The Shareholders' Association says it's "very concerned" the Labour Party's proposed capital gains tax (CGT) would hit returns on shareholdings held in KiwiSaver accounts, with young people the most disadvantaged.
Shareholders' Association chairman John Hawkins said the organisation was concerned about the potential impact of any introduction of Labour's proposed 15% CGT on shares held in KiwiSaver and other retirement schemes.
“As the proposal currently stands, the compounding effect of reduced investment income over 30 or 40 years could be significant," Hawkins said. "Young people in particular may be quite adversely disadvantaged over time.”
Hawkins said KiwiSaver and a variety of other retirement and superannuation schemes currently don't pay CGT on share trading on all NZ shares, and nor do they do so on most Australian listed equities.
A written response from Labour finance spokesman David Cunliffe to Hawkins says “in circumstances in which there would currently be no tax payable on capital gains, the 15% capital gains tax would tend to apply”. Hawkins maintains this is "very different to the impression that the CGT policy release conveys.” Labour has said KiwiSaver payouts will be exempt from the proposed CGT.
Because many KiwiSaver funds have a large share component due to the belief this gives the best returns over time, Hawkins said the impact would be felt through reduced income available to the New Zealand Superannuation scheme and possibly the Accident Compensation Corporation.
“It follows that any shortfall will have to be made up from taxation, borrowing or lower benefits” Hawkins said.
Furthermore, the CGT proposal also "lacks detail" on the overseas investment regime which applies to share investments in other parts of the world.
“Many KiwiSaver and other retirement funds could potentially be affected, but Mr Cunliffe was unable to provide any detail on this aspect,” said Hawkins.
"The Shareholders' Association sees the proposal to extend CGT to occasional share traders as a potential problem. Clear guidelines would be required as habitual investors already pay CGT at their marginal rate," Hawkins added.
"The Shareholders' Association believes many investors may reduce trading to come within the lower 15% CGT threshold and this would have the effect of stifling the free flow of capital into productive enterprises at a time when the country is crying out for investment."
But because individual shareholders had been subject to CGT for many years, the Shareholders Association was not speaking out of self interest.
"However, the consequences of Labours proposed CGT policy on investment and retirement schemes such as KiwiSaver needed to be debated." See a Double Shot interview on the CGT proposal with Cunliffe here.
Meanwhile, the Shareholders' Association also announced today that founding chairman, and Hawkins' predecessor Bruce Sheppard, had resigned from its board. Sheppard was on the Financial Markets Authority (FMA) Establishment Board and is now an associate FMA board member. The Shareholders' Association will bestow the honorary title of "founder" on Sheppard. See more here.