2 October 2006
TOWER Investments: Tax changes could affect KiwiSaver
With more changes to the Government's proposal on the taxation of investment income, TOWER Investments says that it is
important that critics don't lose sight of its main goal, to encourage a long-term savings habit and asset accumulation
among New Zealanders and remove tax considerations from the investment decision. The proposed legislation was created to
provide a level playing field for investors, something that TOWER Investments CEO Tony Hildyard says is "for all the
right reasons".
Recent amendments to the proposed legislation have sparked some debate in the industry. There is a feeling that these
changes will have serious implications for the industry and may not work with existing legislation.
Mr Hildyard said that while TOWER Investments supported the changes in the main, he agreed that there were several areas
that would need to be addressed.
"Since the tax bill was introduced back in May, TOWER has supported what it's trying to do. If it's implemented in the
right way, I think it will deliver on its promise of fairer tax regime for all New Zealand investors," Mr Hildyard said.
Mr Hildyard said that the latest amendments regarding offshore investments had changed the proposed legislation
significantly, by reintroducing different tax treatments for those who invested through managed funds compared with
those who invested directly.
These amendments would see managed funds paying taxes under a "fair dividend rate" based on 5% of the opening rate
value, whether or not the investment made a profit, while direct investors would pay a maximum of 5% but only to the
extent that the investment was profitable. Mr Hildyard believes this aspect restores a tax-created disparity between
managed funds and direct investors, may disadvantage managed-fund investors, and could compromise the objectives of the
Government's work-based savings scheme, KiwiSaver (which starts on 1 July 2007). TOWER also believes that the 5% rate is
too high and will have other unintended consequences if it is not addressed.
"KiwiSaver is a great initiative for New Zealanders and it does require a change to way most people think. It's an
education process and the prospects for the KiwiSaver scheme were significantly enhanced by the Government's recent
announcement of a tax break for employer contributions. However, this enhancement could be overshadowed if KiwiSaver
investors consider they are disadvantaged compared with direct investment,” Mr Hildyard said. “There are two issues here
- we want KiwiSaver to get off to the best start possible, and we don't want to see an industry where people choose
investments solely on the basis of tax."
Mr Hildyard said that KiwiSaver was an important initiative for the country, and that some more clarity was needed.
People need to see it is "fair", if it is to be embraced by the New Zealand public.
"In short, KiwiSaver is a managed fund, and as such it should provide investors with all the benefits that managed funds
offer (diversification, scale, regulatory protection, professional management) without having to jump an additional tax
hurdle compared with direct investment.
"KiwiSaver's success really does depend on that 'level playing field' we've been talking about. Our main concern is that
if the legislation did go through in its current state, we still wouldn't have solved the problem of inequity in the
industry. These are important issues that we believe need further consideration at a Select Committee level to ensure
the best long-term outcome for New Zealanders."
ENDS