Budget 2005: Tax incentives potentially dangerous

“The decision not to disadvantage investors who use a professional fund manager recognises that professional advice is essential for minimising risk. A professional fund manager can help safeguard an investor’s money and ensures they have every opportunity to maximise returns.”

However, he said 2005 Budget incentives which encourage investors to keep their dollars in New Zealand are potentially dangerous – investments based on tax advantages are always going to be exposed to the whim of Government policymakers.

”An investment has to be able to stand on its own merits first.

“Tax laws change and benefits could be washed away overnight.”

“New Zealand represents only 0.3% of the world markets – investors should be encouraged to spread their risk to all markets, not just New Zealand.”

He said that while debate is healthy – fund managers will have a particular sector of interest – Northplan’s major concern is the potential for Kiwis to select investments which prioritise tax benefits first.

“History has shown that decisions based largely on tax based investments, such as forestry, tend to match individuals – particularly the elderly – with unsuitable high risk investments.

“An investor’s risk profile should be determined first, then matched with counter cyclical investments and then only the tax implications.”

One of New Zealand’s foremost economists, Donal Curtin, agreed that tax should not be the key driver for New Zealand investors.

“The downside of the new policy is that investing in New Zealand equities and investing in offshore assets will be treated differently for tax.

“This again raises the issue that the right investment decision for the investor risks being distorted by tax considerations. New Zealand equities – which make up only 0.3% of the global equity universe – will appear more attractive than the 99.7% of the rest of the world.

“It would be better if investors were able to make the best choices for their individual circumstances without this artificial distortion between one class of share and another,” Curtin said.

Following the 2005 Budget, Northplan and its team of economists and chartered accountants will be reviewing in detail the likely impact of the tax changes for investors.

This is a media release from Northplan Investments

Commenting is closed