Bad tax laws harmful

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CHANGES NEEDED: New Zealand's capital markets are beleaguered by bad tax laws and suspicious investors, a government-appointed task force says.

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New Zealand's capital markets are beleaguered by bad tax laws, suspicious investors, indifference from companies and poor advice and research, a government-appointed task force says.

The Capital Market Development Taskforce's progress report outlined shortcomings in investment markets, which was welcomed by Commerce Minister Simon Power.

The task force, set up under the former Labour government will make its final recommendations in December but it outlined areas it would target in its latest report.

The report said markets suffered from a lack of involvement by large corporates, including crown-owned enterprises, and said with such a large primary economy, the country should have a strong commodity-based derivatives market.

The relative generosity of superannuation had reduced the need for New Zealanders to look at separate retirement savings, and there was widespread suspicion of the capital markets among potential retail "mum and dad" investors.

The report compared the large number of central and local government-owned utilities with international norms.

"In many countries these would be privately owned or have some listed equity."

A lack of large, domestic companies also limited opportunities for investors, it said.

Unsurprisingly, the financial advice market came in for a scathing review, mainly targeting poor regulation and incentives to enhance investor outcomes.

Analysts were criticised too, with not enough market research cited as a weakness.

"No analyst research is available for 42 per cent of companies listed on the NZX, and a further 13 per cent have only one or two analysts covering them," the report said.

The December report would focus on improving investor outcomes, reducing costs for companies issuing securities, enhancing tax law, and rethinking how the Government interacted with the markets.

Power said some recommendations contained in the task force's November interim report were subsequently implemented, and the latest report was in line with his priorities.

"I am very encouraged by the direction the task force is taking. It is clearly focused on identifying steps that will help deepen New Zealand's capital markets at a time when companies are struggling to access capital."

MARKET ISSUES: Lack of participation by companies and investors. Suspicion by ill-informed investors. Lack of talent, funding and history in private equity. No derivatives market.
Tax: barriers to investment, and bias towards housing. Large and small companies ignore capital markets. Poor advice available for investors. Inadequate professional analysis of companies.
SOURCE: CAPITAL MARKETS DEVELOPMENT TASKFORCE

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