Punakaiki Fund manager and commentator Lance Wiggs says the government's decision to dump the capital gains tax will be great for his company - but says it needs to find an alternative mechanism to nudge capital from housing to productive assets.
"It's great for Punakaiki Fund itself and for our investors to continue to get tax free returns as we invest in Nz high growth companies," Wiggs said just minutes after Prime Minister Jacinda Ardern surprised with her live announcement.
"I suspect the share and housing markets are due for a correction so a CGT would be underwater anyway," Wiggs added.
"There's still lot of work still to be done to shift investment into productive assets."
Another veteran backer of early-stage companies, The Icehouse CEO Andy Hamilton, said: "I am not surprised by the decision. I'm disappointed that we have missed the opportunity to get more balance into the tax system but the Tax Working Group recommendation was not in my view 100 per cent where we should have gone anyway.
"The imbalance remains, and it is only a matter of time before the next generation will change the system. Continuing with what we have is not a long-term optimal option."
Entrepreneur Peter Beck was in the air during the announcement. But, earlier, he told the Herald that while he was not against a CGT per se, he feared its impact on R&D and start-ups in the contest that NZ had little of both - and that the last thing it needed was the negative incentive of founders or investors losing a third of their profit if they did manage to ultimately exit.
"To go and add more barriers to an industry that is already laden with barriers just makes absolutely no sense," Beck told the Herald this week.
Beck had Ardern's ear as a member of her Business Advisory Group, formed last October. Last week, he declined to talk about details, but said the group had had "very frank" discussions.
NZ paradox remains
Wiggs, whose fund is currently valued at $44m, said this afternoon, "NZ continues to be exceptional in not having a CGT but also, counter-intuitively, continues to have very low investment in growth assets. I suspect it's hard to incentivise growth when the tax benefits of housing, for example, are so compelling. We cannot expect the bull market to continue."
A number of VCs and entrepreneurs canvassed the Herald in the lead up to the decision were broadly pro a CGT as a mechanism to shift capital from housing to investment in business, directly or indirectly via funds.
But a number, like Wiggs, thought the Tax Working Group's proposal to tax 33 per cent of gains was too high.
So what's next?
"There is work happening inside government now on the shift to productive assets," said Wiggs, who has carried out contract assignments for a number of Crown agencies.
"Offshore examples include a reduction in income tax. That is, claiming investment as an expense - subsidies and carve-out from CGT. The last one is not an option here," Wiggs said.
Grow NZ MD, VC investor and early Rocket Lab employee Ralph Shale is another who has raised the idea of investments - especially those in startups - being tax-exempt.
In the UK - an example pushed by Shale in an op-ed - investors can receive initial income tax relief of 50 percent on investments up to £100,000 per tax year.
Wiggs adds, "Meanwhile taking away the incentives for property is the right thing to do on one hand but we have a housing shortage in the other.
"Finally - the law we have now is poorly enforced - we are meant to pay tax if we buy with the intent to sell. Every VC and PE fund, every property investor that has a track record of not holding, every share investor not holding for years - all these should be taxed if the law was strictly applied."