The Tax Working Group's proposal for a capital gains tax (CGT) got a serve on social media this afternoon from Rocket Lab founder Peter Beck. But other entrepreneurs say it could be a good mechanism to shift capital from "non-productive" property to startups.
"Just saw the NZ capital gains tax recommendations. Taxing IP [intellectual property] and stock will decimate the already fragile NZ startup industry. NZ already has big problems around creating large valuable technology companies and this will not help," tweeted Beck
In October, Beck was made one of the founding members of Prime Minister Jacinda Ardern's Business Advisory Council. His startup employs around 350 people - most of them in Auckland - and is valued at more than $1 billion.
The head of a group of investors who support early stage companies said things hung in the balance.
"The CGT could be very damaging to early stage investment if implemented poorly," Angel Investment Association chairman Marcel van den Assum told the Herald.
He compared early details of the CGT proposal to the first cut of the new R&D tax credit, which failed to address loss-making companies.
"But on the other hand, it could be very beneficial if funds are shifted from unproductive assets such as property to productive assets such as innovative startups, effectively shifting from artificial to real-value creation," he said.
"Opening up more funding, provided modest capital gains are offset by material capital loss consideration, is something I'm looking forward to."
Punakaiki Fund manager Lance Wiggs said, "The details will matter. My initial thoughts from the summary is that the CGT approach seems reasonable, but it would be a lot more palatable if the rates were lower."
Wiggs added, "I have a general concern that new investment into companies (as we do at Punakaiki Fund) should be recognised as more valuable than buying and selling existing listed shares. Other countries reward this sort of investment with various incentives."
Van den Assum's hope that the CGT would shift investment from property to startups was a common theme as the Herald canvassed the entrepreneurial and investment community.
Movac founder and rich lister Phil McCaw said, " I want to reserve judgement to see what ultimately comes out in the wash. In terms of what's proposed, I don't see how going from one of the lowest CGT regimes in the world to the highest could be positive for investment in the early stage ecosystem nor how it helps one of the smallest nations in the world be globally competitive."
Christchurch tech, outdoor clothing and commercial property investor Ben Kepes said, "There has long been the concern that, instead of being invested in businesses or other productive assets, a huge proportion of Kiwi wealth is locked up in speculative property investment. As such, a CGT levels the playing field and should result in a significant shift of capital from speculative to productive assets.
"In terms of impacts on people's propensity to invest in startups given that those gains will also generally be liable for CGT, the beauty of the proposal is that it levels the playing field and allows investors to judge investments without external factors skewing the analysis."
Kepes added, "At an ethical level, and putting aside the not insignificant self-interest aspects that seem to creep into conversations around CGT, the proposal will hopefully see a move towards a more equitable distribution of wealth and, potentially as a flow on effect, more interest in the social and economic bottom lines of commercial entities."
"I've always thought a well-designed capital gains tax is an inevitable part of the tax system," venture capitalist Jenny Morel says.
The Morgo founder thinks it's misleading to say NZ has no capital gains tax today.
"Our definition of what's revenue and what's a capital gain is different from, say, Australia and the US," she says.
"That does create problems. If you make a venture capital investment with the purpose of selling the shares - the mostly likely outcome - does that mean that at the moment it's taxed as revenue?"
She adds, "I always favoured exempting an amount of assets - say, $2 million - which would cover most people's first house, or if they prefer, two modest houses."
Wellington investor Dave Moskovitz, who recently most recent payday was the multimillion-dollar sale of academic publishing startup Publons to Thomson-Reuters spin-off Clarivate, was also bullish.
"The devil is in the details, but looks great overall," the US ex-pat said.
One of those details, he's hoping will be clarified: "It's important that CGT is not payable until a gain is realised. Other jurisdictions have a nonsense where you have to pay tax on nominal increases in book value that have a high chance of evaporating later," he said.
"It shouldn't affect professional investors . We already pay tax on investment gains as income. It looks fair - if you earn a dollar, you pay tax on it - unless you can call it art. What's with that?"
He added, "I'm pleased to see losses can offset gains. That's important for startup investors."
The GCT will level the playing field and hopefully get more people out of real estate speculation and into the productive economy.
Moskovitz joked that some of his poorer-performing startups could be regarded as works of art, and therefore not liable to the CGT.