How long must we wait?

Low income-earning New Zealanders wanting to save for their futures learned recently they will continue to be disadvantaged because of a lack of government funding available to address a gaping taxation imbalance.

“Finance Minister Michael Cullen has spoken openly and often of wanting to boost work-based retirement savings”, says Paul Fyfe, managing director of ING New Zealand. “However, the Minister has now confirmed even the most basic step of eliminating an existing disparity will not be taken until at least April 2004.”

Since the introduction of SSCWT (or salary sacrifice) in 2000, high income earners, taxed at 39 per cent, have received an effective tax break of six cents in the dollar on earnings over $60,000 placed into a super scheme by their employer. Fyfe concedes this initiative has not resulted in a significant increase in inflows to superannuation schemes, but says it is nevertheless an incentive for saving. Meanwhile, the inequity remains where superannuation investors on lower tax rates are being taxed at 33 per cent (i.e. more than their personal tax rate).

“Introducing tax incentives as a means to encourage savings is a major issue that will continue to be debated and explored. However, as a first step and a quick win for everyone, the Government should at least remove the disincentives currently blocking saving.”

Fyfe believes the establishment of the pre-funded New Zealand Superannuation Fund will assist general public sector savings, but he says there has still been no real progress on the issue of private savings.

“New Zealanders have indicated over recent years they are very worried about financial security in their retirement years. They deserve some help in return for making the effort to save privately. “As a minimum, New Zealanders should expect and receive a level playing field where all investors receive fair and consistent tax treatment.”

This statement was released by ING.

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