There are more tales of companies leaving the NZX, and the question is asked (via a workshop) whether the Government could step in. I really fail to see what more this Government would materially do to solve for a market that is simply too small. Not that there aren’t any possibilities, just that most would be unpalatable for this Government.
Cullen has already started Kiwisaver, and distorted the capital gains rules to skew investors towards down under markets, both of which will bring more investor money.
So here are ten more things the Government could do:
1: List a big chunk of remaining the State Owned Enterprises, including more of Air NZ.
2: Change the laws that currently require too much paperwork before people can invest or move money. Let me apply and get a brokerage account instantly.
3: Push for a full merger of NZX with ASX – which has critical mass, and global companies listed. This would also mean the Australian owned NZ assets would be back in the “local” market.
4: Lower the corporate tax rate for NZ publicly listed companies (and other companies). This needs to be a dramatic lowering, not a few percent. Think Ireland.
5: Bring them back – lower the top personal tax rates and bring in other measures to attract and retain some of the Kiwi diaspora. This talent will help create the next wave of companies.
Along with 4 and 5, make sure we lose the disjointed tax system where the top corporate tax rate is different from the top personal tax rate, thus creating a booming industry in tax avoidance, at the expense of time and money spent on helping industry boom.
6: Legislate, or push NZX to insist, for much greater depth and frequency of disclosure for companies listed in NZ. Back it up with real teeth.
7: Legislate against insider trading and dealing – NZ has a reputation for cozy deals, and it is time that reputation was eliminated. Mandate what boards should do when an offer is received. Make sensible, not SOX level, corporate governance procedures – simple, friendly and transparent. Think Delaware.
8: Cajole Fonterra into listing. We all want a slice of those payouts, and we could create some very wealthy farmers along the way.
9: Double the dollars and efforts around all levels of education. This investment always pays in the long run.10: Finally, but quickly, drop a billion dollars on decent broadband infrastructure. Just make sure we do not end up beholden to one supplier of technology or service.
Hmmm, I womnder why the government doesn’t do all this. Could it be:
1. Listing the SOes will simply divert investment from new companies into mature assets. Won’t help keep companies here at all.
2. NZX rules, not government rules. The brokers are an old fashioned closed shop union. They want you to pay them a commission.
3. Merger simply realises the outcome this list purports to prevent. Investing in NZ from Australia is as easy as investing in ASX now. Merger is about who owns the X business, not about better opportunities for capital markets to get more capital.
4. Umm, they just did. This year, the company tax rate was cut for the first time in twenty years.
5. Oh, so you really mean lower the personal tax rate. Actually, if you have kids, we already have the lowest personal tax wedge in the OECD. The personal tax wedge for single income earners with no kids is about the middle. The issue is the incomes people make, not their tax rate (which is competitive). But a lower personal tax rate has bugger all to do with listing on the NZX. Honestly. Look at France and `Germany – staggering tax rates compared to ours & no shortage of capital investment. In fact, they have much more capital intensive markets because they have made the cost of employing staff so crazily expensive.
6. Yes, but not sure it would persuade the affected companies to stay.
7. Yep. Biggest problem with NZX is everyone thinks insiders get better deals. And it’s probably true. But the higher you lift the bar, the less companies will put themselves ion the market.
But how do you propose to do 6 or 7 if you go ahead with 3 and merge with the ASX?
You can’t have it both ways. You can’t tell it to merge and then ecxpect to tell the Australians what to do. If you merge, that’s it – never have a say over stock ex rules again. Merger AND these innovations are just mutually exclusive.
8. Fonterra listing would pull capital out of other companies and make them more likely to leave. And what’s in it for Fonterra? It’s not short of capital. It is just now injecting an extra $3 billion into the NZ company because it’s had such a stellar year. It has a diverse shareholder base anyone can join by simply supplying milk.
9 and 10. Ah yeah, not easy to double spending on anything if you do as suggested in 5, and destroy your revenue base. You can’t both call for tax cuts and spending increases. You have to choose.
Anyway – love your blog.
Thanks for the great comment John
these were, as you found, a bit of a shotgun blast, and certainly not all doable at once. .
permit me to expand on your comments:
1: not so – they will attract foreign capital, and perhaps local capital that is currently going offshore. Foreign capital wants to invest in blue chips in foreign markets – and these would be investment grade.
2: sadly true. Therefore some legislation may be required, or threatened. It’s the same as the advertising game – self regulate or we will be forced to regulate.
3: ASX is a much bigger market, so there will be more capital. However as you imply the danger is in the ASX subsequently turning away from NZ.
4: but not enough. Ireland is 12.5%, and look how their economy has boomed ever since.
5: Not so good if you have higher income and no kids. or wife. I agree our income levels andthe levels the tax kicks in are the concern.
6: The idea is to create a better marketplace, and therefore relieve concerns that foreign (and domestic for that matter) have. Witness the paucity of information in Xero’s prospectus.
7: ASX would hopefully alleviate the need for 7: and 6:, provided their laws are ok (and I am not really informed enough).
8: $3 billion returned to shareholders is great – but weas that the right option for growing a global company? I think not.
9: & 10: We did a great exercise way back in 7th form economics, where we got given a budget and asked to redistribute the spend according to our beliefs. It was really very difficult – but these days at least we have a small surplus to play with.
Overall I feel we should be looking harder at what Ireland has done.
Cullen is looking at where to spend the $500M “cash suprise” on: “earmarked for some unspecified infrastructural or capital spending”
I could not think of a better candidate than your #10.
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