Inflation-indexed tax on savings should work in theory: English

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Veiled support for inflation-indexed tax on saving and invest was the biggest hint Finance Minister Bill English dropped when announcing a new advisory group.

Wednesday, August 25th 2010, 5:33AM

by Paul McBeth

"The Australian review put quite a lot of work in that, and there's no doubt the group will pick up on that," English told a briefing in Wellington. In theory it should be easy to implement, but "in practise it's pretty difficult," he said.

The Henry Review in Australia supported a move to a 40% discount on the tax of income from bank deposits, bonds, rental properties, and capital gains and for certain interest expenses to encourage savings other than superannuation or for housing.

Though the government's response will be "positive about anything that will improve national savings," any response has to be fiscally neutral, English said.

English has asked the Kerry McDonald-led Savings Working Group to provide advice on how to improve national savings, with a specific focus on looking at the case for a dual-tax system, where labour is treated differently from savings and investment, though he does not want it to only look at retirement savings.

Though he would like to have a recommendation he can act on in next year's budget, English said it was not necessary for that to happen.

The working group will look at KiwiSaver as part of the mix, in particular the fairness and effectiveness of the $1 billion of annual subsidies when compared to non-members, and whether it should be a compulsory scheme.

New Zealand Superannuation, including the so-called Cullen Fund, has been excluded from the group's terms of reference, and it has to work within existing social policy settings, such as interest free student loans. English said it will not re-litigate a tax on capital gains or land.

The working group will also look at the make-up of the government's own savings, including long-term saving and debt targets and any offset between private and government saving.

The group aims to prepare a draft report by the end of the year, and return to the government in January.

Paul is a staff writer for Good Returns based in Wellington.

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