Forum Archive Index - February 2002

["Malcolm Cameron" <malharcameron@hotmail.com>]

Snoopy
one sure way use the Zimbabwean Method
Malcolm


>From: "tennyson@caverock.net.nz" <tennyson@caverock.net.nz>
>Reply-To: sharechat@sharechat.co.nz
>To: sharechat@sharechat.co.nz
>Subject: [sharechat] Cullen to Introduce Wealth Tax - Confirmed
>Date: Fri, 22 Feb 2002 18:34:41 +0000
>
>
>
>Larry asked for comments on Cullen's speech today.  I
>think the headline for this post more or less sums it up.
>
> >
> >-Cullen
> >
> >The Review's preferred solution is that investment in
> >listed shares and securities be taxed at a standard
> >risk-free rate of return, no matter the country of
> >investment.
> >
> >I am interested in this idea because it has the
> >potential to make the relevant tax rules simpler, fairer
> >and more effective. I hope to be in a position to set
> >out in some detail the likely direction the government
> >will take on these issues in the upcoming budget.
> >
> >
>
>Now if you go to the treasury website you get a more
>detailed run down on this
>
>http://www.treasury.govt.nz/taxreview2001/finalreport/ove
>rview3.html
>
>And a break down of the Risk Free Return Method (RFRM)
>formula
>
>
>Net asset value at the start of the year
>                   x
>Statutory risk-free real rate of return
>                   x
>         The investor's tax rate
>
>
>I can't see any other way of interpreting what Cullen is
>saying except to say he is introducing a wealth tax.  It
>is possible that this sort of tax will not make much
>difference to funds management companies.  They have a
>broad spread of funds which means that returns will
>converge towards the 'notional rate'.  They also have
>sufficient size to be able to liquidate their positions
>for tax purposes with relative ease.
>
>For the small investor however, this RFRM will be a
>disaster for any overseas investments they hold, and here
>is why.
>
>Many overseas companies have very low, sometimes zero
>dividend yields.  Under the above scheme they will have
>to pay tax at a 'notional rate' highly likely to be above
>any cash income they receive.  So in order to pay their
>tax, small investors will have to sell down part of their
>investment each year.  For most investors this will be
>impossible as the minimum marketable parcel requirements
>overseas are much larger than New Zealand.
>
>A second problem is that shares do not always go up in
>value, often they go down.   Under this scheme, share
>investors will be required to pay money on their past
>wealth, based on a notional return they might have
>earned, even if their shares have subsequently crashed in
>value.  In other words it is possible for shareholders to
>left with a large tax bill with no assets to sell with
>which to pay it.   Those 80% of 'day traders' who end up
>not making money please take note!
>
>A third problem for this method is that it would become
>impossible to calculate one's tax, as the tax rate
>becomes an implicit, not an explicit variable.  For those
>that are a bit rusty on the maths this means:
>
>Old Situation:
>
>1/ Calculate Income
>2/ Determine Tax Rate
>
>New Situation
>
>1/ Calculate Wealth
>2/ use Wealth to work out notional income
>3/ Determine Tax Rate on notional income
>4/ Check reduction in Wealth
>5/ Use Wealth to work out notional income
>6/ Determine Tax Rate on notional income
>7/ etc. etc.
>
>In other words it will be impossible to calculate your
>wealth or your tax rate in any simple way, as an increase
>in one means an increase in the other and vica versa.
>Did someone say 'simpler'?
>
>A fourth problem is that overseas wealth is highly
>subject to exchange rate fluctuation, which is
>particularly relevant to a small country currency such as
>ours.   This means, for instance that you could
>prepurchase a holiday overseas and find yourself with a
>massive tax bill because the NZ currency suddenly
>depreciates.  Of course the costs in the country you were
>planning to visit have not gone down, so any increase in
>'wealth' which you are being taxed on, is illusory.
>
>To summarize, this coming tax law change assumes that any
>notional increase in wealth, (which bears no connection
>to any actual increase in wealth remember) will be
>accompanied by an accompanying ability to pay it.  This
>is so obviously false, that I find it astonishing that
>any principle so basically flawed could ever make it past
>the discussion stage let alone rearing its ugly head in
>the upcoming budget.  Can anything be done to stop this?
>
>SNOOPY
>
>
>
>
>
>
>
>
>
>
>---------------------------------
>Message sent by Snoopy
>e-mail  tennyson@caverock.net.nz
>on Pegasus Mail version 2.55
>----------------------------------
>"Dogs have big tongues, so you can bet they don't
>bite them by accident"
>
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M H & M M Cameron
55 Czarnecki Street
Camira 4300
Brisbane
Queensland
07 3389 0515


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