NZ grass may be looking green for tax-weary Brits
MANY Brits, about to be hit with massive tax hikes in capital gains and related taxes, must be looking enviously at New Zealand. For many individuals and companies, a series of tax liberalisation moves has made us one of the more attractive places in the world to live, work and invest.
The new British coalition government, struggling with a huge budget deficit, is planning to lift capital gains taxes on second homes, shares and other non-business costs from 18 per cent to closer to 40 per cent to 50 per cent to match their income tax rates. These proposals, part of the coalition agreement with the Lib Dems to fund income tax cuts for the low paid, has led to a storm of protest from many Tory backbenchers.
Inevitably, the proposal has led investors to seek ways to avoid the tax. The only apparent loopholes are sovereigns minted since 1837, and Britannia coins, because in Britain gold and silver coins are exempt from capital gains as they are considered legal tender. Since the proposal was unveiled, sales and values of these coins have soared.
It is inevitable that a string of punitive new taxes being cooked up by debt-ridden Britain and other European governments will encourage better-off people to consider emigrating here to enjoy one of the world’s most benevolent tax regimes.
New Zealand abolished estate and death duties in 1992: in Britain these can be a massive impost on families after a bereavement, especially those who have failed to hide their money in tax-free havens like the Channel Islands or set up trusts.
Most Kiwis do not need to worry about capital gains taxes on property, land, shares and the like.
Investors get fully imputed dividends on their shares in taxpaying companies, ending the anomaly where earnings were taxed twice. The Budget further encouraged savings by cutting the top tax rate for most portfolio investment entities (PIEs) and other savings vehicles from 30 per cent to 28 per cent.
Even with the lift in GST to 15 per cent, it will still be lower than VAT, sales, state and other taxes imposed on purchases in many other parts of the world. Britain has put its VAT rate back to 17.5 per cent.
The Budget, in a bid to encourage saving and stimulate economic growth, is cutting the top tax rate from 38 per cent to 33 per cent, and the company tax rate to 28 per cent. These are lower than most other countries.
The decision to cut the company tax rate was designed to make us a more attractive place to operate a business than Australia, and hopefully to stop companies relocating there. However, tax is only one business cost. There are many other considerations, such as closeness to markets, population density – and selfish ones like the desired lifestyles of directors and senior executives.
Some Australian state governments offer inducements to encourage industry to move there. Wages are significantly higher across the Tasman; but unions can be tougher; Canberra has delayed imposing an emissions trading scheme which is to come into force here. While we pay ACC levies, compulsory insurance charges across the Tasman can be higher; there are numerous differences in write-offs, payroll and depreciation rules; and Australian employers will soon have to pay compulsory insurance charges of 12 per cent, compared with two per cent here. While the Budget announcement of the cut in the company tax rate to 28 per cent grabbed the headlines, the government’s own estimates are that firms here will pay overall more tax through new rates for depreciation on commercial buildings, accelerated depreciation on equipment and tougher rules for local subsidiaries of foreign companies.
While the average company may find it cheaper to operate here than in Australia, companies will know these cuts may not remain low. The Labour opposition likes high taxes. Labour Finance Minister Michael Cullen persisted with a top 38 per cent personal tax rate, even though inflation put growing numbers of people in this bracket and saw many get Working for Families tax relief.
While tax changes in the Budget will not greatly help low income workers or even many better off whose wage packets are taxed at source, the picture is likely to be much more positive for self employed and middle and higher income people with investment income. Some may already be considering setting up companies to enjoy a tax rate of 28 per cent: the same people who earlier put their assets in trusts to pay tax at 33 per cent rather than 38 per cent. The more benevolent tax regime here, in contrast to soaring rates overseas, will have been noticed by wealthier people looking for a more benign environment in which to live and invest.
However, there remains one major handicap. In opposition, the National party strongly criticised Labour’s decision in April 2007 to implement a foreign investment regime.
This controversial and complex regime taxes dividend and other income from Britain and other countries, apart from on most Australian shares. The Budget failed to tackle this, though it is understood officials are studying ways to remove it. In the meantime it must be a disincentive to wealthy people coming here.
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