Cullen and Key debate tax changes

Finance minister Michael Cullen yesterday threw down a challenge to the savings industry over how to tax offshore investments.

Thursday, August 18th 2005, 6:41AM

He said the way offshore investments are being taxed currently make no economic sense and there needed to be change.

Speaking at a Financial Planners and Insurance Advisers Association lunch yesterday he said the current grey list regime where investments in some countries were deemed to be tax-free and investments in non-grey list ones are taxed made no sense.

“Don’t pretend the current regime works, because it doesn’t,” he said.

The current proposal from officials is to use the comparative value tax regime that is a form of capital gains tax.

Cullen said he was “fascinated” by the amount of “screaming” coming from private investors over the proposal. The amount of noise raised the notion that officials “radically under-estimated” how much was invested offshore.

He said that if people didn’t like what was proposed they should come up with a better solution which works.

Cullen also pointed out that the comparative value proposals had a “quite generous” cap, and that the earlier proposal raised in a report by Craig Stobo was a form of capital gains tax too.

Cullen argued the proposal, when put together with plans to remove the capital gains tax on collective investments in New Zealand assets was essentially revenue neutral for the government.

However, National Finance spokesman John Key opposed the comparative value proposals saying it was “fundamentally all about a tax grab”.

He said that it also created an uneven playing field as it would favour New Zealand investments over international ones.

“This will only lead to New Zealanders exiting foreign share markets and replacing those investments with either offshore property investments or bringing the money back home.

“And if the money does come home, then it is likely to end up in the commercial property market or the New Zealand Stock Exchange. Both scenarios are dangerous. Either property prices go up and first-home buyers are further disadvantaged, or foreign investors collect a windfall from over-cooked domestic share prices,” Key said.

However Key failed to outline how National would tax collective investment vehicles.

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