Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fair tax for KiwiSaver funds a key election issue


17 April 2014

EMBARGOED UNTIL 6AM, THURSDAY 17 APRIL 2014


Fair tax for KiwiSaver funds a key election issue

In this election year the parties need to say how they will reduce the unfair over-taxation of KiwiSaver funds that prevents most New Zealand employees from achieving a comfortable retirement.

In comments prepared for the Retirement Policy Research Centre’s forum Retirement Income Policy: the future is now, Financial Services Council (FSC) Chief Executive Peter Neilson said: “Only 8% of New Zealanders think they will be comfortable in retirement on the $282 a week after tax being paid by NZ Super. Most people will need two times NZ Super to be comfortable in retirement. Saving to fund a second pension on current policy settings requires most New Zealanders to save more than 10% of their pre-tax income, a big ask for many also paying off a student loan and/or trying to buy a home”.

“For a typical person saving for retirement, just 10% of their retirement earnings comes from the initial contributions and a massive 90% from compound returns - the interest earned on interest on those initial savings. How we tax those compounding returns is therefore crucial in determining how many of us are going to be comfortable in retirement”.

Mr Neilson said New Zealand now has the world’s “most punitive” tax regime for retirement savings when compared with investments in rental housing.

“Someone paying 33% income tax will see over half of their KiwiSaver income (54.7%) go, due to the impact of taxation over 40 years.

“If the same person invested in rental property their effective tax rate would be only 7.9% if the property was geared up by 80%. If that period of ownership dropped down to only 10 years the rental investor would receive a tax credit, a payment from the IRD – effectively a subsidy for investing in rental property. We can’t all be rental property investors,” Mr Neilson said.

“Many people struggle to save for a deposit for the house they live in let alone saving to buy a second home to rent out. Every rental property needs a tenant so at best only half the population can use that savings plan to fund their comfortable retirement.

A practical and fairer policy would be to reduce the KiwiSaver fund tax rates so savers are on a more even tax playing field with rental property investors.

The FSC has suggested cutting the current KiwiSaver fund tax rates of 28%, 17.5% and 10.5% to 15%, 8% and 4.3% respectively, with most of the cost being made up by abolishing the annual $521 KiwiSaver member tax credit.

$288,000 benefit from lowering tax on savings interest:
These proposed changes would mean someone on an average income, if they moved from a conservative to a balanced fund, could cut their KiwiSaver contributions over 40 years by $164,000 and reduce the impact of tax on their KiwiSaver earnings by $288,000.

At a practical level this means a person on an average income would have to save $16 a day rather than $27 (63% less) to achieve a comfortable retirement income.

“Regardless of whether KiwiSaver is universal (compulsory) or voluntary, the over-taxation of KiwiSaver funds has to be addressed,” Mr Neilson says. “Leaders of all parties should say if they support or oppose introducing fair taxes on savings. Fairer taxes will have a huge impact on the future incomes of New Zealanders when they retire.”

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Budget Building Battle: Bill English Blames Council On Housing

The Nation: Finance Minister blames Auckland Council for housing shortage, saying it is responsible for land, housing and infrastructure supply in the city, while government provides rental subsidies... More>>

ALSO:

Megiaglommeration: NZME And Fairfax Apply For Authorisation To Merge

The Commerce Commission has received an application from Wilson and Horton Limited (trading as NZME) and Fairfax NZ Limited seeking authorisation to merge their media operations in New Zealand. More>>

ALSO:

Brewing: Lion To Buy Cult Upper Hutt Brewer Panhead

Lion - Beer, Spirits and Wine (NZ), New Zealand's biggest beer maker, has agreed to buy Panhead Custom Ales from the family of founder Mike Neilson, its second such purchase of a popular craft brewer after the acquisition of Dunedin-based Emerson's Brewing Co in 2012. More>>

ALSO:

Half Empty: Fonterra's 2017 Opening Forecast Below Expectations

Fonterra Cooperative Group raised its forecast farmgate milk payout for next season by less than expected as the world's largest dairy exporter predicts lower prices will crimp production and supply will pick up. The New Zealand dollar fell. More>>

ALSO:

Pest Control: Mouse Blitz Team Leaves For Antipodes

The Million Dollar Mouse project to rid Antipodes Island of mice is underway with the departure of a rodent eradication team to the remote nature reserve and World Heritage Area. More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news