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

 

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>

Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>


BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

TDDA: State-Of-The-Art Drug Testing Laboratory To Open In Auckland

World leading drug testing agencies, The Drug Detection Agency (TDDA) and Omega Laboratories, open New Zealand laboratory More>>

Network: Bigpipe Launches Ultra-Fast Broadband Into Wellington

Bigpipe Launches Ultra-Fast Broadband into Wellington Naked broadband provider Bigpipe has extended its national reach, announcing today, the launch of its unlimited UFB offering into Wellington. The Spark Venture business is giving Wellingtonians the ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news