Editorial: Taskforce's ideas deserve loud applause

Opinion

Two problems, in particular, haunt this country's capital markets. The first is the big losses, financially and in terms of confidence, suffered by many retail investors, dating from the 1987 sharemarket crash to, most recently, the collapse of some finance companies.

The second is the dearth of high-quality investment opportunities, which has prompted an unhealthy penchant for the housing market. Together, they have produced a situation that is dire but not irreversible.

Happily, the Capital Market Development Taskforce has suggested a path back that is both reasonable and realistic.

On the first issue, the taskforce places a welcome emphasis on simplifying and standardising product disclosure, so investors know more about what they are putting their money into. Some non-expert investors have undoubtedly been bamboozled by long and legally worded investment statements.

The taskforce goes so far as to suggest that where products are particularly risky, they could have a "warning label". Such protection can, however, go only so far. The return on offer usually carries its own commentary, and nothing will change some people's willingness to disregard the risk involved.

There can be no quibbling, however, with the taskforce's recommendation that the phrase "independent adviser" should be able to be used only by those who do not receive commissions from product providers. Too many investors in finance companies were unaware of the conflict of interest of those purporting to offer untainted advice.

Likewise, the Government should act on the call for tax changes designed to even the playing field for property and other investments, and acknowledge the pluses of consolidating regulatory functions into a new market conduct watchdog.

Tax changes would help to turn around New Zealanders' love affair with housing. Even more would be achieved if there were viable investment choices.

The full or partial float of utility companies, such as Vector, Contact Energy and Auckland Airport, illustrated that mum-and-dad investors are quite ready to forsake property, especially if shareholdings offer steady income and long-term returns. This underpins the taskforce's most worthwhile recommendation, that the Government should sell off minority stakes in state-owned enterprises.

It is far from a radical concept, having been well trodden in the likes of Britain, Australia and France. It should already have been more thoroughly embraced here.

As well as the benefit for investors, part-privatisation demands greater management discipline, transparency and customer focus. The stock exchange would also spark into life. Over the past few years, it has suffered from a wave of delistings as New Zealand began to resemble a branch office of Australia.

Too often, companies denied funding for expansion because of the parlous state of the country's capital markets have found themselves targets for acquisition.

The Government has, of course, promised no state asset sales in its first term. That unfortunate decision owed more to safety-first politics than the national interest.

A greater determination will be required if the taskforce's 18 months of work is to bear fruit. Hopefully, the Finance Minister signalled just that this week when he said the ground might move on the Government's asset-sales commitment if it was elected for a second term.

It should be remembered that the taskforce was established by the previous Government. Concerns about the state of the country's capital markets traverse the political spectrum. The taskforce's prescription should be widely applauded. Investors, the stock exchange, companies seeking funding for expansion and the national economy all stand to benefit hugely.