Gav's Blog

NZ National Party just twittered a new press release on clamping down on red tape. Here is my reply asking that the Copyright Amendment Act be included in the review as it is going to impose significant compliance costs on businesses that provide no benefit other than to copyright holders.

To the Honorable Mr Hide:

I urgently request that you add the compliance costs for businesses associated with Section 92 of the Copyright Amendment Act to the list that require review. The current reprieve until later this month does not suggest that any changes will occur in the compliance costs associated with this Act.

The draft TCF Code does nothing to deal with the fact that businesses will still effectively be an ISP as defined in the Act. This will include compliance costs associated with implementing stricter firewall rules (e.g. to ensure that employees are unable to use peer-to-peer software), and require expensive tracking software to log all employee activity on the business internet connection (accurate auditing will be required to either identify an offending employee, or to prove to the upstream ISP that no offence was committed).

If it were not for the Copyright Amendment Act, these measures would not need to be implemented. As it stands, every small business in New Zealand is going to be stuck with potential compliance costs in the thousands of dollars just to upgrade their organisations firewall to comply with the Act.

To paraphrase the press release – “Businesses want to get on with productive activity without being hindered by silly rules imposed by inappropriate regulation such as the Copyright Amendment Act”.

During a recession such as this now is not the time to be forcing small businesses to waste time and potentially thousands of dollars in implementing measures to protect their organisation against poorly drafted legislation. Times are such that small businesses have better uses of their money.

Kind regards,

Gavin Treadgold

Section 92 exposes businesses to a significant risk as more businesses have come to rely on their Internet connection. Either spend thousands to tighten up your organisation’s firewall and policies and mitigate some of the potential downtime if your organisation is identified as a copyright infringer; or don’t comply, and when your organisation is identified as an infringer because of the possible actions of one of your employees – and you won’t have the system in place to identify and defend your employee in case they have been falsely accused.

Should businesses be forced to spend little spare money on a compliance cost that is only going to have a detrimental affect on cashflow during a recession? No.

Whilst I respect and support copyright holders (I’m one myself as a photographer and maybe soon an open source programmer) – businesses should not have to incur expenses because the entertainment industry wants them to become their copyright policeman.

What else can one say? The law is broken and 92a should be immediately repealed.

Copyright Law “Ethically Flawed”, says NZCS

PRESS RELEASE – NZ Computer Society Inc. (NZCS)
15 January 2009
For Immediate Release

The New Zealand Computer Society (NZCS) today labeled Section 92a of the new Copyright Amendment (New Technologies) Act 2008 “Illogical” and potentially “Ethically Flawed”.

The criticism comes after NZCS Chief Executive wrote to ICT Minister Steven Joyce last week asking him to intervene to prevent the changes coming into force in February.

Section 92a, championed by previous Associate Arts Minister Hon Judith Tizard, states that Internet Service Providers must look to disconnecting the Internet service of those that have been repeatedly accused of accessing copyrighted material online.

Almost every technology commentator in the country has spoken out against the changes as well as every significant ICT representative organisation in New Zealand, including the NZ Computer Society (NZCS), InternetNZ, Telecommunications Users Association of NZ (TUANZ), the ISP Association of NZ, Telecommunications Carriers Forum, Women in Technology, the NZ Open Source Society, and many others.

The new law has also prompted the creation of the Creative Freedom Foundation, a group of creative artists strongly opposing the changes and furious that the changes are being justified in their name.

“NZCS strongly believes in the concept of Copyright, and ensuring artists have access to adequate protection”, Matthews said today. “However this law is a giant step too far and badly upsets the balance between protecting copyright holders’ rights, and the rights of computer and Internet users in New Zealand”, he said.

“Placing ISPs in the position where they have to act on accusation alone, without proper judicial process, places them in an impossible situation where they are expected to take an unethical stance and action by potentially denying an essential service from kiwi families and businesses, based on the accusation of a third party”, Matthews said.

“So either they risk breaching ethical standards of behaviour, or risk breaching the law”.

“Guilt by accusation is not acceptable in any other area of law, not appropriate in New Zealand, and should be rejected in the same way it has been in many other countries where similar laws have been proposed, especially when it places law-abiding companies such as ISPs in this impossible situation”, Matthews said.

“This could potentially affect families, businesses, schools and libraries”, Matthews said, who likened the Act to threatening to cut the electricity off from a library if someone photocopied too many pages of a book. “Internet access is a basic necessity in today’s digital age and this law interferes with that”, he said.

“There’s very good reason why, almost without fail, every commentator and ICT representative who understands the potential consequences of this law has spoken out against it”, Matthews said. “We ask that the new Government hears the voice of the ICT community and acts to ensure the rights of computer and Internet users aren’t severely eroded over what is regarded as a civil matter”, he concluded.

ENDS

Update/20090116: And now the New Zealand Library and Information Association of New Zealand has chimed in on the matter too. Interesting to note the risks to libraries – they could potentially lose their Internet connection. Via McGOVERN ONLINE.

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