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Partial tax incentives an option

Labour's finance spokesman Michael Cullen has added further details to his position on a change to the tax regime and capital gains tax.

Monday, July 26th 1999, 12:00AM

by Philip Macalister

Labour's finance spokesman Michael Cullen has added further details to his position on a change to the tax regime and capital gains tax.

Speaking at an Armstrong Jones-organised conference on Saturday Cullen indicated he preferred a taxed-exempt-taxed (TET) regime for retirement savings as opposed to the current TTE regime.

The TET regime is in effect similar to the 401K regime that has been so successful in the United States.

In the US an individual can save up to US$9500 each year in a retirement account and not be taxed on the interest earned. In effect it is a capped tax incentive to encourage retirement savings.

Cullen recognises such a major change in the tax system would create issues for people already saving for retirement, and solutions to the problem would have to be found.

One idea is to introduce some form of lock-in provision for money in TTE structured schemes and make sure the funds are not taxed on their earnings.

Cullen's other major comments related to capital gains tax and disclosure. While some commentators have been alleging Labour is already working on a design for a capital gains tax, Cullen indicated he is vacillating on the idea.

He acknowledged some funds are already disadvantaged as they pay capital gains tax, while others don't. Also, a capital gains tax would not be good for the country's important, but fledgling, venture capital market.

On disclosure Cullen says the cost imposed on employer sponsored schemes are too high. "The costs are becoming ridiculous," he says.

Labour is committed to a broad review of the tax system, and would seek a mandate from the public at the 2002 election for changes such as the introduction of a capital gains tax.

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