLeod review creates an opportunity for the industry to provide constructive input. It is essential that we put forward a compelling, balanced submission that represents the views of the industry and the community at large. This will be a high level presentation to a group that will attract considerable media comment.
Superannuation
The New Zealand Superannuation Bill and
the changes it promotes do not in themselves have any direct impact
for product providers but the opportunity for investment managers
is huge. The submissions do open the door for wide ranging views
on the importance of integrated superannuation policy across tier
I - which is a safety net in the form of New Zealand Superannuation,
tier II which may include compulsion or incentives and tier III
voluntary savings, to be proposed to the Finance and Expenditure
Select Committee.
The ISI will be supportive of moves to remove the current uncertainty that surrounds NZS and to achieve political consensus. We will sound warnings to Government that pre-funding is not the total solution and the importance on Government to ensure that the public realise that NZS is a safety-net and that the public must not rely on NZS alone if they expect a comfortable retirement.
Our real interest will be in encouraging development of tier II and III policy to achieve high personal savings rates.
We will be encouraging the politicians to move quickly on policies to raise the levels of private savings.Later in the year we anticipate that the Government may announce further detail regarding a possible taxed-exempt-taxed (TET) taxation regime.
Whilst we would expect to play a role in working with the officials towards the design of a revised savings/superannuation regime, it is by no means certain that TET will provide the ideal answer.
The industry needs to recognise the fiscal restraints that Government currently works within. Any tax preferred arrangement such as TET that the Minister of Finance may seek to implement carries cost implications. It is not clear how any taxation benefits would be funded and it is likely that Government spending would need to be curtailed in other areas which will be resisted by other sectors.
Regulatory changes
The Ministry of Economic Development has
signaled an intention to undertake a long overdue review of the
Life Insurance Act. ISI has been calling for this review for
sometime and we have advised the ministry of our enthusiastic
support. Details of timing have not been provided at this stage.
Reviewing the Life Insurance Act is not a politically 'sexy' task and therefore this project will always be at risk of being bumped off the agenda.
We will be working with the Health Funds Association, the Human Rights Commission, and possibly the Privacy Commission on refining the Code on Genetic Testing. Almost certainly we will be subject to a renewed round of media articles claiming that life and health insurers should not be allowed to use genetic tests as part of the underwriting process. To date we are comfortable with the handling of the media on this subject.
Better performance reporting
The ISI has commenced work on reviewing
its Manual of Practice Standards and in particular we expect to
launch an improved version of the investment performance sections.
Overall, the door has opened for the industry to play a large part in influencing taxation and savings policies for the next decade. For the past 10-15 years we have been forced to "take" a constant stream of bad news that has done little to encourage or build our industry. We have been critical of our lot but it is a great credit that the managed funds and life industries have grown as well as they have. Now we have the opportunity to move from critic to the role of actor.
The industry is well positioned to respond to these challenges. We have undertaken much quality research (the Wake-Up Call and Discussion Document on an Ideal Taxation Regime). The Achilles heel however is that we do not have a single voice for the industry. Whilst one or two larger players see advantage in watching from the sideline, it is this inaction at this important time that may serve to limit the final progress.
The officials and Government often comment on why the division remains. There is no doubt they now respect and seek ISI views but they would feel even more comfortable and be even more supportive dealing with a united industry body.
If ever there was a time for all hands to the pumps and the strongest industry voice on savings policy and taxation reform, this would be it. The prize that effective reform will present is too great to be ignored.
Vance Arkinstall is the chief executive of the Investment
Savings & Insurance Association
Vance Arkinstall is the CEO, Investment Savings & Insurance Association
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