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Keep grey list for funds: Expert

The government’s underlying policy goals for changing the tax treatment of investments could be solved in a much less painful way than currently proposed.

Thursday, July 6th 2006, 6:40AM

by Rob Hosking

Chapman Tripp partner Casey Plunket says that instead of hitting direct offshore investors with the abolition of the grey list, and imposing an unrealised capital gains tax, the government could achieve the same result by allowing managed funds to keep the grey list exemption.

“The regime we have at the moment was designed to equalise the tax treatment in New Zealand with that of investment outside New Zealand,” says Plunket.

“The current proposals are motivated by a different concern. They are about ensuring the amount of tax paid is the same whether the offshore investment is made directly or through a New Zealand managed fund.”

They are also aimed at removing the extra tax burden on New Zealand managed funds, which would, had it remained, been an insurmountable obstacle for the government’s KiwiSaver workplace savings package.

“The real opportunity in this debate is to shift the focus away from those who are currently not taxed (i.e. direct investors into grey list countries) and on to those who are already paying New Zealand tax on their foreign equity investments – i.e. investors in New Zealand managed funds,” says Plunket.

Plunket says the argument that the grey list is itself distortionary is ‘window dressing”. He notes the government’s own New Zealand Superannuation Fund has 76% of its equity investments in New Zealand or grey list countries.

The NZSF does not, unlike other investors, have to worry about tax, because of its overall goal of reducing the tax burden of future retirees.

The reason the NZSF favours grey list countries is because they form about 85% of the world’s capital markets, says Plunket.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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