Cullen's proposed tax changes
Finance Minister Michael Cullen outlines some major tax changes to savings.
Friday, March 7th 2003, 9:25AM
One of the difficulties with this recommendation is that it can result in people being required to pay tax even when their foreign investment has reduced in value.
There are, however, no easy fixes in this area and it may yet prove that the risk-free rate of return method is the best solution for some offshore investment. I am expecting a report on this shortly, and soon afterwards will make a decision on whether the proposal should proceed to become the subject of a discussion document.
To turn to a few further items on the tax policy work programme, earlier this year I signalled that I was interested in finding out whether the depreciation rules provide for depreciation of assets over their true economic life, accurately reflecting commercial reality. I have asked officials to look at whether this is the case.
The equitable taxation of savings for retirement remains a prominent issue on the tax policy work programme.
I do not believe that giving tax concessions for saving is a viable option. At the margin, in my view, you may bring about a behavioural change on the part of savers, but mostly it will be a matter of savers choosing tax-preferred savings over other types of savings.
On the other hand, current superannuation tax rules penalise this form of savings. Moreover, I am unconvinced that these tax rules recognise the special nature of retirement savings.
I am hoping that we will soon be able to introduce a progressive rate of tax on employers’ contributions to their employees’ retirement savings. This would deal with the current over-taxation of savings of those who earn under $38,000 a year.
Another anomaly in current law is the flat rate of 33 percent applying to savings in private superannuation funds. This results in the over-taxation of the savings of people who are on lower marginal tax rates, and the under-taxation of people on higher rates. In the longer term I would like to see the introduction of a system that eliminates these inequities. I am not proposing to re-activate the TOLIS proposal of some years ago, because of the associated compliance costs, but I have asked the industry and officials to provide some advice on possible mechanisms to address this.
One option is a lower tax rate on superannuation funds but, if considered, it would need to be targeted at retirement savings.
This is an extract from a speech Finance Minister Michael Cullen made to the to International Fiscal Association Conference.
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