The subject of ethical investing has been in the news lately in relation to tobacco and arms manufacturers.
It is pretty easy to avoid direct investments in these companies. But what about all the companies that supply raw materials to arms manufacturers as well as perfectly "ethical" businesses? What about the companies who transport these goods as well as the more harmless stuff? Do we boycott them too?
What about the companies that manufacture "ethical" stuff - from computers, to clothing to cars - who use child labour or underpay adult workers? What about agribusiness?
If one wanted to be absolutely sure that none of their share investments were connected with any of the above, the only way out would be to own no shares directly or indirectly.
So we could join the property speculators in Auckland making tax-free fortunes perhaps? Maybe there are lots of New Zealanders who regard tax avoidance as ethical - the evidence seems to point that way.
That leaves us with bank deposits and government bonds. Hmmm. And how ethical are all of these entities?
I know this must seem like a rant, but I am trying to say we are living in a big wide globalised world. Just because New Zealand is one of the few countries that does not have to face life and death situations and is nicely isolated from most of the world's problems, it is a bit too easy to be holier than thou towards those who are daily engaged in a real life and death struggle and whose choices are possibly just kill or be killed.
A: Fair point. But I don't think that means people shouldn't take ethics into account when investing, if they wish to. Just because you can't do something perfectly doesn't mean you shouldn't do it at all.
If many people stop investing in the worst offenders, that will make it harder for those companies to raise money to expand their businesses, and some businesses may close.
But does this work, given that people who buy shares in a company - or invest in a company via their KiwiSaver fund or another fund - usually buy in what's called the secondary market?
Let me explain. A company raises money by issuing shares in an initial public offering, or IPO. After that, the shares are traded on the share market - or secondary market - sometimes for many decades. When you or the manager of your fund buys a share other than in an IPO, the money goes not to the company, but to the person who's selling the share.
Because of that, several people in the current ethical investing debate have said it doesn't make any difference to a company if you refuse to buy their shares in the secondary market.
But I disagree. If the demand for Bad Company's shares decreases in the share market, the share price will fall or not rise as much as it otherwise would have.
The next time Bad Company issues new shares in an IPO, fewer people will want to buy them because they won't expect the price to subsequently rise as fast. The lower demand means Bad Company won't raise as much in its IPO.
While I'm at it, I have another gripe about recent comments about ethical investing. Several commentators seem to be blaming index funds, which invest in all the shares in a market index.
It's true that if Bad Company is in the index, the index fund will invest in it. And huge US index fund manager Vanguard has copped blame because many KiwiSaver funds use its low-fee index funds for their international share investments, and these funds include some "unethical" investments. But:
Recently enacted rules requiring buyers and sellers of property to provide an IRD number, and non-residents to also provide the foreign equivalent of an IRD number and a New Zealand bank account number, will help Inland Revenue to better identify investors in New Zealand's residential property and ensure they pay their fair share of tax on gains from property sales.
• Many non-index funds - otherwise known as active funds because their managers make decisions about which investments to make - also invest in unethical companies.
• There are index funds that invest ethically. For example, since 2000 Vanguard has run an FTSE Social Index Fund. It invests in large and medium-sized shares "that have been screened for certain social, human rights, and environmental criteria."
Perhaps KiwiSaver providers could move to that fund. It has slightly higher fees, but they're still way lower than active funds - which is why I like index funds. Alternatively, Radio NZ reports that Vanguard says it will create a new fund that complies with New Zealand law and investor concerns - if KiwiSaver providers can agree on what investments to exclude.
In short, index investing can be ethical.
Turning to another point in your letter, it's no longer so easy for speculators to make tax-free capital gains on property.
Gains made by people who buy with the intention of selling at a profit have always been taxable, but some people seem to have avoided that tax. But now we have a "bright line" rule. Gains made by property sellers will automatically be taxed if they bought the property after October 1, 2015 and sell within two years. Exceptions are the owner's main home, an inherited property or the transfer of property after a relationship breakup.
What's more, "We should be clear that the current 'intention' test will remain after the two-year period," says Revenue Minister Todd McClay.
"Recently enacted rules requiring buyers and sellers of property to provide an IRD number, and non-residents to also provide the foreign equivalent of an IRD number and a New Zealand bank account number, will help Inland Revenue to better identify investors in New Zealand's residential property and ensure they pay their fair share of tax on gains from property sales."
He adds, "We have provided IRD with $29 million out of Budget 2015 to focus on property tax compliance. In total, they have $62 million in funding over five years, which is expected to generate an additional $420 million of tax revenue.
"As a result of this investment, as many as 100 compliance officers will undertake this important work."
I wonder if these changes are making a difference. If any readers know of people making gains on investment property and still not paying tax, let's hear from you. No need to provide names.
We've strayed a long way from your main point, but it's all interesting stuff.
Q: I am going on an overseas exchange programme from February to July 2017. Will I still be eligible for the KiwiSaver member tax credit on my contributions before I leave New Zealand and whilst I am away?
Yes. What matters is whether New Zealand is still your principal place of residence. You will be away for just a few months, and it seems that you fully intend to return here after that, so you'll be fine.
Q: I relate very much with your item on overseas pensions last week. I am a Canadian pension recipient.
Your readers should know that the NZ Government forces you, using the law, to apply for the Canadian pension. Then the Government in effect takes the pension as a saving or subsidy.
In addition, due to the exchange rate changing daily, the NZ Super payments may be less than others receive without this imposition.
The entire system is designed to subsidise the NZ Government pension scheme. It has nothing to do with being fair to other super recipients, because why would the Government care if someone gets overseas funds to supplement the NZ pension? After all, the KiwiSaver scheme has been set up for that purpose with government subsidies.
The administration of this scheme is very cumbersome and places an enormous burden on the individual pension recipient, especially when it comes to dealing with Government welfare and tax departments in two jurisdictions on opposite sides of the world.
It also affects your partner's pension entitlement, even though they may be born and bred New Zealanders who have never worked overseas. The NZ WINZ and tax officials take the attitude that the burden of compliance is on you, and if you don't do as they say, they can, by law, cut your entire NZ pension.
For all these reasons the current situation regarding overseas pensions is unfair, and I suspect the entire overseas pension scheme costs NZ far more than the Government receives.
To take your last point first, "The direct deduction regime saves considerably more funds than the cost to administer the policy," says a Ministry of Social Development spokesman.
We could of course add the costs - or the hassle - for people like you. I appreciate that dealing with two governments is no fun. But it's the only way to make the system fair.
"The principle is that a person should not be able to receive two forms of state financial assistance for the same or similar circumstances," says the spokesman. "For example, someone who has lived approximately half their working age life in Canada should not receive full NZ Super and approximately half of Canada's state financial assistance in addition. A lifelong New Zealander would only receive NZ Super as their state support.
"The rationale for the direct deduction policy is explained at greater length on our Overseas pension deductions webpage," at www.tinyurl.com/pensionNZ
I would add: NZ Super gives every old person a basic income, so nobody is in poverty. Unlike many other countries, payments are not based on how much you earned in your working life. New Zealanders who worked only briefly or not at all - perhaps because of ill health or taking care of the young, the old or family members with disabilities - receive the same as high-income earners.
Most people like this. The trouble is, it costs heaps, and mostly younger taxpayers pay for it. Is it fair to ask them to pay the full amount for people who have come, or returned, to New Zealand with the right to also receive another state pension?
Turning to more specific points in your letter:
• The government forces you to apply for other state pensions only if you want NZ Super. You can skip it if you like.
• The spokesman confirms that, "Due to fluctuations in the exchange rates, the amount deducted from the New Zealand payment in a given period may be slightly more or less than the amount of overseas pension received by the pensioner." But the Ministry has a choice of rates, and "We select whichever rate is more beneficial to the person with the overseas pension." In any case, I doubt if this amounts to much.
• On your partner's pension entitlement being affected, the rules apply "to NZ beneficiaries and to their spouse or partner. The rationale is the same as for an individual: the policy ensures that a couple who have lived and worked in NZ for their entire lives are not at a disadvantage to a couple who may have had the opportunity between them to live and work overseas and gain access to another social security scheme."
For examples of how the rules work, see MSD's Overseas pension deductions webpage.
This last issue worries me a bit. But I would also question the fairness of one partner receiving full NZ Super while the other receives more than NZ Super from another country's state pension scheme.
We have to keep coming back to the fact that younger NZ taxpayers are paying out this money.