Fair ain't fair
The government’s “fair dividend rate” is not going to be fair for managed funds, says AMP Capital strategist Leo Krippner.
Thursday, September 28th 2006, 6:43AM
by Rob Hosking
Individual investors will pay less than 5% if their investments make a lower return than that amount, and will have any returns above 5% tax free.
However managed funds will pay a flat rate of 5%, regardless of how well or poorly they perform.
Krippner says this is too high.
He calculated investment returns for four major global equity markets – the United States Japan, Germany and the United Kingdom – as far back as 1950.
Once adjusted for inflation (Krippner takes out the high inflation of the 1970s and 1980s and replaces it with an assumption of 2.5% inflation) he finds the average return is around 3.5%, and says that is what the rate should be for managed funds.
The present proposal, he says “effectively means that individuals will on average be taxed at a lower rate, thus falling short of the government’s intention of placing individuals and managed funds on an even footing.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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