Budget goodies

Leaders in the financial services industry aren't expecting the Budget will deliver much for their industry.

While expectations are low there are a number of possible issues that will be of interest. The main ones are:

• The Government will increase the level of contributions to the New Zealand Superannuation fund from $600 million to $1.2 billion for the coming financial year
• Finance minister Michael Cullen will outline more details of imposing the risk-free rate of return tax model on offshore investments
• The Securities Commission may receive more funding
• Likewise the Retirement Commission, which had its budget cut last year, is likely to see more money and be moved away from the Social Services ministry.
• The requirement for workplace super schemes to have a prospectus will be dropped.
• Perhaps the most significant gem in the Budget will be an announcement about plans to give people on tax rates of less than 33% an incentive to save.

The increased contributions to the NZ Superannuation are almost a given, especially considering that the Government's tax take over the past year has been bigger than expected.

Also, Cullen signaled last night that the Government's bond programme in the next financial year would be smaller than in the previous 12 months.

One of the more interesting aspects will be what the minister has to say about implementing the RFRM of taxation.

The industry is still divided on the idea, and it is unclear what level of support the Cabinet has given it.

Increased funding for the Securities Commission and the Retirement Commission, if forthcoming, will be welcomed by the industry.

One of the biggest possible wins for the savings industry would be a policy which gives tax incentives for savings to people on tax rates of 33% or less.

Cullen acknowledged in a recent speech to the Association of Superannuation Funds that these people are being overtaxed.

"At the moment, we tax those contributions at 33%, and so overtax contributions for those with incomes below $38,000 a year. The best estimate I have is that we overtax employer contributions to super by about $29 million a year – a not inconsiderable disincentive by any standard."

He says that the cost of cascading the six cents tax incentive enjoyed by people on the 39 cent tax rate down through each of the marginal tax rates, it would cost around $80 million a year in forgone revenue.

Currently the Government says it can't afford that, but Cullen has asked the industry for ideas on how such a move could be achieved.