Media Statement: Changes needed to make New Zealand the place where talent wants to live, says report
25 July 2024In what is being called a silent epidemic, New Zealand is inadvertently discouraging expat Kiwis, as well as high-contributing and investment-ready migrants from staying here, a new report by the New Zealand Institute of Economic Research (NZIER) shows.
The report, called The place where talent does not want to live, has been commissioned and supported by the Auckland Chamber of Commerce, the American Chamber of Commerce, the NZUS Council, the Edmund Hillary Fellowship, as well as key individuals, to shine a light on how New Zealand’s international tax requirements are actively working against our migrant attraction policies and programmes – as well as discouraging Kiwis with much needed skills from coming home.
Under New Zealand’s current international tax rules, some expat Kiwis returning to New Zealand as well as other migrants are taxed by New Zealand on the investments they made before coming here. The rules impose New Zealand tax on the paper value of those investments, even if they are still in start-up phase and not making any income.
The regime, called the Foreign Investment Fund ("FIF") rules, is out of step with the rest of the OECD and does not match New Zealand’s aspirations (and need) to attract and retain global talent and investment.
Simon Bridges from the Auckland Chamber of Commerce says:
“Immigration and tax are two of the most powerful policy levers available to influence the economic and social progress of a nation. New Zealand has the ability to attract the world’s brightest – we already have evidence of that. But we are shooting ourselves in the foot. The fact that our current international tax regime is working against our immigration settings means we are not getting the full return on investment from all our attraction programmes – and most importantly we are not retaining their skills, talent, investment and innovation.”
Rob Coneybeer, a Managing Director and Founder of US-based early-stage venture capital firm Shasta and himself a migrant, says he hates to see New Zealand hold itself back.
“A robust startup tech ecosystem has been the key driver for economic growth in the US and China, and it can do the same for New Zealand. It is the cleanest industry imaginable, and the fact that New Zealand is an amazing place to live represents an enormous untapped advantage for recruiting top tech talent. But that doesn't work if the New Zealand tax system is discouraging people from staying.”
Peter Wilson from NZIER says the part of the tax system causing issues was designed 40 years ago to protect the domestic tax base from exploitation through the use of tax havens and removing tax-driven incentives to invest offshore rather than at home.
Jonathan Mason from the NZUS Council and the American Chamber of Commerce said:
“While that policy was right for the time, it is no longer fit for purpose in a more globalised world, where there is fierce and increasing competition to woo talent. It is holding us back as a nation. We are calling for a review of NZ’s international tax requirements to pull them into line with other jurisdictions and make New Zealand the place where talent chooses to live.”
A recent IMF report has also noted that NZ would benefit from a more efficient, equitable, and sustainable tax system. New Zealand already has one of the most efficient goods and services tax systems globally. However, tax policy reforms are needed to promote investment and productivity, and mobilise additional revenue.
Rosalie Nelson, Chief Executive of the Edmund Hillary Fellowship, which consists of 500+ New Zealand and international entrepreneurs, says a significant issue for Fellows is the severe negative consequences of the current FIF regime.
“It creates an insurmountable unfair burden for the most talented Kiwis to return to New Zealand, as well as for first-time talented migrants who are adding huge value to this country. An obscure bit of taxation law is preventing the type of high contributing, investment-ready immigrants this country says it wants to attract from relocating to New Zealand – and this new report provides the evidence as to why aligning immigration and tax policy will benefit all of New Zealand.”
For media queries contact: Kelly Ley-Dahm, 021 539533, media@ehf.org
Note for journalists:
The double taxation problem arises because the Double Taxation Agreement ("DTA") between the US and New Zealand focuses on credits for "like-for-like" taxation. Since New Zealand is an outlier with FIF taxation, this means that FIF payments cannot be credited against an eventual capital gains tax bill in the United States. Most OECD countries, such as Australia, do not face this issue.
The NZIER report shows that addressing the issues in the current international tax regime will not have a significant impact on the tax take. An estimate based on publicly-available information shows the annual contribution from the current Foreign Investment Fund tax regime is only around 0.5% to 1.0% of IRD's total annual revenue. (Noting that without non-public information from the IRD it is not possible to make a reliable estimate.)
