Fears investors would shun shares under Labour
Investors looking for a safe-haven from Labour's proposed capital gains tax would flood into KiwiSaver and away from the sharemarket, experts say.
With the election just three days away, several questions about the 15 per cent tax -one of Labour's key policy planks- remain unanswered.
Discussion has been dominated by housing and property, but those who invest in shares and managed funds are also likely to lose out.
Managed funds and non-trader investors do not currently pay tax on capital gains in most New Zealand and Australian companies.
While Labour's broad-based tax would change that, finance spokesman David Parker confirmed that KiwiSaver investment returns would be exempt.
"We're trying to encourage high levels of retirement savings in New Zealand. We think KiwiSaver is the way to do it," he said.
That implies two identical funds, one in KiwiSaver and one outside, would be taxed differently.
Parker said the details would be worked out later.
"The detail of the interface, with PIEs [portfolio investment entities] for example which aren't KiwiSaver accounts, and PIEs that are, will be worked out by the expert working group," he said.
Private Asset Management financial adviser Brent Sheather said he was worried that "Mr Parker and his mates haven't thought things through".
"There would be a huge influx of funds, of investment from mums and dads, into KiwiSaver to avoid tax," he said.
Sheather said the danger was that most would not take any formal advice on the decision, as a lack of commissions meant very few advisers offered KiwiSaver help.
"It would be a huge backwards step for the financial planning and advisory sector," he said.
Labour has promoted the policy as a way of moving people out of the non-productive housing market and into productive investment.
"I think we can be sure that as a consequence, you're not going to decrease the amount of investment in the stock market," said Parker.
Grant Williamson, director of stockbroker Hamilton Hindin Greene, disagreed.
"Potential investors looking at the equity market would possibly reconsider," he said.
���'Shares [would] have to produce even higher returns in order to beat bank deposits and such like."
Milford Asset Management executive director Brian Gaynor said a tax would also discourage people from selling their holdings, worsening the existing lack of liquidity in the market.
There had been little outcry from the investment community because it did not rate Labour's chances of forming the next Government, he said.
"If they were leading opinion polls it would be completely different."
Investors have been vocal in asking for clarity over the complex treatment of overseas shares, which already incur what is effectively a capital gains tax.
The New Zealand Shareholders Association, which represents over 1100 investors, has not heard back from Parker after writing to him for guidance.
"We're not concerned about minute detail," said chairman John Hawkins. "We did think there was a lack of some broad information that should be part of this discussion."
Parker confirmed there would definitely be no double taxation, but said the exact details would be worked through by the expert group.
Labour's policy has been around for three years.
"We will never be able to provide the level of detail that will be required in the eventual legislation in the policy, and even if we did, people wouldn't read it," said Parker.
"I'm comfortable we've got the balance right."