Cullen supports workplace super in the Budget

A new superannuation tax regime will be introduced from April 2004 - whatever it turns out to be.

Minister of Finance Michael Cullen earlier this afternoon outlined two clear options under consideration to encourage employer-based superannuation schemes.

Those options are:

• matching the withholding tax paid by employers to the statutory marginal tax rate paid by the worker; or
• extending the 6% concessional rate now enjoyed by those earning over $60,000 a year to all income earners.

"The government has concluded that employment-based superannuation schemes offer the greatest potential to encourage savings behaviour with the least risk to the revenue," Dr Cullen said.

Employers’ contributions are now generally taxed at 33% irrespective of the employee’s individual tax rate.

On the government’s pre-funded superannuation scheme, a further $1.2 billion was allocated, as well foreshadowed. The fund is scheduled to reach $8.9 billion by the 2005-06 financial year.

Dr Cullen said the fund would by 2009 balance out the government’s gross debt, which is still set to stay within 30% of GDP.

Meanwhile the Retirement Commissioner – who many hoped would receive a funding boost in order to help lift New Zealand’s level of financial literacy – has received slightly less funding than it received last year.

Elsewhere for the financial services industry, the Securities Commission gets a boost, although perhaps not as much as it would have liked – only $7.7 million, and that is spread over four years.

And on tax, Dr Cullen said the government is still considering some recommendations of the McLeod Tax Review.

These include the introduction of a time limited tax exemption or new migrants based on income sourced form overseas; and the risk free rate of return method (RFRM) for offshore equity investments.

Earlier there had been strong hints that a clear steer would be given on the government’s intentions for RFRM, but it is understood that Cabinet – especially Prime Minister Helen Clark – baulked at even talking of a new tax this close to an election.

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

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