Facts wrong in tax and superannuation debate

The quality of debate on financial matters was poorly served by two leading publications over recent days, Finance Minister Dr Michael Cullen said today.

"The lead business story in Sunday Star Times yesterday - "Loophole could cost millions" - is not only blatant sensationalism, it's wrong."

"To say that people on a 39% tax rate will move bank deposits to the new investment tax rules so as to limit their tax to 33% is uninformed and inaccurate.

"The new rules do limit tax on savings to a maximum of 33%. But that simply continues existing rules for superannuation and similar savings vehicles. What the new rules do is tax those on a 19.5% tax rate at their correct personal rate, but those on higher incomes will continue to be taxed at 33%.

"So if you earn over $60,000 a year and have a bank term deposit the interest is taxable at 39%. The same person can currently save in a superannuation fund investing in bank securities and the tax is 33%. The simple fact is that a bank deposit is different from saving through a superannuation fund and is taxed differently. This has been the case in the past and will be the case under the new rules."

"The National Business Review on Friday also does its reputation no good with factual errors in its lead story on superannuation," said Dr Cullen.

"The story makes the basic error of saying that the Shipley-led National government abandoned wage indexation for New Zealand Superannuation. In fact that government decided to lower the rate at which NZ Super rises by indexing payments to a married couple to 60 per cent of the average after tax wage, down from 65 per cent.

"The Labour-led government restored the wage floor to 65 per cent. This is the only thing that changed. Inflation indexation alone of super payments, as the article suggests, would result in a widening gap between the living standards of the retired compared to workers.

"This may save money, but would fail to recognise the contribution of retired people to the economy over their working lives," Dr Cullen concluded.

ENDS

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