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National's U-turn a retrograde step

Michael Littlewood says tax incentives are little more than a bribe to win an election.

Sunday, February 10th 2002, 11:12PM

by Michael Littlewood

The National Party's announced intention to introduce tax incentives for retirement saving is nothing more than middle class welfare, according to Michael Littlewood, a commentator on retirement income policies.

The international evidence is that tax incentives don’t work, are expensive to introduce and administer, favour the rich at the expense of the poor and don’t improve saving levels.

In fact, Littlewood says, it’s difficult to imagine any objective measure as the basis for thinking that a return to the failed policies of the past might be part of the way forward.

Littlewood challenged National to produce evidence that incentives might work on any measure it cares to name.

"I understand why National wants them" said Littlewood. "It’s the same reason that (Finance Minister) Michael Cullen was looking seriously at paying people to save. They both want to win the next election. Bribing taxpayers with their own money has worked in the past and National is hoping to repeat the medicine we have been given in the past.

However, it’s got nothing to do with the ageing population and the increasing cost of retirement incomes over the next 50 years."

The Treasury recently poured cold water on Michael Cullen’s own proposals for a capped, up-front incentive of the kind that Bill English described today. The cost is large, the effects are small to negligible and the progress towards consensus on retirement income policies would be retrograde.

Michael Littlewood said that we can expect the retirement savings industry to come out in support of National’s proposal.

The sellers of saving products are, of course, deeply self-interested in tax incentives.

New Zealand will go back to the days when the life insurance industry raced around before 31 March each year selling expensive, commission-laden products because of the tax breaks. That’s what happens in other countries and it’s what will happen here.

No government can offer a tax incentive without either reducing spending elsewhere or increasing tax. Michael Littlewood said that he will be interested to see who will be paying more tax or which government programme will be cut back to pay for National’s new initiative.

This is a press release from Michael Littlewood

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