KEY POINTS:
Changes in the way investments are taxed, introduced from today, are seen as paving the way for a renaissance in the managed funds industry.
The new rules, which include the establishment of portfolio investment entities (PIEs), were introduced by the Government as a long overdue reform.
Finance Minister Michael Cullen and Revenue Minister Peter Dunne said the move put the tax treatment of different types of share investment on an equal footing, introducing greater fairness and reducing distortions in investment decisions.
Ironically, though, a Labour-led Government has introduced a scheme that means a tax break for wealthy investors, whilst most wage and salary earners got nothing in terms of tax relief.
But the managed funds industry is all smiles.
AMP Financial Services general manager product Roger Perry predicts the changes will lead to a burgeoning of the managed investments industry, following a period of stagnation.
Arcus Investment Management chief investment officer Peter Verhaart said the industry was in for a "huge" change.
The new tax rules for PIEs are integral to the Government's KiwiSaver initiative as they remove a number of tax disincentives to saving through managed funds.
From today, investors in savings vehicles that choose to become PIEs and whose personal tax rates are 33 per cent or 39 per cent will have their PIE earnings taxed at 33 per cent.
Investors whose non-PIE income is less than $38,000, and whose total income, including PIE income, is less than $60,000 will be on a 19.5 per cent tax rate.
PIEs will also not be taxed on capital gains from New Zealand and most listed Australian share investments, as has been the case for managed funds.
Dr Cullen said the rules being replaced overtax some investors, and favoured direct investment by individuals over investment through funds.
Both AMP's Mr Perry and Arcus' Mr Verhaart suggested that, in time, the new regime would encourage New Zealanders to move away from the current heavy reliance on residential property investment.
Mr Perry said money would be more available for the sharemarket than it had been in the past, benefiting companies looking for capital as well as the exchange itself.
"And it will just shift the balance away, over a period of time from property. And a lot of our property investment is non-productive for the economy," Mr Perry said.
"That is going to be a good thing for the New Zealand economy and New Zealand business."
While Kiwisaver was getting most of the attention, the new tax rules may be the larger and more fundamental change.
Kiwisaver needed the tax changes, while those changes would have impacts elsewhere in the economy, he said.
"From an investor's perspective, after October 1 there are some big opportunities to restructure where you've got your money to best advantage."
Until now, managed funds had been at a disadvantage. As a result the amount of money invested in New Zealand managed investment vehicles this decade, other than the Government's New Zealand Superannuation Fund, was "pretty static", Mr Perry said.
By comparison, in Australia managed investments were the fastest growing investment class.
"Now we're going to see the managed investments industry, perhaps slowly at first but then very, very quickly really burgeon with PIE investment structures," he said.
"The nutshell is, we're going to see managed funds really take off in this country."
Mr Verhaart said the tax disadvantage managed funds had been under compared to the do-it-yourself approach were gone.
"And within managed funds, it's absolutely okay once again to be a trader of equities," he said.
"We firmly believe that households can actually change the focus of where they're placing their investment money, looking for capital appreciation and keeping down that tax bill."
People could move away from "the residential housing investments that you're seeing at the moment, or even buying shares and sticking them in their bottom drawers, to actually moving more into managed funds again, as is the case in the rest of the world".
- NZPA
