From time to time over the past 20 years the question of the mutual recognition of imputation/franking credits has been raised between Australia and New Zealand but no real progress has been achieved.

It is believed that the main obstacle to taking the issue forward is the Australian Treasury (and consequently Government Ministers) having concerns that it would be negative for their tax base. Certainly the last Treasurer Paul Costello was opposed to it.

The Australians also maintain that if this was agreed with New Zealand then it would have to extend the arrangements to other governments. However, there doesn’t appear to be any other countries that have the same tax frameworks, preferring to adopt other tax structures. In any case our two countries have their own unique arrangements under CER and an expectation that so many aspects of investment and other areas of mutual interest are becoming truly integrated.

Over the last several years we have seen a substantial increase in Australian investment by Australian companies in New Zealand and in many of those companies New Zealanders are shareholders. However, New Zealand shareholders are disadvantaged by the fact that they do not benefit from having access to imputation credits.

In recent discussions between our Ministers Cullen and Dunne with Ministers of the new government in Australia, the Australian Finance Minister did agree that the matter may be looked at. Dr Cullen is expected to raise this at his forthcoming meeting with the new Australian Treasurer. Let’s hope it is at least on the agenda.

Some Australian companies have given real thought to the inequity for their New Zealand shareholders and looked at how a system of “streaming” dividends could occur with possibly a secondary listing on the New Zealand Stock Exchange. It does seem however, that a mutually acceptable imputation regime would be the best answer.

The recognition of Australian imputation credits would substantially enhance the attractiveness of Australian shares for New Zealand investors and encourage increased savings. As an example Westpac currently has a cash dividend yield of around 7.5%. By not having access to franking credits New Zealand investors are missing out on an additional gross return of over 3.0% per annum. Assuming a 33% tax rate the net return per annum to a NZ investor with and without tax credits would be 7.2% and 5.0% respectively.

Westpac did historically provide New Zealanders imputation credits. However, this was removed in 2005 following a tax change in Australia.

We support Dr Cullen’s initiative in this area and wish him well in his negotiations.

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