About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   tmmonline.nz  |   landlords.co.nz
Last Article Uploaded: Tuesday, November 19th, 12:34PM
rss
Latest Headlines

Researchers: Re-think PIE regime

Government should level the tax playing field for all savings and savings-related investment vehicles, not allow the PIE regime to provide unnecessary incentives for high-earners, two researchers say.

Monday, November 5th 2018, 6:00AM 1 Comment

The Tax Working Group is developing a final report on its recommendations for the future of tax policy.

It has recommended removing tax on employer KiwiSaver contributions for people earning up to $48,000 and a five percentage point reduction in the lower PIE rates for savings in KiwiSaver accounts.

Pension researcher and founder of SuperLife Michael Chamberlain has since analysed recent data on all KiwiSaver schemes published by the Financial Markets Authority. 

He said returns for the 12 months to June 30 illustrated the TWG’s recommendation on investment returns would have made little difference for the lowest-paid savers.

“Of all the ‘balanced’ funds at  June 30, the average return before tax but after fees was 9.15% for the 12 months. 

"After tax at the top PIE rate of 28%, the average net return was 8.48%.  In other words, the highest-paid KiwiSavers paid a tax rate of just 7.36% on their investment returns, compared with 33% on their other taxable income.  That was a huge tax advantage for the highest paid.

“Cutting the middle PIE rate from 17.5% to 12.5% for a 17.5% taxpayer, as the TWG recommends, would have meant an increased after-tax return of 8.85% instead of the 8.73% return they actually received; practically no difference at all.”

Chamberlain said the issue should be removing the current tax favours for the highest paid, in the light of the international evidence that they did not work.

“Tax breaks for retirement are very expensive, distortionary, inequitable, regressive and demand high, growing regulatory walls around affected assets, to ensure the incentives are not ‘misused’.  But worst of all, tax incentives seem not to raise overall savings.  That’s also likely to be the case for KiwiSaver but we need to find out.  The TWG hasn’t bothered to do that.”

Chamberlain and colleague Michael Littlewood’s submission suggested that instead, the TWG should level the tax playing field for all savings and savings-related collective investment vehicles, so that everyone paid their appropriate amount of tax and tax did not distort an individual’s behaviour.

Chamberlain said there should be no tax advantages for any vehicle over another vehicle.

"People should have to pay tax at their correct marginal rate. Any tax system that encourages people to change behaviour for tax reasons is wrong.  The PIE regime that confers a 5% advantage on the top taxpayers is wrong.  The PIE regime is also wrong as if you qualify one year for a 10.5% tax rate you keep it for two years irrespective of your income in the second year.  Likewise if you have a 28% tax rate and you retire and go down to minimal taxable income you have to keep the 28% rate for at least a year.

"If I buy NZ/Aussie shares directly and hold them long-term - ie not trade - I pay 33% tax on the dividends.  If I trade them I pay 33% tax on the gains as well.  If I do the same through a PIE vehicle I only pay 28% tax and do not have to pay tax on the capital gain.  There is no logic to this from a ‘fairness’ text."

Littlewood said there was an underlying assumption that needed to be challenged. "What is it about retirement saving that deserves this special treatment?  That’s what should be addressed before we start analysing the different tax treatments of different saving instruments.

"What is it that the government knows about retirement saving in particular that deserves special treatment?  Where is the evidence that New Zealanders need help to understand whatever it is that the government seems to know and that we savers do not know?"

Tags: PIE tax tax working group

« [The Wrap] Bank D-Day loomingBanks told: Make sure you know what advisers doing »

Special Offers

Comments from our readers

On 5 November 2018 at 3:33 pm Tash said:
I must be missing something. Seems Mr Chamberlain is assuming all returns under the PIE are taxable income????
My intellectual level and obvious ignorance do not permit me to understand his argument. Perhaps it's all ideological?

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
  • When is a client really a client?
    “And this subtle upgrade to the understanding of a complaint. Which changes the ISO definition from an expression of dissatisfaction...”
    23 hours ago by JPHale
  • When is a client really a client?
    “Just released additional standards from the FMA. Record keeping potentially until 7 years after the death of the life...”
    23 hours ago by JPHale
  • When is a client really a client?
    “@ReganT interesting that the two life advisers involved with the code working group discussion are the ones being argued...”
    1 day ago by JPHale
  • When is a client really a client?
    “In a previous reply I responded to the concept of payment as a trigger. I actually agree it’s not. While we don’t often...”
    2 days ago by regant
  • When is a client really a client?
    “Tash are you being deliberately obtuse? I didnt say you have to keep sending/giving disclosure every year, I said you have...”
    2 days ago by regant
Subscribe Now

Weekly Wrap

Previous News

MORE NEWS»

Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

Last updated: 15 November 2019 4:16pm

News Quiz

The maximum remuneration model for Australian life insurance advisers is to be set at what?

Upfront 40% + trail 20%

Upfront 50% + trail 10%

Upfront 50% + trail 20%

Upfront 60% + trail 10%

Upfront 60% + trail 20%

MORE QUIZZES »

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com