What you can look forward to in the Budget

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Rob Hosking outlines many of the goodies that the savings industry can look forward to in today's Budget.

Thursday, May 19th 2005, 6:42AM

by Rob Hosking

Definite is a removal of the capital gains tax on active managed funds.

A clearer indication of where the government is heading regarding how investments are taxed is also expected.

The government has signalled that it has ditched the “risk free rate of return” method for taxing offshore investment and is now taking another look at the comparative value option.

That though does represent something of a U-turn by the government – the CV option is basically a form of capital gains tax, Cullen has previously said – many times – he does not want anything that looks like a capital gains tax.

The CV method is though already used to calculate some offshore investments, and it can be argued the government is not actually introducing capital gains tax.

That option will also involve abolishing the “grey list” countries and mean less investments being made on the grounds of tax.

Cullen is not expected to announce any firm decisions on this but rather give an indication of direction. A discussion document is likely over the next couple of months.

Elsewhere on the tax front, the move to a “look though” tax regime for onshore investments, recommended in the Craig Stobo report last year, looks likely.

That tax change will mean investments in superannuation schemes will be calculated at the taxpayer’s marginal rate and not at the current 33% rate. That will remove the attractiveness of the “salary sacrifice” packages.

The centrepiece of the Budget will be workplace savings. It is not yet clear whether there will be a tax component to this package. Cullen has ruled out tax incentives, although his more recent comments have been more equivocal, talking of a package which “does not rely too heavily on either the notion of compulsion or the manipulation of the tax system.” [italics added].

The workplace savings scheme will be based on the proposals outlined in the Peter Harris working group last year.

That report suggested making it compulsory for employers to offer access to superannuation schemes, but did not recommend any compulsory employer contribution.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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