3 more things the Govt could do to grow NZ Inc

The budget has made substantive progress in simplifying the gross distortions in the New Zealand tax system that have previously done nothing more than line the pockets of Tax Advisors and Property Investors. The dropping of the Company tax rate to 28% could also prove, in the long run, a major stimulus for economic growth – by encouraging companies to retain profits and invest in growth rather than pay dividends.

BUT, more can be done – at little net cost – to stimulate economic growth and in so doing grow jobs and wages for New Zealanders. My view is we need POSITIVE INCENTIVES FOR INVESTMENT IN YOUNG ENTREPRENEURIAL COMPANIES.  This is needed because there is very very little organised growth capital left in NZ:

1. Make investments in early stage companies tax deductible. The UK and parts of Europe allow deductions against income for investments made into early stage Companies. A framework such as this will attract more investors and money into the early stage investment sector driving innovation and growth. New Funds will emerge to take advantage of such a change and fill the gaping void we have in growth capital in this country.

2. Clarify the treatment of Capital Gains. Despite perceived opinion the tax treatment of Capital Gains in this country is not clear. A massive and highly subjective grey area exists between when an investment is taxable and when it is not – this presents a make work scheme for our best tax advisors and a lot of shadow boxing by fund managers. PIEs have ring fenced capital gains for investments in publicly listed shares but are of limited use for early stage investments – let’s make the rules clear and stop wasting money on tax advisors.  FYI, the going rate for the legal and tax advice for establishing an investment fund is north of $100,000 – it’s the current mess that drives this cost.

3. Beef-up the New Zealand Venture Investment Fund (NZVIF).  NZVIF has been a key enabler of the early stage growth capital market.  Institutional investors have walked away from the sector – they will come back in time but the sector needs to deliver results and exits are tough in the current market – but in the meantime the only place to raise money is wealthy individuals and NZVIF.  NZVIF has stalled and has no money left to allocate to the sector.  Wealthy individuals can only be tapped so many times – i’m in 4 funds now.  The sector and, in my view, the country needs the Govt to allocate more money.  It’s not a huge amount NZ$100 million would make a huge difference over the next couple of years.

There’s a bunch of other stuff that could be improved – fix the disastrous mess currently being concocted by the proposed Financial Advisors Act; and fix the the Securities Act.  Topics for another day…

Carpe Diem

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