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NZX, NZ Institute seek tax breaks in response to credit crisis

Friday 10th October 2008

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New Zealand's political parties to step out of election campaigning mode and agree on a broader response to the global financial crisis, including tax breaks and compulsory pension savings.

In a report titled: 'Economy of the Edge: Swan Diver or Belly Flop,' the stock exchange manager and think tank the New Zealand Institute propose the deferral of provisional tax payments for at least two years and a 100% tax depreciation on capital investments for the same period.

They also suggest tax breaks for overseas companies and expats to lure them to New Zealand and a state-owned investment company akin to Singapore's Temasek to finance investments. Longer term, KiwiSaver payments would become compulsory and the government would eliminate tax rules that encourage speculative property investments.

"New Zealand is facing one of the biggest economic challenges in several decades and this demands an immediate, proportionate response by political leaders," said David Skilling, the institute's chief executive. "What we have seen to date is not close to enough."

International Monetary Fund director Dominique Strauss-Kahn told reporters in Washington yesterday that the world is "on the cusp of a global recession." Concerted interest rate cuts by central banks in Asia, Europe and the U.S. haven't been enough to arrest a slump in global equities.

The Dow Jones Industrial Average sank below 9000 points for the first time in five years after a ban was lifted on short selling of 969 financial related stocks and amid concern the credit crisis will engulf more companies. General Motors slumped 31%.

The 18-page report identifies a 40% decline in the NASDAQ market in the past 12 months as a key indicator that the U.S. faces a prolonged recession because it is dominated by companies that provide technology to corporates, who may be curbing business investment.

New Zealand faces a twin impact from the crisis, according to the report. A global economic downturn will sap demand for the nation's dairy, meat and forestry exports. At the same time, the freeze in credit markets means imported foreign capital will be more difficult to access, even for well-run companies, it said.

"This places the New Zealand economy at real risk," it said.
PGG Wrightson last week failed to settle on its NZ$220 million acquisition of a half stake in Silver Fern Farms after some of its banks were unable to provide fund lines.

"New Zealand is one of the most exposed countries to changes in the credit market," the report said. "Access to abundant foreign credit has propelled the economy along over much of the past decade. But no more. We now have to rely on fundamentals," it said.

To view the full report, click on: http://www.nzx.com/asset/Fulldocument101008.pdf

By Jonathan Underhill



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