NZX boss can't wait for 2010

BY TIM HUNTER

As he tucks into his tacos on holiday in Mexico this Christmas, stock exchange boss Mark Weldon can reflect on a year that has gone rather well, considering.

On this date 12 months ago an article in the Dominion Post began: "It's the end of the NZX as we know it ...The global financial crisis is threatening to accelerate the demise of the country's corporate sector."

Economist Gareth Morgan gloomily compared New Zealand to Dunedin in the 1980s, when the city's commercial life was disembowelled by the closure of the local stock exchange. "The situation is potentially that dire," he said.

In February, Weldon headed a Jobs Summit in Auckland aiming to chase away the spectre of mass unemployment as the recession deepened. A week later, the benchmark NZX50 index sank to a sickening 2411 after a gut-churning 18-month drop from well over 4000.

"I think it's been a strong year actually," said Weldon last week. "We're ending it in a good place. There are a number of reasons for it, but I get a general sense of optimism out there and, as a company, a market and a country, I'm looking forward to 2010."

He's irrepressible, is Weldon. His latest effort is a contribution to this month's 124-page report from the Capital Markets Development Taskforce, of which he was one of 15 members.

From Weldon's point of view, the timing is excellent. In 2009 the stock exchange helped companies raise $6.2 billion of debt and equity capital – finance that helped them stave off disaster as banks and credit markets tightened up.

"We would have had quite a few meaningful corporate failures and job losses if the local equity and bond market wasn't here over the year," he said. "That's probably a good backdrop for the Capital Markets Taskforce report."

Its recommendations are a carefully crafted package involving tax, regulation, opportunities and education.

And with a business-friendly government and a shocked economy open to change, Weldon is optimistic that action will follow.

"2009 for the government has been a really strong year. I think people under-rate the importance of the tone that leadership sets, and I think [the government has] maintained a level of realism, but also a level of confidence.

"When you go to the UK or US there's just a completely different feeling, so I think they get some ticks for that."

With various working groups in place covering tax, infrastructure, electricity and capital markets, said Weldon, "what they've done is engage a mix of the public and private sector in a meaningful way that has not been done for a very long time".

(Actually the Capital Markets Taskforce was set up by the previous government, but let's not quibble.)

"So 2010 is the year to get some big things done, but they don't have to prove how brave they are and they don't have to be ideologically driven. I think you can do a heck of a lot in the tax system without beating your chest about it, for example."

Much of the taskforce's efforts in this area focus on trying to prevent skewing the tax system in favour of particular asset classes – housing being the favourite example – and encouraging productive investment. Weldon cites a few measures that could be readily achieved.

"I'd eliminate all depreciation on residential and commercial buildings, because depreciation is supposed to be on things that go down in value and actually those things go up. Having depreciation on a rental property is like having depreciation on shares, right? They're an asset that over time goes up, so it's a bit silly to do that just because it's a physical asset.

"So get rid of that. That's a good chunk of money.

"You would eliminate depreciation loading on plant and machinery. We've taken off R&D subsidies so it seems a bit odd to have subsidies for plant and machinery.

"Then I would introduce across all property a very low-level land tax – if the government valuation on your land is $200,000 and you put a 0.2% tax on it, then someone's going to have $400 a year tax to pay for the land."

Ask whether he feels the government is receptive to this prescription and Weldon talks about "direction of travel".

"You have to equalise or start to equalise the taxes that apply across all investment classes – that's stocks, bonds, cash and property – it doesn't get the primary house because that's a bit mixed. You've got to make it about the economic return, not the tax deduction, right?

"The second thing you absolutely need to do is broaden the tax base so you've got less fiscal volatility and more ability to plan as a country around [tax] receipts."

Reaction to these suggestions has been thoughtful rather than emotional and it's hard to escape comparing this latest think tank's effort with the report of the 2025 Taskforce.

The Don Brash-led 2025 group came up with a report advocating, among other things, a much-reduced state sector, and it received short shrift from the government.

Weldon, although outspoken, doesn't comment directly on the Brash report, but there is maybe a sideswipe.

"It's very important to recognise that, like the tax working group, the Capital Markets Taskforce started by asking questions, not by jumping to answers."

So if it takes some time to achieve, how long is too long?

"Two years is OK. Five years, it starts to be a bit challenging."

Which sounds like Weldon is aiming for a second term National-led government to do the job.

And with the NZX50 restored to a more healthy level of around 3140 as the year draws to a close, Weldon's main concern is now a cryptic message from his Mexican hotel that it has been illegally claimed by the Mexican government.

"And we've got no idea what that means."

MUCH-NEEDED MONEY

CAPITAL RAISED on NZX this year

New equity  $3.17 billion

New debt    $3.02 billion

Total          $6.19 billion

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