“Without a significant ongoing incentive or element of compulsion few will choose to remain in the scheme.
Although the $1,000 government kicker initially appears attractive, generally the saver will have to wait to age 65 to receive it,” he says.
“There are unlikely to be many on lower incomes who can afford the 4% minimum contribution. The scheme is likely to appeal more to those wanting to buy a new home than those saving long term for retirement. An ongoing tax incentive would have been more effective.
However, Thompson says the ” look through” approach to collective investment vehicles - whereby income is taxed at the investor’s marginal tax rates- is a step in the right direction but again is unlikely to be hugely effective.
“It simply removes a disincentive that currently exists. It only benefits people with incomes under $38,000 many of whom are unlikely to have significant funds available for saving.”
Thompson says the increase in personal tax thresholds are “a joke” given that they don’t apply until April 1 2008.
“When the 39% rate was introduced the government said it would only apply to 5% of earners, it now seems about 12% are caught and this will only increase by 2008.”
“There appears to be no good reason why the changes couldn’t be implemented by April 1 2006. It is notable that the Australian tax cuts kick in more immediately,” he says. Many Australians will be paying significantly lower taxes than New Zealanders.
Thompson also noted that no change to the company tax rate is proposed which is 3% higher than the Australian tax rate.
“Rather than cutting taxes, the government is increasing taxes with the new carbon tax and capital gains tax on overseas shares. There are also other revenue-grabbing measures in the new Tax Bill introduced on budget day such as bringing forward the date for paying provisional tax and GST and taxing 9 to 5 leases.”
“All in all, I would say this is a budget which hasn’t really delivered much,” Thompson says.
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