The impact on our sharemarket of the proposed CGT

Hamish Rutherford reports:

When it comes to unintended consequences, a capital gains tax will create a few.
Consider the impact of the Tax Working Group’s proposals on the local sharemarket, something dissident working group member Robin Oliver, the former deputy commissioner of Inland Revenue, has been warning about for days.
New Zealanders would only see a difference when they buy New Zealand shares.
There would be no change in tax when we buy foreign shares and the tax would not apply to foreigners buying and selling shares in our companies.

To get some idea of how bad the proposed CGT is, consider those two bolded details.

NZers and NZ companies (and KiwiSaver funds) will pay CGT on NZ shares but not on foreign shares. So what is that going to incentivise? NZers will buy fewer shares in NZ companies and more shares in overseas companies. And the big KiwiSaver funds could do the same. This could be a disaster for the local equity markets.

But now consider the fact that foreigners will not pay CGT on NZ shares. So what will that incentivise? Foreigners buying more NZ shares.

Combine the two together and the net result is that the proposed CGT will result in New Zealanders buying more foreign shares, and foreigners buying more NZ shares. I look forward to Winston campaigning on this achievement.

It may get even worse than that. If a NZ company ends up with most shareholders being foreign, it may delist off the NZX and instead go on say the Singapore Stock Exchange. And once that happens, corporate functions start to transfer overseas also. End result – fewer companies in NZ.