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Tax cuts unlikely to increase savings rate

A survey conducted by Armstrong Jones gives the Government and the financial services industry a message about tax changes.

Thursday, May 14th 1998, 12:00AM

by Philip Macalister

Many of the recent tax changes made by the Government are unlikely to increase the country's savings rate, Armstrong Jones says.
Recently the Government abolished the superannuation surcharge, it has legislated for tax cuts to come into effect in just over a month's time and it has introduced the tax credit scheme to theoretically smooth out the difference between personal marginal tax rates and the rate paid by many funds.
It hopes these changes will encourage people to save a greater proportion of their income.

A survey by Armstrong Jones however, says that is unlikely to be the net result of these changes because the public don't know about them.
"If the Government is hoping to use tax changes as a lever to encourage greater savings levels, then it has to tell the story more clearly. And if we’re getting a better tax environment for personal saving, the public needs to be better informed about it," Armstrong Jones managing director Paul Fyfe says.
The survey of 500 randomly chosen New Zealanders took place over a period of four days when advertising on television was advocating that people use their tax cuts to either save more or pay off their mortgage.
The data shows that a third of New Zealanders aged over 15 believe that people other than themselves will "save more" as a result of tax cuts, while 56% believe the cuts will have little or no effect on how much New Zealanders save for retirement.
"The most significant news is that it is the under-30s who are hearing the message about needing to save," Fyfe says. "Those in there 40s appear to be more worried by the cost of living or their bank debt."
When it comes to what the respondents themselves will actually do, the answer is more pessimistic. A vast majority, 82 per cent, say they won’t save any more or less. Less than 10 per cent say they will save more each week.
"Right now we are seeing the savings story being overshadowed by other concerns."
He says one of the reasons for the reluctance to change savings behaviour may be the result of poor information or knowledge. "Taxes are being changed, but most people are unclear about what these changes really mean."
At least a third of New Zealanders can’t recall what tax rate they are on.
Armstrong Jones believes that the Government and the financial services industry needs to take collective responsibility for encouraging and informing the public with regard to making personal provision for retirement.
« IPAC at odds with ISIGet your tax questions answered online »

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