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Tax changes anti-competitive

Proposed investment tax changes are anti-competitive, and undermine some of the principal elements of the Australia New Zealand Closer Economic Relation (CER) Agreement which has been in force and evolving since 1983.

Thursday, July 20th 2006, 6:51AM
Managed fund research house FundSource says while the proposed reforms are largely positive, "a number of elements throw up unfortunate consequences."

From a tax perspective, the bill exempts capital gains tax on investments into listed Australian entities resident in Australia, subject to a few conditions. This means they would be treated the same as New Zealand listed share investments.

"Unfortunately, this exemption is limited to only listed entities and as such creates an inconsistency between listed and unlisted Australian entities," FundSource general manager Binu Paul says.

"In the process it disadvantages around 130,000 New Zealand investors with an estimated $5 billion in funds, who have been invested in Australian unlisted funds since the mid-1980’s, around the time of financial deregulation in New Zealand."

A direct consequence of the relevant clause in the bill would be to effectively limit New Zealand investors from accessing the investment skills of numerous world-class international fund managers based in Australia.

Paul says an increasing number of international fund managers have set up shop in Australia on the back of compulsory superannuation fund flows.

"This provides depth, sophistication and competition to the domestic fund industry in Australia."

"The proposed Bill does provide an exemption to some Australian superannuation funds but not to the more mainstream and popular unit trusts."

"This will stifle competition among providers of investment products hence creating a significant reduction in the investment choices available to New Zealand investors, limiting them to a narrow range of New Zealand based quality fund managers.

Paul says this outcome undermines the primary objective of the agreement between the Australian and New Zealand governments in relation to the Mutual Recognition of Securities Offering, signed in February 2006, being “to remove unnecessary regulatory barriers to trans-Tasman securities offerings, and to thereby facilitate investment between the two countries, enhance competition in capital markets, reduce compliance costs for business and increase choice for investors”.

It also runs counter to the spirit of the long-standing CER Agreement that was established by the two Governments in 1983 to foster closer relations between the two economies in terms of goods, services and labour.

« Salvus starts sharebuybackSovereign takes regulation bull by the horns »

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