Major changes to tax and regulatory platforms needed to make plan work
It's not surprising Prime Minister John Key is itching to champion plans to form an Asia-Pacific financial services hub in New Zealand.
Key is sitting on a confidential report suggesting financial services could reasonably swiftly swell into a billion-dollar industry, producing annual tax revenues of $250 million and creating an additional 3000 to 5000 high-paying jobs.
There are also suggestions that a New Zealand centre could be a magnet for regional heavy-hitters which are rapidly expanding their investments in China, but don't want to place their financial services back offices in that country because of political risk factors.
Other factors such as New Zealand's position in the Asian time zone; its relative cost competitiveness with Tokyo and our settled political framework are all pluses in attracting business here.
But there is a high risk of failure if the hub "goes live" without major changes to tax and regulatory platforms in place, and, without a firm commitment already secured from some leading funds to situate their back offices here.
The upfront development cost of an estimated $10 million is probably "chump's change" in Key's book (a bit like his "about to be sold" uranium mining shares).
Cabinet colleagues Gerry Brownlee and Bill English are said to rate the hub a 50-50 call. It has yet to get the Cabinet green light.
But it is right up Key's alley and potentially of greater significance in attracting skilled young Kiwis back to New Zealand than his national cycleway.
The PM has seen first-hand how the Irish economy benefited when he put Merrill Lynch's back office into Dublin's hub. He knows it could be a winner.
He is also impatient and after a year of economic cheer-leading wants to put taunts that he is a "do nothing" Prime Minister behind him.
Key has had a commitment from Maarten Wevers, who runs the Department of Prime Minister and Cabinet, to stay on until after the 2011 election.
It is possible that he will then engage somebody with broader private sector experience to orchestrate a significant shift in the same manner that former NZ Post chief executive John Allen is undertaking at the Ministry of Foreign Affairs and Trade.
In the meantime, Key has plans to engage a"Craig Stobo-type person" in his office to drive the Asia-Pacific hub forward.
He has not spelt out whether it will be Stobo who gets to lead the group which will be tasked with developing an implementation plan. The group will include representatives from Treasury, IRD, and, the Ministry of Economic Development (MED). There are other possible candidates.
But it would be hard to imagine that after claiming credit for the hub idea in yesterday's Business Herald, Stobo would decline a prime ministerial invite.
Stobo, a fund management industry figure and entrepreneur, was quoted as saying a "relatively minor tax tweak" is the first step towards establishing NZ as a financial services hub for international managed funds.
In effect, ensuring non-resident holders of foreign assets are taxed at zero per cent.
As Stobo put it, the New Zealand Government had no interest in taxing Belgian dentists on their Japanese shares but there was an opportunity for New Zealand to "take a small slice of what's called administration or management fee income from servicing non-resident savers" if the investors used a New Zealand trust to hold the shares.
Key's political street cred is on the line. He shifted the financial services hub proposal on to the Government's work agenda in the first place when he asked the Capital Markets Taskforce to investigate the proposal and report directly back to him.
A taskforce sub-committee of some of New Zealand's smartest financial sector operators has undertaken considerable scoping work.
That group comprises: NZ Superannuation Fund chief executive Adrian Orr, who was a full member of the taskforce; Mark Fitz-Gerald, who is chief executive of Citibank New Zealand, and Tower Investments chief executive Sam Stubbs.
The Ministry of Economic Development's Bryan Chapple led the bureaucratic input. MED has assigned Peter Ryan to move it forward.
International Consultants Oliver Wyman undertook a feasibility study. International funds and trustees were sussed out.
There is considerable appetite to place financial services back-offices in New Zealand.
Australia's ham-fisted attempt to start a regional financial sector hub has ironically helped strengthen New Zealand's position.
But neither Key - nor the Capital Markets Taskforce - wants to overtly rub Prime Minister Kevin Rudd's nose in the mud in case they provoke an aggressive response.
One issue facing policymakers is whether to centre the financial services hub in Auckland, or spread operations out to other cities such as Wellington and Christchurch. In Dublin, some offshore professionals get a targeted tax rate to entice them to Ireland. This could prove politically unpalatable if followed here.
Key also sees an opportunity to grow the NZX by persuading some funds that join a financial services centre to list on our stock exchange.
The financial services hub has grabbed the imagination.
But plans are also being developed to expand others sectors including processed food, dairying, viticulture, horticulture, export education, high-tech manufacturing, the film industry and the mining, oil and gas arena.
So far, this has not been brought together in a clearly articulated "big bang" approach.
But various ministers will begin unveiling plans, starting with Commerce Minister Simon Powers' response to the broader Capital Markets taskforce report at the Beehive tomorrow.
The economic agenda has been dissed as incremental.
But as the Government's courage grows it will soon be tempted to ramp up expectations.
It should start with its own.
