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First thoughts on tax changes

Tuesday, April 11th 2006, 11:27AM

by Philip Macalister

As promised the government has outlined its tax plans before Easter. This is potentially some of the biggest news for the savings industry this year.

What's my initial take on it? Well first up there has been little change since the discussion document that was released in December. Good Returns signaled that was the case a couple of weeks ago.

The key changes are that Australian investments will be treated under the flow through regime, just like New Zealand ones. Also the superannuation lobby has a win in that the highest tax rate on QCIVs is 33% - this may help alleviate the government's so called Extreme Salary Sacrifice problem.


The biggest issue is not the one that will get the most airplay in the mainstream media. No doubt they will babble on about the CV tax regime being a capital gains tax and New Zealand is not meant to have one of those.

What is the big change is that portfolios will end up being skewed towards investments in Australia and New Zealand.
Preliminary numbers I have heard are that international investments will have to have returns somewhere around 30% higher than Australasian investments just to be on par on an after tax basis.

While the government is not prepared to admit as much these changes are about propping up the local market. It is saying that New Zealand's capital markets are so sick they need massive support.

Amongst the losers are advisers and their clients. As one government press release says: "The losers in this case will tend to be sophisticated direct investors who have enjoyed considerable tax advantages under the old regime and who have the ability to easily adjust their investment arrangements."

These are the people who have used professional advice.

Changes I predict are that now direct New Zealand shares have lost their advantages over managed funds, brokers will be rolling out Australasian share funds - this has already started.

Fund managers will work hard to find ways around these changes so that they can invest offshore without being penalized. (The winners of course being lawyers and accountants).

Early reaction from fund managers isn't too flash. One manager spoken to says it is "unbelievable" what they are about to introduce.
"(Officials) are so far into the woods that they have lost sight of the sky."

As usual I welcome any comments. Please send them to blog@goodreturns.co.nz
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China Construction Bank Special - 2.65 2.65 2.80
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Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
HSBC Special - 1.99 - -
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Kainga Ora 4.43 2.79 3.04 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 2.79 2.79 3.15
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TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.79 2.99 2.80

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