That figure was - as reported in Good Returns last week - put before Cabinet in a briefing paper by Finance Minister Michael Cullen in April.
“Move the decimal point one point to the left and you’d have a more accurate figure,” says FundSource executive chairman David van Schaardenberg.
It was Fundsource who supplied the figures on how much New Zealand investment there is in AUTs, and it is from that figure - about $3 billion - that the officials in the two government departments have reached their estimate.
However van Schaardenberg says that if officials really believe this figure it shows how little they understand the issue.
The Cabinet paper says the estimate, which officials claim is a conservative one, is based on the supposition that about half the money going into AUTs is subsequently invested in United Kingdom-based investment trusts - which also make use of a similar tax anomaly as the AUTs.
That is rubbish, says van Schaardenberg.
“None of them are reinvested in the UK investment trusts.
They all go into global equities like GE or Intel or whatever. There just isn’t any subsequent tax manipulation going on. “If they believe that they are completely off the mark.”
The estimate is important because tax officials have told Cullen there is massive tax leakage around New Zealanders investing in AUTs. It is the alleged size of that leakage which has caused the government to opt for a band-aid solution to plug the supposed loophole, rather than wait and deal with it through the longer term review of how New Zealanders’ investments are taxed.
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