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$1.3 billion budget bonanza for savings industry

Finance Minister Michael Cullen’s eighth Budget has delivered the expected boosts for savings – and then some.

Thursday, May 17th 2007, 3:00PM

by Rob Hosking

All told, the Treasury estimates an extra $1.3 billion will be held by superannuation funds by 2011.

As expected, there are tax enhancements for KiwiSaver. A tax credit of up to $20 a week, adding up to $1040 a year, paid directly into the saver’s account.

On top of that is a compulsory employer contribution, starting at 1% of an employee’s gross salary next April and rising 1% a year for the following three years. There will also be an annual fee subsidy of $40.

A bigger surprise is the drop in tax for portfolio investment entities (PIEs) and other widely held savings vehicles, to 30%.

That, plus the more widely publicised lower business tax rate, looks like a policy win for Labour’s support partner United Future, whose leader (And Revenue Minister) Peter Dunne has pushed for a 30% across the board rate for company, top personal and savings vehicles.

A win for the Green party is a requirement that KiwiSaver providers will have to disclose their approach to responsible investing.

That, says Cullen, “will allow providers to market themselves as responsible investors but also ensure fund members are aware of the portfolio decisions made on their behalf.”

A working party of officials and KiwiSaver providers is pllanned to develop guidelines on responsible investing. Arcus Investment’s chief economist Rozanna Wozniak says the changes will please the industry, and go much further then expected.

“It’s as if they’ve gone one step, and then steps, two, three and four,” she says.

“But I’m not sure every one is going to be too happy. The incentive to join KiwiSaver is pretty compelling but it is a cut in spending power, and that will be a very difficult decision for a lot of people.”

View more information about Kiwisaver in Supertalk here.


FACT SHEETS:

- Savings Vehicles

- International Tax

- Savers

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

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