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NZ Super Fund, govt cash cow, paid 60 times more tax than Fonterra last year

Tuesday 17th October 2017

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The New Zealand Superannuation Fund is one of the country's biggest taxpayers, representing nearly a tenth of the total corporate tax paid in the 2017 financial year. 

Set up in 2001 to help meet the country's future pension needs, "the fund has become a significant presence in the New Zealand capital markets and economy. In fact, the fund’s $1.2 billion tax bill for 2016/17 represented 9 percent of the total New Zealand corporate tax take," it said in its 2017 annual report. Pre-tax profit in the year was $6.2 billion, including a $5.57 billion gain on the value of its investment portfolio. 

By comparison, New Zealand's largest company Fonterra Cooperative Group recognised a tax expense of $20 million on a pre-tax profit of $765 million in the year to July 31. 

New Zealand's corporate tax take was $12.6 billion in the year to June 30 versus $11.05 billion in the prior year, according to the government's financial statements. 

The fund returned 20.7 percent after costs, before New Zealand tax in the year to June 30.  It finished the year at $35.37 billion before New Zealand tax, an increase of $5.27 billion.  

In the 2016 financial year, the Super Fund's total tax expense was $538 million, when it reported a pre-tax profit of $559 million including a $50 million loss on the fair value of the portfolio. 

Since its inception, it has paid $5.56 billion in tax to the government. "In effect, 37 percent of what the government has contributed to the fund, it has now received back in tax payments alone, ignoring net investment returns," the annual report said. The government contributed $14.9 billion between 2003 and 2009, when contributions were suspended. The resumption of contributions is currently forecast for the 2021 financial year. 

However, it noted that its income tax expense can be "highly volatile." The main driver is how the fund's physical global equities are taxed under the "Fair Dividend Rate" or FDR regime, it said. The regime taxes the assets at 5 percent of market value, rather than actual market moments.

In any given year, if the return on global equities exceeds 5 percent the tax rate will be lower than 28 percent. If the returns are less than 5 percent, the tax rate will be higher than 28 percent, it said. 

In the 2017 financial year, the fund had an effective tax rate of 21 percent compared to 96 percent in the year to June 2016.

(BusinessDesk)

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