by Rob Hosking
Finance Minister Michael Cullen’s second Budget makes one thing clear: don’t expect any tax incentives for savings until the 2003/2004 financial year.
The table of "fiscal risks" included in the Budget tables – a table which covers items likely to alter the government’s projected operating balance over the next few years but which the Treasury cannot yet put numbers on – includes a new item for tax changes for superannuation funds.
Those tax rules are under review at present, but "any impacts from the review would not be expected to occur prior to 20003/2004.
For the savings industry, that is about the only hard new information in the Budget.
"I have, in a number of speeches, explained various options with regard to the reform of our savings regime," Dr Cullen said in his Budget speech.
"It is now time to start moving towards action." It is, he said, time for another report. Treasury officials are about to receive instructions to work with savings industry representatives on the best ways to boost private savings – the so called second and third tier savings to complement the government’s superannuation fund.
That review is to report back by the end of the year, so its recommendations can be worked in with the government’s broader Tax Review, and included in any subsequent changes to the overall tax regime.
There has been hope from the savings industry that the government will extend tax incentives for retirement savings. While starting from a view that special tax breaks for any particular activity are undesirable, Dr Cullen has indicated he is willing to consider changes if a tax regime can be devised which does not lead to leakage from government revenue or distort the normal functions of the markets.
While there is a tax break for high income earners if they put their earnings of above $60,000 into a superannuation scheme, there is no similar break for those in lower tax brackets.
Dr Cullen also again announced the initial contribution of $600 million to the New Zealand Superannuation Fund – an allocation which has become very well announced in recent weeks.
Budgeted allocation for further years is $1.2 billion, $1.8 billion and $2.5 billion respectively. The money will initially sit in the Treasury’s Debt Management Office, earmarked for the New Zealand Superannuation Fund. But the Fund itself, and the governance arrangements for it, would not be formally established until the New Zealand Superannuation Bill, now before the Finance and Expenditure Select Committee, was passed.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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