Double taxation of offshore funds is pushing some of our most-coveted immigrants away. Photo / Getty Images
Double taxation of offshore funds is pushing some of our most-coveted immigrants away. Photo / Getty Images
OPINION
Lots of wealthy investor-immigrants or “golden visa” holders fall in love with New Zealand and want to live here fulltime. But the “dreaded FIF tax” on foreign investment funds often proves too much of a disincentive and many quit after three or four years. We’re missing out on the global shift to “taxpayer-in-nation” or “tin”.
In New Zealand and the rest of the developed world, we are about to enter unchartered demographic water.
Since the first industrial revolution, we’ve had a tailwind of consistent population growth bolstering our economy.
But New Zealand now has near-flat natural population growth. We added only a net 19,000 Kiwis from births and deaths last year. That means not enough new Kiwis are entering the workplace to care for our population’s health and welfare as we age.
When your population stops growing, the only way to afford more social programmes - or tax cuts - is either through productivity increases or immigration.
There has been much ink spilled about New Zealand’s anemic productivity growth, so I won’t dwell on that.
Immigration policy is much more pliable and immediate.
The lens of the past is that immigrants are bloody lucky if we let them into “God’s Own Country”. This attitude will be flipped on its head in the future when we need to compete harder for “top tier” immigrants to pick us over other places with the same demographic challenges.
But the problem with immigration as a growth lever is that we only have so many slots to apportion without stressing our ageing infrastructure.
Globally, the last decade was the age of the “golden visa” where immigrants could obtain residency with investment commitments. Most programmes offered the benefits of permanent residency but without the requirement to actually be a fulltime resident.
New Zealand is one of 40 countries around the world who offered such golden visas. Now, the United Kingdom, Ireland, Portugal, and a host of other countries are closing these programmes.
The investments gave a one-time “sugar rush” of dollars to ailing economies but did not lead to sustainable economic growth.
The main outcome was higher real estate prices as wealthy foreigners bought bolt holes. They were not really part of the community and the bulk of their valuable tax dollars were left offshore with the bulk of their money.
What foreign governments are realising is that the best type of immigration is not gold but tin.
“Tin” stands for “taxpayer in the nation”. Only if immigrants either work permanently in the country and/or are tax resident in the country can sustainable economic gains be captured.
There is no public data on how many of our golden visas resulted in tin outcomes.
All I have is the anecdotes of being an expat in New Zealand and mixing largely in expat and investor migrant circles.
Most investor migrants love New Zealand. They are not here out of cynical desire to use it as a holiday resort. Some come for a few years but then fall in love with it and want to stay. Others, travel back and forth between their original countries and New Zealand wishing they did not have to count days spent in the country.
The reason many cannot fully commit is not a lack of desire to be here. It’s because our country has the most irregular tax structure of any OECD nation and has done a poor job at constructing tax treaties with other countries.
The result is egregious double taxation which makes the already high cost of living in New Zealand untenable.
The upshot is that many return home after three or four years when they tire of dealing with the tax complexity or tire of constantly going back and forth.
The dreaded FIF tax
The worst IRD invention is the dreaded “FIF tax” (or foreign investment fund tax). This makes immigrants pay 1.7 per cent every year on the total stock market assets they have offshore.
It’s a wealth tax that is payable every single year on every single dollar of assets.
Due to the lack of thoughtfulness in the tax treaties our government crafted, there is no tax credit for paying it - which leads to double taxation.
Ex-Movac general partner Lovina McMurchy.
The irony is that in our effort to tax investor migrants, New Zealand misses out on the bulk of their tax dollars which continue to go to other nations.
My back-of-the-envelope calculations suggest that if they live here part-time rather than full-time, the average investor migrant likely has a tax load of between $7-10 million across a 10-year period, most of which other governments collect.
Immigration is more than ever a strategic growth tool.
We need to re-tool both our immigration strategy and our tax policy to move away from selling golden visas and into attracting actual taxpayers to our nation.
Lovina McMurchy (Ngāti Rongomai) is the chief operating officer for Wellington-based start-up Kry10. Based in Seattle, she was previously a general partner for Movac and held senior roles with Microsoft, Amazon and Starbucks in the US.
