Gav's Blog

What follows is my submission to the Finance and Expenditure Select Committee on the proposed investment bill.

Members of the Finance and Expenditure Select Committee
C/- Clerk of the Committee
Select Committee Office
Parliament Buildings
Wellington

Thursday, August 3, 2006

Re: The Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill

I wish to raise my general objection to the above bill, reasons for which will be outlined in brief points to follow.

In general I believe that the proposed bill is a backwards step in terms of encouraging New Zealanders to become more capable investors. The strong focus given to fund management – at the expense of international equities is extremely ill-considered.

The key point of disagreement is that the proposed bill will not achieve the equity and balance that the promoters are suggesting – it will in fact result in the opposite, a more uneven investment environment that will seriously impact the future wealth of New Zealand.

Further points of disagreement are outlined below. These are listed in no particular order.

It will not create a neutral investment tax environment
The proposed bill will not create a neutral tax environment as is suggested. It is highly likely that investors, myself included, will look for alternative forms of investment – including residential property. Of course, residential property does not currently attract a Capital Gains Tax so it is potentially an attractive investment option relative to equities.

Tax on unrealised Capital Gains
It is extremely unfair to raise a tax on unrealised Capital Gains. Any gains shown in an investment are not concrete until the equity is sold and converted to cash. At this point in time it would be more equitable to tax Capital Gains – although this still is not a preferred option. There are many events that may cause short-term volatility in an equity that may be taxed – even though an investor does not make any real gain, these include exchange rate fluctuations.

Impact on New Zealand Dollar
This bill will have a significant impact on the strength of the New Zealand Dollar. Many investors will make the decision to repatriate their investments that are held in currencies such as the US Dollar, British Pound and Euro.

The decision to repatriate NZD will mean that New Zealand investors will hold less international currency and will reduce the income produced from other countries that increases New Zealand’s overall wealth and hence backing of the New Zealand Dollar.

Encourage inappropriate investing behaviour
The proposed bill will likely promote a change in investor behaviour to minimise the amount of Capital Gains Tax paid. This could include decisions to liquidate stocks shortly before the end of the financial year for tax reasons – as is commonplace in the US market with the stock selloffs that occur in December each year.

Increased compliance costs
This proposed bill will added additional compliance costs in terms of time and expense – and will require increased use of accounts in completing valuations and tax returns. This will reduce the overall return on investment – once again this will impact investment decisions and would likely promote the migration towards investments that are more easily understood and have reduced compliance costs.

Detrimental to New Zealand businesses
The promotion of a move away from equity investment as a result of this bill, will be detrimental for capital injection into New Zealand businesses. The reduced return, with no subsequent reduction in the associated risk will result in investors choosing lower risk and return investments. This will make it harder for New Zealand businesses to gain local capital, and they will be required to search for offshore investors – who will benefit from the returns, and potentially gain ownership control of these ventures.

Size of the Australasia equity market
The New Zealand equity market represents approximately 0.5% of the world equity markets – Australia around 2.5%. This bill will encourage gross over-investment by New Zealanders in a small (~3%) segment of the world equity market due to the lack of a Capital Gains Tax. This will increase our risks to shocks and financial crises due to the small size and value of our markets. A balanced investment portfolio requires a reasonable international distribution. Ironically, the New Zealand Superannuation Fund holds approximately 85% of its investments outside Australasia.

Promote a resurgence in property investment
If this bill is passed in its current form, it will create a bias towards further investment in property in New Zealand which may have serious negative consequences for much of the country. International returns would be repatriated and further invested in property. This increase in property investment would produce an increase in house values which would increase the level of debt that New Zealand families would be exposed to, and this would be exacerbated by the increased lending from foreign-owned banks, and the returns on debt being siphoned off to investors in other countries. For those that can’t afford to purchase property, rental rates will increase as property investors demand higher returns. This will hurt the current Governments voters the most by forcing families and first home buyers to commit to even larger loans. The cash grants offered by KiwiSaver will be inconsequential relative to the increase in property values caused by the proposed bill.

Managed Funds are not an ideal investment vehicle
Despite the promotion and marketing of managed funds, many studies have shown that a minority of funds are able to outperform passive funds tied to share-market indices. This implies that most managed funds are inefficient investments – and hence not utilised by educated investors. Additionally, managed funds often attempt to spread their risks by investing in a large number of equities – this results in not only the spreading of risk, but also suffers reduction of returns, whilst at the same time profiting the investment company.

Bringing Capital Gains Tax into the spotlight
The issue is going to raise general public’s attention towards Capital Gains Taxes. When people discover that they are paying CGT indirectly via their managed funds, and hence accepting reduced returns, they too may consider adjusting their investment portfolio in favour of those investments that don’t attract CGT – including property. This will also cause unintended growth in the property market.

Expat Kiwis will be less likely to return home
Expatriate Kiwi’s will be less inclined to return home with the investments that they may hold overseas, which may now attract considerable Capital Gains Tax on unrealised gains. The New Zealand Government has done nothing to justify taxing these yet-to-be-realised returns.

Suggestions
The proposed bill should be modified so that an unrealised Capital Gains Tax is not introduced on international investments – as it will have a significant impact on New Zealand’s approach to investment and our overall wealth. The status quo should be maintained. Other parts of the bill unrelated to this issue may be retained.

Capital Gains on managed funds should be removed to create a neutral tax environment so that international and New Zealand equities, managed funds, and property share a level playing field.

Yours sincerely,

Gavin Treadgold

This article was originally written for the July 2006 International Association of Emergency Managers Bulletin.

The rapid growth of the Internet and World Wide Web has spawned the creation of new and potentially useful software applications that may provide benefits to emergency managers. One of these applications that is currently drawing attention is the wiki.

Wiki is the Hawaiian word meaning to hurry, hasten; quick, fast, swift. Wiki software therefore refers to packages that are designed to make it quick and easy to create and modify collaborative web pages on the Internet. They have actually become more powerful and advanced than just for the creation of web content – wikis now power some very content-rich websites including the open source Wikipedia – the open encyclopaedia.

What are some of the key characteristics of a wiki?

• server-based software
• free, with few licensing restrictions
• accessible from any web browser
• can be run on a standalone laptop
• uses html links to reference other pages in the database
• designed for collaboration and sharing
• records all revisions of documents and tracks changes made by users
• immediately highlights recent page changes and by whom

What opportunities exist for wikis in the emergency management domain?

Wiki software has much potential to be used as a collaborative planning tool – whether planning occurs within or between organisations. Rather than passing a word processing document around via email to all participants in the planning process, the plan could instead be created and maintained using a wiki. A secured web site would provide an excellent home where plan developers could log in to check the latest changes and make modifications. The one key benefit over using a document-based approach is that everyone is always guaranteed to be reading and editing the latest version of the plan.

As certain milestones are reached in plan development, it is possible to lock the wiki, and create a ‘snapshot’ of the current plan before continuing the review and development process. Conceptually, this model of development is quite similar to techniques used for managing the development of computer software – with developers sharing a central repository.

In addition to planning, a wiki can also be used as a knowledgebase to store information and references to other documents. For example, certain pages in a wiki could be ‘tagged’ with a pandemic tag. Then, by viewing the pandemic category, it will show all pages that are tagged with pandemic. This provides quick and easy access to relevant information.

The benefits of wikis do not end when response starts. Conceptually, wikis can be installed on laptops or PDA’s enabling responders to have an entire knowledgebase available on a PDA including all the links and available plans.

Wikis could be used on a set of wireless laptops as a tool to assist your incident management system of choice. For example, the response plan developed in the EOC could be created in a wiki, and then planning/intel, operations, logistics, finance, information could collaborate on the one document with each section being able to view the other sections.

Wikis are also starting to be used in response and recovery by those people that have access to power and communications. Probably the best recent example is the Katrina Help Info wiki that is used to consolidate response and recovery information following a disaster – in effect creating a portal for the event with links to other agencies websites. In this manner, a wiki could be used as a public information system where key infrastructure is available.

Another example is the Hurricane Katrina web page on Wikipedia which started as a collaborative effort to record open source situation information. In the case of the Flu Wiki, wikis are even being used to develop a community knowledgebase about a hazard before the event.

It is important to note at this point that public wikis with permissive access controls can have issues with the quality and authenticity of information provided. Restriction of editing rights to approved and trained personnel can ensure that quality of information contained in the wiki is not threatened.

The next likely development is going to be the consolidation of wikis and community mapping projects such as the Hurricane Information Maps that were developed following Hurricane Katrina and utilise Google Maps. The combination of information contained in a wiki linked to spatial references and presented on a map will provide a very powerful information resource for response and recovery.

I wrote this article for the July 2006 International Association of Emergency Managers Bulletin.

In February 2004, I wrote an article for the IAEM Bulletin outlining some of the benefits that open source software had the potential to provide for emergency managers. At that time, little open source software existed for emergency management, and I had just come out of a simple attempt in 2003 to create a Web-based disaster management system. That effort failed, for while there was a well-recognized need for open source disaster management software, there were no real drivers to encourage development of a solution.

2004 Tsunami Spurs Development of Sahana

The driver came with the tsunami that struck Sri Lanka on Dec. 26, 2004, which prompted the development of a free and open source solution called Sahana. Within a couple of days, the need for a system to manage vast quantities of information became obvious, along with the need to attempt to coordinate 1,300 NGOs responding to hundreds of thousands of displaced people. In the following days and weeks, a Web-based system for managing disaster information was built on-the-fly based on the most pressing needs. Accordingly, the following were the first modules developed:

• People Registry – track and match victims of a disaster.
• Organization Registry – register, connect and track NGOs involved in response.
• Camp Management System – register and track camps.
• Request/Assistance Management System – record, track and match requests and offers of assistance.

Sahana development was initially led by the Lanka Software Foundation and supported by volunteers from the Sri Lankan IT industry. As the immediate need for Sahana subsided in the months following the tsunami, more international contributors became involved in the project, myself included. These ranged from programmers wanting to help out, to those who wanted to offer assistance drawing upon their disaster experiences, including emergency managers.The positive feedback to Sahana prompted further development to add more response and recovery capabilities applicable to any disaster management situation.Longer-term, the goal is to use Sahana as a means of encouraging comprehensive emergency management in communities by supporting preparation and mitigation. This will start by providing tools to incorporate plans and reference material, such as communication directories in advance and other techniques to encourage greater interagency co-ordination before an event.

Capabilites

Sahana has been designed to operate in a diverse range of environments due to the nature of disasters. It can run on Web servers and laptops, and has even been installed on a PDA. Over time, it will support both standalone and networked modes of operation and allow communication between multiple Sahana servers, including synchronization of data.There are a number of future modules planned or under development:

• Disaster Impact Assessment.
• Alerting.
• Inventory/Supply Chain/Logistics.
• Volunteer Coordination.
• Intelligence.
• Response/Rescue Team Management.

In addition, there are a number of key technologies identified for inclusion:

• Mapping/GIS, and GPS integration – it can already use Google Maps.
• Biometrics.
• Provision of information via open standards:
  • Common Alerting Protocol (OASIS/CAP).
  • Emergency Data Exchange Protocol (OASIS/EDXL).
  • Various OpenGIS Protocols (OpenGIS Consortium).
• Support of existing paperbased forms.
• PDA forms for remote fieldwork.

Deployment

Sahana has seen official deploy ments in multiple events, including the Sri Lankan response to the tsunami in 2004, the 2005 earth quake in Pakistan and the 2006 mudslide in the Philippines. It has also recently seen unofficial deployment in support of the Yogjakartra earthquake and in preparation for an eruption of Mt. Merapi. Sri Lanka’s largest NGO is also deploying Sahana within their disaster unit.

Recent Events

In mid-May 2006, a workshop was held in New York that brought together key members of the Sahana development community and IBM. The meeting served two purposes:

1. To discuss IBM support of the project, and
2. To consider further development of modules for Sahana that could be used during response to a pandemic.

A pandemic presents an interesting opportunity for the deployment of Web-based disaster management systems, as most infrastructure should be operating normally (relative to a hurricane or earthquake).The Sahana project is interested in contributions, be they time or financial. Time contributions can be made in providing design advice based upon disaster experience, writing the code, testing Sahana or helping to write the documentation. Financial contributions will be used to target module development, such as sponsoring development of a specific module or supporting the core development team that works full time. An international community maintains Sahana, and all contributions are provided back to that community at no cost – a share-and-share-alike ethos to ensure that everyone benefits. Sahana is free to use and has no licensing costs associated with it.

Links

• Sahana Web Site
• Sahana on Wikipedia
• Dr Sanjiva Weerawarana’s Blog, a record of initial Sahana deployment (entry1, entry2)