Calls For Changes To NZ's Foreign Investment Regime Intensify

by Carla Johnson, Investors Offshore.com

30 May 2002

The announcement this week that the New Zealand government intends to exempt the crews of superyachts from paying income taxes while in the country, in order to take advantage of trade and income from participants in sailing events such as the America's Cup, has angered many of the country's tax experts given the government's inflexible stance on tax incentives to attract foreign investment.

Writing in the New Zealand Herald on Wednesday, Business Editor Jim Eagles bemoaned the fact that although Finance Minister, Dr Michael Cullen is prepared to change the tax laws for 'yachties', he seemingly refuses to do so for other foreigners whose presence might benefit the country even more.

Focusing in particular on two McLeod Tax Review suggestions - that individual tax liabilities should be capped at $1 million a year, and that a reduced tax rate should be introduced for new foreign direct investment in the country - the NZ Herald article suggests that although both recommendations have been rejected by the Finance Minister, revenue loss would be minimal, and the potential economic benefits for New Zealand's economy substantial.

Arguing that: 'A tax cap would encourage wealthy New Zealanders who go overseas for tax purposes to stay put, and would provide a powerful incentive for rich foreigners to settle here,' Mr Eagles mocks Dr Cullen's suggestion that such a measure would be 'inequitable':

'It's hard to see why it is equitable to change the rules to allow yacht crews to stay here tax-free but inequitable to change the rules to allow rich people to come here and pay $1 million a year in tax,' he observed.

With regard to the latter McLeod proposal, the article argues, a competitive tax rate for new foreign direct investment (FDI) might serve to reverse the decline in this area by encouraging overseas investors to look more favourably on projects based in New Zealand, despite the fact that the country's corporate taxation rate is one of the highest in the region.

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