The final death knell for the New Zealand Stock Market

David McEwen

Tuesday 6th December 2011 2 Comments

The final death knell for the New Zealand Stock Market could come next year if a radical proposal is adopted in Australia that would see most companies pay no tax.

The Treasurer, Wayne Swan, is said to have set up a nine-person working group to consider a proposal known as “Allowance for Corporate Equity”.

This would mean no tax would be levied to the portion of corporate profits necessary to get a ‘reasonable’ (but so far undefined) return on equity.

Most companies – especially manufacturers – are likely to fail to meet that hurdle and therefore would pay no corporate tax.

Banks and mining companies make a much greater return on equity and so would be liable for a ‘super tax’ on the excess portion of their earnings.

If a company with a lowish return on equity could pay no tax in Australia, then they would be duty bound to move over there.

The NZX finds it hard enough to persuade companies to come on to the market and stay there and a wholesale flight across could the Tasman could be very damaging.

Potentially, the New Zealand government would have to match the Australian plan to avoid an exodus but we will have to wait and see.

The tax change may not be implemented in Australia but there appears to be widespread support for it, including from the unions.

Also, by putting the tax burden on the banks and resource companies, which can’t move offshore, the Australian government makes it less likely that more nimble companies would do just that.

Comments from our readers

On 6 December 2011 at 7:46 pm Allan said:

Yet another reason to face the inevitable and for NZ to become a state of Australia. The bright side would be we also get a cricket team that can actually play

On 7 December 2011 at 1:46 pm John R said:

Australia's so called carbon tax which is just another tax...not a real carbon tax...taxes australia's profit centres further on top of corp tax at 30% and the coal and iron ore producers with the MRT to take effective tax to ^42% for those coys...and simply uses the proceeds to reduce the tax threshold...i.e. a tax reduction...to compensate australians for the increase in costs arising from the carbon tax and thereby removing any incentive whatsoever by individuals to reduce their carbon emmission...and where the proceeds are not to be used at all for investment in greenhouse emmission reducing technology is very amusing if you are not an australian...and now here is another effective discriminatory tax which has nothing to do with the level playing field and the same exposure to all...note the QAN strike and that coys intentions to put its business offshore in KL or SNG...cannot see how this proposal will change any of that..australia is already at long way down the european path...europe is in the brown stuff today because it became uncompetitive with its costs...australia but for the resource sector is now in the same place....esssentially you have basically a commo govt trying to manipulate everything to do what they want....this proposal is an extension of the MRT in effect...that cost labour its leader and the last election....slow learners....and who is going to pay for increased taxation on the banks!!! business and consumers....and net effect...further increase in australia's now already uncompetitive cost base....coy taxation in thailand likely to reduce from ^30% to 20-23%; Hong Kong long time now at 12-15%; SGD now at 18%. All that aside that is not the problem for the NZX. NZ's problem is that, like Australia, it now has an uncompetitive cost base.....and does not seem to realise that....and is not dealing with it....serious austerity over a long period will begin to grind that down and out...but no signs of that also...and where any investment in real coys outside of NZ/Aust is taxed at a punitive rate on unrealised gains...thereby keeping funds invested for discriminatory tax reasons that w ould otherwise be otherwise allocated outside of Australia and NZ....and which thereby removes the sharp edge that should otherwise exist for local coys to get competitive...and for fund managers in both countries to remain lazy, incompetent bastards that take also uncompetitive fees for not doing real work! Bottom line...the NZX50 went up only 2% last week versus ^7% for ASX200 and versus over 10% for the US and Euro stoxx 600!! Problem for kiwis is that they are only looking to australia and using that as a benchmark when that benchmark has been now for a long time an unrealistic one....you still do not see kiwis here in Asia...or in Europe other than the UK...Cost plus prevails...with higher taxation to support non-contributory social policy madness out of the last century instead of taking the axe to that stuff....Kiwis seem to have no idea at all of where Europe has gone and now has to go to get out of it...or of the already significant austerity involved....where is that dose of reality for NZ!! At least another credit downgrade yet.... Forgot to add...show me the reason you would have been working the ASX over the past 18 mths....only serious returns have been limited and then only on the short side! The main index still just above 4000....the S&P500 is up ^ 1250+ from a base of 1119 ^ end September!!!!!!!!!!! The carbon tax so called in Aust will raise a further 500bln in tax!!!!!!! that is in a 1.2 Trln economy....!!!! Why wasted your effort or breath with all of this...just go to Asia and Nth America with selective investment in Europe...and leave australia one day to wake up to the very deep hole they have dug for themselves and where NZ has been stupid enough to hook their sense of reality to that stupidity and madness!!!