Diana Clement: Gains tax change only part of story

Returns on these funds have been cut to smithereens thanks to a 33 per cent tax on the income they produce. As a result, many of the investors who've tucked a total of $19 billion into these funds would have been better off ploughing their money into term deposits.

In case you missed the news, the recommendations proposed by independent adviser Craig Stobo and given broad support by Finance Minister Michael Cullen will see investors with managed funds taxed in the same way as they would be on a bank deposit. So if you're on the 19.5 per cent marginal tax rate, that is the amount that would be deducted at source.

Under the existing system, an investor who had $24,000 invested in the Fisher Funds NZ Growth Fund a year ago would have seen that increase to $29,983 after tax and fees. Under the proposed system, that investor's pot of money would have grown by an additional $2981, says Warren Couillault, the fund manager's investment analyst.

"This is a real coup for investors," says Tim Anderson, business manager at researcher FundSource. "With this distortion removed, we will get more competition, economies of scale that come with critical mass, and downward pressure on management fees. In Australia, the industry is 15 times as big as it is here with only four times the number of people."

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