Media statement

For immediate release

Tuesday, 21 October 2003

An earlier version of the attached press release was issued on Wednesday 15 October 2003. However an important development has occurred since. I had urged Revenue Minister Michael Cullen to introduce the change suggested by United Future with effect from 1 April 2004, i.e. the beginning of the new tax year. The Minister, whilst conceding my argument, agreed only to introduce it with next year’s Tax Bill so that it would take effect from 1 April 2005. This was, amongst other things, to allow time for the IRD to consult with business and to produce a new set of tax tables etc.

However things have changed since last week. The Minister decided to handle the matter by way of a supplementary order paper to this year’s Tax Bill following consultation with Business NZ. Business NZ advised him that their preference is for the truly progressive option I have proposed to be introduced by an SOP for application from 1 April 2004. They pointed out that this would be much simpler for employers rather than delaying the matter for one year. I concur entirely with that. I think it would have been messy to have introduced this system in two changes, one applying just for 12 months from 1 April 2004 until 1 April 2005 and the other, and correct version, coming in at the later date only.

Needless to say I am delighted with this further development.

United Future secures super tax concession

United Future revenue spokesperson Gordon Copeland says Revenue Minister Michael Cullen has agreed to an important improvement in the tax regime relating to the withholding tax on employers’ contributions (SSCWT) to superannuation schemes for staff.

Government announced in introducing this year’s Tax Bill, a reduction in SSCWT from the current rate of 33 % to 21 % for employees within the $9,500 - $38,000 per annum earnings tax bracket.

This was to align the SSCWT rate with the marginal income tax rate of the employee. In other words, for tax purposes, the contribution would be treated as if it were additional salary.

“However this came unstuck”, said Copeland, “in relation to salaries in the range around $34,000 to $38,000. At that level an employer’s contribution of 10% would have tipped the total over the $38,000 tax threshold. Under the Government proposal, the whole of the employer’s contribution would then have been taken at the 33 cents level.

“That is incorrect. The portion of the employer’s contribution which falls below $38,000 should be taxed at 21 % not 33 %.

“Following my representations, Minister Michael Cullen accepts that this would be an over-taxation and has signalled his intention to rectify the situation as part of next year’s Tax Bill.

“The change will leave quite an additional amount of money in the pocket of tax payers. For example on a salary of $34,700 the SSCWT withholding tax on a 10% employer contribution will reduce from $1,145 to $749; a saving of $396.

“Thousands of employees will benefit since the $34,000 to $38,000 salary band is pretty much in line with the average level of salary and wages in New Zealand.”

Ends

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