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Tax incentives provide little benefit

New Zealand should hang on to its system of not providing any incentives for savings, according to visiting academic Adrian Sinfield

Thursday, May 6th 2004, 1:44PM

by Rob Hosking

New Zealand should hang on to its system of not providing any incentives for savings, according to visiting academic Adrian Sinfield.

In the latest seminar on superannuation related issues organised by the Retirement Commission, Sinfield told a meeting in Wellington that tax incentives are costly and provide little if any benefit.

The warning comes just as rumours of a tax break for savings in Michael Cullen’s fifth Budget, due on May 27, are beginning to swirl in the capital.

Although virtually all OECD countries provide tax breaks for savings “it is one of the greatest cases of ‘emperor’s new clothes’ that I can think of.”

Sinfield, who is professor emeritus of social policy at the University of Edinburgh and whose specialty is pensions and tax, says the costs of the United Kingdom system of tax incentives is huge and the benefit goes to those already well off.

It costs the UK government just under £32 billion a year, when the various tax breaks and costs are added up, he says - or about 2% of GDP.

“Whenever there is a debate about tax relief for pensions there is very little focus on the cost,” Sinfield says.

And in the UK, at least half of the tax break goes to the most well-off 10% of taxpayers, with a quarter of it going to the top 2.5%. The bottom 10% get about 1% of the tax benefit, he says.

And he cites research from the World Bank, the OEVD, and other more recent research which shows that tax breaks do not increase the pool of savings.

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

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