Forum Archive Index - February 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi DR,


>
> 
>Thanx Snoopy for not getting too upset.
>Actually there is IMHO a strong case for taxing at a "nominal 
>interest rate" such NZ based assets as bare land and pleasure craft 
>and second personal houses above some threshhold. You know - making 
>assets work etc. 
>
>

So someone living in Remuera in a $5m dollar house who rents the 
whole the Huka Lodge for their holidays should not be taxed on their 
home, whereas someone living in Oamaru in a $40,000 house should pay 
tax on their  $20,000 crib at Box Bay?   Where is the fairness in 
that?   And how does it provoke efficient utilisation of assets?

>
>
>It may be completely unworkable like the FIF regime, 
>
>

Why do you perpetuate that myth?   Granted the Inland Revenue 
department staff behind the desk do not seem to understand it.  But 
if you take the trouble to look at the paperwork it is a very simple 
idea:

Take the value of the asset (including interest/dividends received) 
at the end of the year.  Take from that the  value of the asset at 
the start of the year.  Calculate your *real*  gain and be taxed on 
that.

The FIF regieme may indeed be more complicated than taxing you on the 
benefits the government thinks you *should* be earning from your 
assets (which may bear no relation to tha actual benefit you receive 
from them).   And if you accept the Cullen proposal, not only are you 
accepting that the government should *dictate* the return you
make.  By implication Cullen is also telling you the risk you should 
take on your investment too.  It doesn't make sense that a retired 
person should be asked to take the same risk as a $200,000 per 
year 28 year old 'high flyer'.  The Comparative Value FIF regieme is 
neutral in all these matters, and, as such, much fairer.  

Having more accountants per head of population than any country 
in the western world we certainly have the brainpower on hand to make 
the FIF regieme work.

>
>
>
>but at least
>the asset would focus the mind of the owner to see if the desire to
>own it was justified. 
>
>

I can't disagree that using assets more productively is a good thing. 
 
But I wonder if the government taking a big stick to its citizens is 
the way to do it?   

If you are concerned that New Zealanders should be investing more and 
spending less, perhaps what is needed is some better core NZ 
investments to put money into?  There have been some awfully shonky 
stock market companies floated in NZ over the last few years.  Who 
can blame NZrs from being shy of the sharemarket?   Promoting 
property in Queensland with 'rent guarantees' paid for by 
overinflating the price of the asset is almost a criminal scam, yet 
is common here.  And as for investment advisors promoting managed 
funds on the basis of last years returns!  Any one who has studied 
investment will know that to investing in such a fund is a virtual 
guarantee of underperformance.   

Now consider a specific example weith this new legislation in place.
Consider the case of a New Zealander who invests in a foreign 
investment fund.   The value of the fund goes down, and there is no 
payout received during the year.  Yet the investor receives a huge 
tax bill from Cullen!  The knee jerk investor thinks to hell with 
this and sells out.   But in the long term this is the worst possible 
reaction.  The investor should be buying more while the price is low, 
yet the Cullen scheme will encourage him to do the exact opposite.  
The Cullen scheme is a disaster for future New Zealand investment 
being legislated to happen!

As an alternative, I think much better education of investors is 
needed so they can evaluate for themselves what is a good investment. 
  Until that happens New Zealanders will continue to enjoy their 
reputation as some of the world's worst investors.

> 
>
>Call me any rude name you like but NZ as a
>country has to get its assets employed better and the move of 
>capital into fewer hands in recent years has encouraged financial 
>SLOTH among some of the beneficiaries.
>
>

Doug Myers getting a $x00m payout from his holding in Lion Nathan, 
makes a beneficiary in Otautau slothful?   I think you are drawing a 
long bow. SNOOPY








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