No-remittance Inequities

Press, Volume CVI, Issue 31225, 24 November 1966, Page 16

No-remittance Inequities

Misgivings about no-remittance imports must be increased by our report yesterday on the latest noremittance import statistics. If the Christchurch sample is typical, between 50 and 60 per cent of noremittance imports of motor-cars each year result from the sale of shares in overseas companies by New Zealand residents. No-remittance imports of motorcars in the last licensing year totalled £7 million, of which some £4 million was financed by the sale of overseas securities. Officially, the justification for the no-remittance scheme is that it encourages New Zealand residents to repatriate funds held abroad. Regarded in this light, last year’s sales of £4 million worth of overseas securities constituted a capital inflow, represented by the import of an extra 6000 cars. The extra cars, about 9 per cent of the total, helped to stimulate competition among retailers of new cars, to the benefit of the private motorist. But this is an over-simplification of the effects of the scheme. In the first instance, the sale of overseas shares by New Zealanders results in the reduction of the country’s future earnings of overseas exchange in the form of dividends. A New Zealander who replaces his overseas shares with similar shares purchased with New Zealand currency maintains his personal earnings of overseas exchange, but at the expense of the overseas exchange earnings of another New Zealander. More significantly, the scheme encourages a constant outflow of New Zealand funds into overseas investments. The “ eligibility date ” for overseas securities which qualify for a no-remittance licence has several times been put forward, thus justifying the expectations of many investors. Obviously no statistics showing the amount of New Zealand money invested abroad annually for the express purpose of qualifying for no-remittance licences can be produced; but it is possible—indeed likely—that £4 million a year has been invested abroad at least partly for this purpose. The sale of overseas securities to qualify for no-remittance licences might well have produced a net outflow, instead of an inflow, of overseas funds. The outflow has been interrupted by the virtual embargo, since this year’s Budget, on the purchase of overseas securities. The embargo dismayed sharebrokers—nearly half the Stock Exchange’s turn-over normally comprises overseas shares—and greatly reduced the individual investor’s choice. The Government must be under some pressure, and rightly so, to remove this restriction on investors. When it does so, the Government should also reconsider the no-remit-tance scheme. Funds earned abroad by immigrants or by returning New Zealanders at present qualify for no-remittance licences, and should continue to do so. This scheme encourages these holders of overseas funds to make use of their funds in New Zealand, rather than continuing to hold funds abroad. While there is reason to make the distinction between funds earned overseas and funds earned in New Zealand, there is no justification for a similar distinction between savings invested abroad and savings invested locally. A scheme which rewards investors who put their money into foreign investments rather than into their own capital market is surely overdue for revision.