Thursday 17th April 2014
|Text too small?|
New Zealand's tax system heavily penalises KiwiSaver while offering massive tax breaks to property investors and needs to change, says savings lobbyist the Financial Services Council.
Its executive director, Peter Neilson, issued a plea to political parties on the issue, which sees New Zealanders relying on retirement savings to save nearly twice as much per week as necessary to secure a comfortable retirement.
"At a practical level this means a person on an average income would have to save $16 a day rather than $27 (63% less) to achieve a comfortable retirement income," said Neilson, a former Revenue Minister in the David Lange Labour government of 1984-90.
"For a typical person saving for retirement, just 10 percent of their retirement earnings comes from the initial contributions and a massive 90 percent from compound returns," said Neilson.
Yet the way compound earnings are taxed at the moment means a person paying the top personal tax rate of 33 cents in the dollar can expect to lose more than half (54.7 percent) of their KiwiSaver retirement income, "due to the impact of taxation over 40 years."
"New Zealand now has the world's most punitive tax regime for retirement savings when compared with investments in rental housing," he said. "If the same person invested in rental property their effective tax rate would be only 7.9 percent" if the property was based on a 20 percent deposit.
"If that period of ownership dropped down to only 10 years the rental investor would receive a tax credit, a payment from the IRD - effectively a subsidy for investing in rental property. We can't all be rental property investors," Neilson said.
The FSC proposes cutting the current KiwiSaver fund tax percentage rates of 28, 17.5 and 10.5 to 15, 8 and 4.3 respectively.
Paying for this would require sacrificing the $630 million annual cost of the $521 that KiwiSaver members can claim against their tax each year, but the $1000 tax-free KiwiSaver join-up incentive could be kept, said Neilson.
"Regardless of whether KiwiSaver is universal (compulsory) or voluntary, the over-taxation of KiwiSaver funds has to be addressed," Mr Neilson says. "Leaders of all parties should say if they support or oppose introducing fair taxes on savings. Fairer taxes will have a huge impact on the future incomes of New Zealanders when they retire."
No comments yet
AIA June 2020 Monthly Traffic Update and July 2020 Preview
PCT - Delivering on strategy underpins strong operating result
KFL - August 2020 monthly update
BRM - August 2020 monthly update
MLN - August 2020 monthly update
Further COVID-19 Restrictions at SkyCity’s New Zealand Properties
FY20 results guidance met, Results date, Banking Facility
Sky sells OSB assets to NEP NZ, secures 10 year partnership
NZX fully operational - announcement re COVID-19
Heartland Market Update