The decision by the Securities Commission in late 1999 to allow UK-based managed funds to be sold to New Zealand investors and the flaccid government response is yet another example of how government actions followed by inaction can have a long-term detrimental macro-economic impact.
From an investor's perspective the tradeoff for UK-based funds is, on the positive:
- potentially superior returns via tax efficiency;
and, on the negative:
- new offerings will further confuse the wide diversity of funds on offer;
- none of the new funds adds to the general quality already on offer - UK-based asset management firms in recent years have been less successful than their US counterparts;
- investors and their advisers will not be able to access client information and resolve administration issues in normal work hours (e-commerce with UK fund managers is generally a long way off);
- advisers and their clients will not have the access to the same level of fund information and external fund research compared with New Zealand and Australian-based funds; and
- the funds will be designed and based on the needs of UK not New Zealand-based investors.
The advantages of UK-based funds are solely of a tax nature, historically an unreliable factor as tax law has a habit of changing, especially where the tax base is considered to be at risk.
The local fund managers association, the ISI, estimates up to $720 million in annual New Zealand tax revenues are at risk. Incredibly, the government and the bureaucracy have chosen not to seek to level the tax playing field.
In a recent presentation, Treasurer Michael Cullen indicated no related tax law changes were contemplated until a full review of the tax law and that would not happen until after the next election. While politically sound in the short term, this will expose New Zealand to the following negative trends:
- erosion of the tax base via lower fund taxes;
- capital flight as offshore investments are tax advantaged over local;
- reduced employment in a high-compensation, knowledge-based industry; and
- loss of domestic skills as fund managers relocate offshore.
Unlike many industries, the local funds management industry is not asking for a handout but to be able to compete on level terms with offshore groups. However, capital is mobile and the industry's actions reflect the preparedness to move decisively in the absence of an effective government response.
David van Schaardenburg is a director of IPAC, an investment strategy and funds management research company
Comments from our readers
No comments yet
Add your comment:
The year of investing dangerously
Terrorist attack intensifies the slowdown in industrial metals
Gulf War debunks theory of flight to gold during crises
'Three-tier' approach finds favour
Superannuation rears its controversial head again
Currency hedging is a prudent strategy
Futures and options - they're so very different
Derivatives return to favour as the market's volatility increases
Value makes a comeback and having no style's a winner