I wish to make a brief submission concerning a few key design features which I believe should be incorporated into work based savings in New Zealand.
- 1. Membership of schemes should always be voluntary with opt-out provisions for employees in a firm who do not wish to participate.
- 2. The over taxation of superannuation fund earnings needs to be addressed. My suggestion is that earnings be taxed at the marginal tax rate of the saver consistent with the procedures and the rates introduced this year for employer specified superannuation contributions. It seems to me that this provides a ready framework for application to work based saving schemes and other superannuation fund earnings (including the 33 cent cap). This will remove part of the present tax disincentive.
- 3. For similar reasons I favour an exemption from capital gains tax. I understand that this is also under review by Craig Stobo on behalf of the government. An important principle of tax neutrality is involved here. In most circumstances capital gains made through investment in rental housing, together with all forms of business investment, are tax free in New Zealand. Therefore it makes no sense, and in fact positively discourages, savings through managed investment and superannuation funds if they are treated differently in relation to capital gains tax.
- 4. As the SPWG has pointed out, access to funds saved is an important design feature for work based schemes. The goal should always be long term savings for retirement. However I believe it would be very worthwhile to allow employees to withdraw all of their savings on a one time only basis to acquire a house because home ownership itself is an important element of financial security in retirement. We should therefore encourage home ownership and signal that in the design of work based schemes because it is entirely consistent with the purpose for which they have been established. Put another way, home ownership is itself a form of long term savings and is also highly desirable from a social policy point of view.
A press release from the United Future party
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