Kiwi Saver, Mary Holm financial writer and columnist

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Weekend Herald

Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.

NZ Herald June 17 2006

Q&As: All on government's tax proposals

Question: Can we get off the damn tax issue already!!!!

I used to enjoy your column, now I simply read the title, realise it's about that damn tax again, sigh, and turn the page.

What's that saying ... something about death and taxes ... would everyone just get over it and move on please!

Answer: Each week I think, "Next week we'll look at something different." But then, once again, I receive many more letters than usual, mostly about the tax proposals.

And it's not as if people are just complaining. There's an opportunity here to change what will be bad law if it's enacted. It's an issue we shouldn't ignore.

I'm sorry, though, if I'm boring you. Please keep at least glancing at this page. Other topics will return soon.

Question: I usually read your column, but I have to wonder at the arrogance of some of your readers. You have some writers saying the public should rise up against the government's tax proposals. Don't these people realise that the average worker could never hope to have the amount of money they have to invest?

As with your National MPs, they only mix with their own clique, and don't realise that the ordinary NZ worker isn't concerned about taxes on shares, and is quite happy to forego a $10 tax cut as long as the government keeps up the social services.

I also question the repeated brain drain bleat. I would like to know what they would contribute to the economy. I'm sure all farmers, shepherds and apple pickers aren't all intellectuals, but practical people who provide the major part of NZ's wealth.

I have retired, after working for over 40 years, and my wife and I live comfortably on the pension plus $20 a week from a term deposit. We withdraw half, and the rates, telephone, power, and car expenses are well covered by direct debit from the bank.

P.S. When was the last time you had tea with a caregiver on $11 an hour at an old people's home?

Answer: I don't think I ever have. I did, though, have lunch last week with a writer friend who probably lives on less than caregivers, and the week before I had a meal with a sickness beneficiary.

But before we go too far into my social diary, I guess your main point is that many New Zealanders won't be affected by the proposed tax changes. I can't argue with that. But that's no reason for those who are affected - or indeed others like the man last week who would gain from the changes but thinks they are wrong - to refrain from criticising the proposals.

I suspect, too, that many will be affected who don't yet realise it. See the next Q&A.

On the brain drain, I think you'll find that most people who do more at work than simply performing their own job - by creating jobs for others and boosting New Zealand's output - are brighter than average.

Question: Well done Mary with your coverage of the Grey List Bill. I have been reading you online as I am in London.

(I was the author of a substantial submission on GST, a great deal of which was accepted and incorporated in the final legislation.)

I really think the Opposition is asleep on this one. I wrote to John Key before you did and got the same pathetic reply that you did, word for word. This is a great opportunity for them to get their teeth into something and as usual they seem to be out to lunch!!

What wonderful ammunition Cullen has given them in your quote - he has admitted that this is an attack on high net worth individuals, the evil rich.

What a joke: as I said in my submission to the select committee, the very wealthy won't be affected, and very little tax will be collected, so goodness knows how that will benefit Dr Cullen's beloved lower paid.

My submission in short said it failed all the tests of a good tax measure: significant revenue collection; widely perceived to be fair; free of exemptions.

I was particularly scathing about the exemptions (one of which Key claims as victory!!!) pointing out the absurdity of exempting as two examples, a rich old lady who acquired her $50,000 of shares in the 60's and RTZ shares listed on the ASX but not on the London Exchange.

I also questioned whether any other OECD country had a tax on unrealised gains on mainstream investments. I gave an example of how an investment that was sold at a large loss (eg Enron) could have been subject to this stupid tax while it was increasing in value and the tax could not be recovered.

Answer: Well done to you, too, on your submission. Something tells me you wouldn't have been sitting quietly in the audience when Finance Minister Michael Cullen said in a speech this past week, "We have one of the developed world's simplest, fairest and lowest tax regimes."

I worry that Cullen's comments about rich people may have led many less wealthy people to think their taxes won't change.

Anyone who invests in an international index fund - to my mind one of the best long-term investments - will pay considerably higher tax, even if their investment is small. The $50,000 exemption doesn't apply to fund investments.

Question: Re the 2007 tax proposals, we are not 'sick' of the topic. Thank you for keeping it in your column. It is actually a more important issue than many realise for New Zealand moving forward.

Answer: I agree. There are all sorts of issues, such as what the rest of the world - including highly productive people thinking of moving here or returning here - thinks of a country that discourages international diversification, taxes just one sort of capital gains, and furthermore taxes them before they are realised. Unlike our previous correspondent, I do worry about the brain drain.

And that's to say nothing of the investment distortions that will arise if the proposals become law.

I'm gathering ideas from various clever people on ways around the changes. There doesn't seem much point in publishing them yet, as I'm optimistic the bill will be changed before it becomes law.

If it isn't, though, I have no doubt that many of us will be moving our savings around - to less optimal but more tax-effective investments. What a waste of time and money.

Question: I was recently roaming around the NZX (Stock Exchange) website and was literally gutted to discover the number of NZX companies that do not pay any dividends, especially those companies in the NZX Sci Tech index.

These companies provide a loophole for sophisticated, wealthy investors to avoid paying income tax on their investments by realising all their share returns as capital gains.

This is simply shocking and should not be tolerated. I urge all concerned taxpayers to write their MPs to express their complaint about this blatantly unfair tax advantage. Why hasn't anyone voiced their outrage about this before?

Answer: Okay, you can pull your tongue out of your cheek now!

The main reason hi-tech companies tend to pay no dividends, of course, is because they need to keep all their profits - if indeed they have any - to grow the company.

In any case, even if they did pay dividends, shareholders are likely not to have to pay tax on them because of imputation. It's highly unlikely that most shareholders in such companies are there for tax reasons.

Your point, I think, is that just because international shares tend to pay lower dividends than New Zealand shares, that
doesn't mean most people invest internationally for tax advantages either - contrary to what some politicians have been saying.

Certainly the main reason I have the bulk of my long-term savings in international shares is because of diversification - widely regarded as a major feature of wise investment. Read on.

Question: To follow up on the professor of finance's letter on diversification last week: The United States Government through the Internal Revenue Code (Section 817h) requires investment advisors to "adequately diversify" their clients' retirement portfolios to limit their exposure.

This appears per contra to Mr. Cullen's proposal. They both cannot be correct. Either the US Government is wrong or Dr. Cullen is wrong.

Answer: It's not just the US government. In New Zealand, under the Trustee Act, trustees are obliged to diversify trust investments. Significant damages have been awarded against trustees for lack of diversification.

Question: I applaud you comments and stance in your column. Not many are brave enough to propose a capital gains tax and your column has ignited the debate that is so badly needed. I enclose my submission to the Finance and Expenditure
Select Committee for your information.

Excerpt: This proposal is economic isolationism and is really laughable if the consequences were not so serious on the lives of our sons and daughters.

The problem has arisen when Mr. Cullen framed the original proposal specifically excluding the possibility of a capital gains tax. This is really like a math's teacher posing a problem to students and excluding the answer from a list of possible answers.

If Mr. Cullen so wants to exclude a capital gains tax from the range of possible solutions (for purely political reasons even though such a tax is the real answer to the massive distortions that have arisen right throughout all of the NZ economy) then he must necessarily be generous in making sure the remaining solutions do not further distort the NZ economy.

Answer: I like the maths teacher simile. Yours and many other submissions that I've seen raise so many issues - and often do it so well - it makes me feel proud to be a New Zealander.

The committee has got to take notice, not only of the points raised but of the sheer number of different points. If so many New Zealanders have so many concerns about the proposals, surely they must be radically changed.

* Mary Holm's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following her advice. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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