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Douglas's new super plan

Former Finance Minister Roger Douglas has a new plan for superannuation.

Tuesday, January 14th 2003, 11:53PM

by Rob Hosking

Tax credits to fund superannuation, and other services currently paid for by general taxation, are being advocated by former Finance Minister Roger Douglas.

The savings issue is seen by Douglas as a crucial one if the centre-right parties are to attain government again. However he is highly critical of National’s approach – on superannuation and other issues – saying that the party is "frightened of its own shadow" and that its approach is to make Labour’s ‘tax and spend" policies work, rather than challenge them.

Douglas advocates splitting super into three groups.

  • Those already retired would continue to have their retirement income paid from general taxation.

  • Those within 25 years of retirement would get an individualised tax credit for their superannuation, with the balance to be topped up by the government and any private savings they may have.

  • Younger workers would put aside a tax credit for retirement.

The basics of the Douglas scheme are that every New Zealander over the age of 18 receives a tax credit of $4,000 in real terms each year. Interest would accrue annually at a rate of 7% gross, or 5% net.

The most radical part of the Douglas formula is that, over each individual’s life, they would be able to draw on their personal fund for various "life events" currently paid for by the taxpayer.

Those events include tertiary education, unemployment, ACC, sickness and other welfare entitlements.

They would also be able to draw on their fund if the amount accumulated is clearly in excess of what they would need for their retirement.

A tax rate of 15c in the dollar would apply to income earned by the fund, until such time as the overall tax rate drops below that rate.

One of the aims of the fund would be to allow a future government to steadily lower taxes. Over 40 years government spending would reduce by around 20% in real terms, Douglas says.

The fund would also provide a major source of funds for long-term capital markets, which in turn will have a positive impact on economic growth.

It would also reverse many of the wrong incentives in the current welfare system, he says. People would have a good reason to get off they benefit as soon as possible, because it would affect their retirement savings.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« New Retirement Commissioner appointedAMP & Good Returns launch superannuation website »

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