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 24 2006

Q&As: All on government tax proposals

Question: You wrote last week, in connection with 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 NZ's output - are brighter than average." Perhaps so.

But I think employment is created not by employers, but by consumption. No consumers - no jobs.

Your engagement as a Herald writer is dependent not on a clever publisher and his editor, but solely upon your personal skills, and continuing readership. If we stop reading your attempts to educate us on such matters as the Government's fiscal policies, you won't be writing any more.

Every worker depends on the consumption of his output, so it is consumers who actually pay the labourers' hire. Everyone has some sort of skills, and if there is a demand for the output of those skilled folk, then, great... if there is no demand, then "hard cheese".

Consumption, Mary, consumption.......

Answer: I can't argue with the fact that we wouldn't have jobs if consumers didn't want what we produce, directly or indirectly.

However, workers have to be either self-employed or employed by someone who puts together people with different skills to produce goods and services for consumers.

Without good employers, there wouldn't be nearly as much to consume.

Question: Many immigrants, and potential immigrants, have already built up substantial funds in their native countries. Such people contribute much value to New Zealand in terms of both money and skills. However, they do not necessarily wish to bring all of their assets here.

Some will be deterred from coming because of the new proposals, and some who are here already will decide to leave.

Answer: Quite. And given that New Zealand tends to favour immigrants who are likely to start new businesses and employ others - as well as contribute to our diversity - it would be a great pity if we lose some because of the tax changes.

As another reader, an immigrant, says, "This could be what forces us to leave for Australia. New Zealand should not be so casual about its citizens when Australia beckons to have us taxpayers on their shores."

Question: Have you ever heard the expression, "Don't kill the goose that lays the golden egg"?

I and so many people I know are sick and tired of this communist government's policies that take from hard working New Zealanders and try and redistribute wealth. It has never worked in the past and never will.

All this government's policies will do is drive the small businesses, investors and hard working New Zealanders out of this country. We are already one of the highest taxed peoples in the world and with such a small population, what a burden for those of us who take the risks, start businesses or invest for our future.

Capital gains tax is an abomination. What incentive is there for anyone to save or invest for the future?

There are always those who will need help. But when this government is seen to give liberally to the Maoris with divide and rule policies, encourage criminals, terrorists, immigrants with questionable backgrounds into this country and when it cannot even manage basic infrastructure as health, education, law and order, roading, etc and seems incompetent in even keeping checks and measures in place, why should the rest of us be burdened with any more taxes?

Your comments about capital gains tax show a naivety and silliness beyond comprehension, unless of course you are also communist and do not see the writing on the wall. Small mum and dad investors need a break and it doesn't come from more tax. More tax burdens will only see the productive sector of this nation leaving in droves.

Answer: I can't wait to tell some of my lefty friends that I've been labelled communist!

My suggestion - that we introduce an inflation-adjusted tax on all capital gains when investments are sold for consumption - doesn't amount to more tax. I said it should be introduced only if there is a corresponding cut in income tax.

I doubt whether it would drive many productive New Zealanders offshore. Almost all other Western countries have a capital gains tax. And it seems to me that most people just want a fair and simple tax system that doesn't necessarily have to favour them.

I certainly feel confident that many would prefer that over the current government proposals, which are not fair or simple.

Are we among the highest taxed in the world? International tax comparisons get ridiculously complicated. Looking at income tax alone, different countries have different rates that take effect at different income levels. And allowable deductions vary widely. Then you have a huge range of sales taxes, local government levies, capital gains taxes and so on.

Still, accounting firm Staples Rodway has a go at it each year. It recently said our burden of income tax, rates and indirect taxes such as petrol, cigarette and alcohol taxes is higher than Australia's but lower than the UK's.

It added that the US burden is also lower, but New Zealand has a "more comprehensive social welfare system". And therein lies another difficulty in comparing countries - we need to look at what we get for our money. Clearly you don't much like what our current government gives. But even you might be disturbed by some of the stories of hardship in the US.

Speaking of the US, a while back the Business Herald ran some entries from American columnist John Dorfman's "tongue-halfway-in-cheek stock market dictionary".

Under capital gains tax he writes: "(1) The tax that is paid on the appreciation of an asset such as a stock between the time of purchase and the time of sale. For periods over one year, the tax in the US is generally 15 per cent.

"(2) According to Democrats, a scam allowing the wealthy to be taxed lightly on investment gains while coal miners and factory workers pay higher rates on the money they earn in the bowels of the earth or on the assembly line. (3) According to Republicans, a barbaric relic that impedes the flow of capital and retards economic growth."

It's not hard to guess who you would be voting for.

Question: So some correspondents want to get off this specific tax topic. Fair enough. Let's look at taxes generally.

The budget publication "Key Facts for Taxpayers" shows that 3 per cent of individual taxpayers pay 27 per cent of income tax.

I am among the 3 per cent helping cover pensions, Working for Families support and invalid and sickness benefits, to name but a few areas. When Dr Cullen (and his puppet, Dunne) do something that irks me, like this ridiculous tax on international share investment, it really does matter to everyone.

I am fortunate to have more money than others (and I worked hard to get it), but this also means that I do have a choice whether I continue to live in New Zealand. Those in the "getting by" category dependent upon government payments should, even more than me, be sending a very strong message to government that the proposed tax is wrong.

And, by the way, smaller investors in a KiwiSaver fund that invests in offshore shares will also be paying the tax. Why then would they bother investing in KiwiSaver? There are other alternatives with a better tax outcome.

This is another reason for smaller investors, not the wealthy, to tell the government to change the tax proposal.

Answer: An interesting argument. And a paper by ABN Amro Craigs analyst Cam Watson backs up your point about KiwiSaver. "By imposing a capital gains tax on global equities and no other asset class they have created a massive distortion which, in our view, could well undermine KiwiSaver," it reads.

"Prudent diversification will be a key pillar of any KiwiSaver portfolio, and every KiwiSaver portfolio should have an exposure to global shares.

"But it is difficult to include global shares, either held directly or via a managed fund, in a KiwiSaver portfolio when this asset class incurs a capital gains tax on 85 per cent of capital gains when no other asset class does. The danger is that investment advisers will recommend non-participation in KiwiSaver because of this issue and the initiative will fail as a result."

The paper also notes that, "The very rich have enough capital and income to be able to keep their global share investments overseas until they die, thus avoiding the capital gains tax when the funds are repatriated.

"However, ordinary New Zealanders who have worked all their lives to build a nest egg for their retirement and who have prudently invested overseas will be hit worst by these changes. These people need to draw on their capital over time and will thus incur capital gains tax when they do."

Question: The address you gave in your column for submissions re the proposed investment tax did not work (but I found another one).

Only 900 submissions received so far. Please encourage readers to submit their views before 7th July. This proposed tax has far-reaching effects on the country's future.

Answer: Hear, hear! I suspect you fell victim to the fact that the submission email address has a hyphen in it, and it has sometimes come out in the paper on two lines. Try sc-fe@parliament.govt.nz and it will get there.

Question: Thanks again for keeping the issue alive. Like many others I have made submissions to the select committee - six in total. I chose to focus each short submission on a different weakness of the proposals.

Many people have spent a decade or more building their portfolios and the proposal requires us to dismantle our efforts in months - insanity or stupidity, not sure which is worse. It is indeed an isolationist line of thought and one that wreaks of socio-economic bigotry.

The more attention this issue has received, the more people are realising the long-term impacts. Keep it up, the opposition is still gaining steam.

Answer: Six submissions. You are a champion!

* 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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