National could extend grey list

A National-led government is unlikely to abolish the ‘grey list’ rules for offshore investments and may even extend it to other countries.

Thursday, September 1st 2005, 6:52AM

by Rob Hosking

Finance spokesman John Key says his party would continue the work, begun by Labour, on reforming how investments are taxed.

However he believes proposals to abolish the seven ‘grey list’ countries and subject investments in those seven countries to capital gains tax are counter-productive.

The seven grey list countries are Australia, the United States, the United Kingdom, Japan, Norway, Canada and Germany.

Finance Minister Michael Cullen has argued there is no particular logic to having those seven countries in a favoured position.

“It’s difficult to argue with that - I’m quite prepared to accept that it’s illogical to include Norway and exclude Singapore,” Key says.

“There is some structuring going on which means people structure their investments through grey list countries. That is probably an argument for extending the grey list.”

Key is not the first to argue for that – Russell Investment’s Australasian director of consulting practice Craig Ansley suggested after the May Budget that perhaps the grey list should be extended rather than abolished.

“I just don’t see the reason for the elimination of the grey list. There may be some more logic to extend the grey list to other countries. That’s something we would have to look at.”

Much of the criticisms of abolishing the grey list has focussed on its impact on the trans-Tasman situation, with policy moves to shift to a single economic market. Most offshore direct investments go into Australia – somewhere between 55-60% - and the changes will mean those investments will be subject to a capital gains tax.

“This is a retrograde step. New Zealanders are capital hungry and Australia is a deep market.”

However overall Key says he would continue the work aimed at reforming the present regime.

“We will continue a process to develop a regime which works better than the current complex FIF (foreign investment funds) regime. I’m quite open-minded on that.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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