by Rob Hosking
Finance Minister Michael Cullen has definitively ruled out an individualised accounts approach for government superannuation.
The approach has been advocated by New Zealand First (which has supported the government’s pre-funded scheme) and has also been suggested as a way of encouraging "tier two" personal savings.
Such an approach is "a snare and a delusion," Cullen told Parliament’s finance and expenditure select committee yesterday. "It's hard to see what the advantage is in that approach."
Individualised accounts only opened up the government to a wider long term risk, Cullen said.
Not only that but it was inherently regressive as it was based on individual income.
"The only benefit we have in New Zealand that is income related is ACC, and that is for very particular reasons. And it’s also one of the reasons the New Zealand social welfare system is relatively cheap compared to many other countries."
The costs of operating an individualised account system were comparatively high, Cullen said.
There also tended to be a high level of middle class capture.
On other savings issues, Cullen told MPs this year’s Budget would definitely contain measures to remove the current tax disincentives to save for those earning less than $38,000 a year.
There would also probably be an announcement on the government’s intentions on taxation of earnings of superannuation funds.
However, the government is proceeding very cautiously on these issues, he said.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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