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Compulsory super not the answer to increased savings

Friday 10th September 2010 1 Comment

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Introducing compulsory superannuation would lead to a "modest" lift in national savings, though the overall impact on the economy would depend on how such a scheme is designed, according to The Treasury.

Treasury says, in a discussion document, introducing a compulsory savings scheme raised well-being and fairness issues, and could discourage low-income people from accepting work as they wouldn't be able to afford it.  

The document pointed out that if New Zealand introduced compulsory super, it would be unique in having such a saving scheme in conjunction with a "near-universal retirement income provision."  

Treasury‘s discussion document is to help provide some guidance for submissions to the  Savings Working Group, which is looking to boost New Zealand's overall savings rather than just retirement savings.  

The discussion document looked at issues beyond the group's terms of reference, including the NZ Superannuation Fund, NZ Super payments and interest-free student loans.

Interest free student loans discouraged people for saving for their children's education, and the loans themselves stoked students' appetite for debt, and acclimatised them for "consumption through debt rather than saving," the department said.  

Treasury, which has already flagged super as an area that needs an overhaul, said changing the age of eligibility and introducing means testing would encourage people to save for their retirement, and keep them in the labour force for longer.  

A comprehensive capital gains tax, which this government has already ruled out, would improve neutrality between debt, equity and property, and would help improve the integrity of the tax system, though it wouldn't increase savings in and of itself, Treasury said.  

Treasury secretary John Whitehead said the housing boom had played a part in New Zealand's deteriorating savings balance, as people were more inclined to take on debt as the value of their properties rose.  

Though Finance Minister Bill English wants the Savings Working Group to look at the fairness of KiwiSaver's top-ups, Whitehead said the scheme's "automatic enrolments are innovative," though there wasn't enough evidence this early in the scheme's life to say whether it had lifted the nation's savings.  

"It takes advantage of people's inertia to increase the savings total" and should help introduce a "habit of saving" in people, he said.  

 

Businesswire.co.nz



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Comments from our readers

On 10 September 2010 at 12:31 pm g murphy said:
"comprehensive capital gains tax". here we go again, tax people who make a effort in life. perhaps we should do drugs and drink piss and we would get a hand out called a benifit from the nz tax payer.
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