TWG responds to KiwiSaver claims
Tax Working Group Chairman Sir Michael Cullen has refuted a claim by National Party that the Group’s tax recommendations will impair the benefits of KiwiSaver Scheme.
In a response through the Media, Sir Michael said that the National Party analysis “failed to take into account the important TWG recommendations which would actually reduce tax on most KiwiSaver accounts.”
Four Recommendations
“The Tax Working Group gave careful consideration to the impact that its proposals would have on KiwiSavers. Therefore, as complementary measures to an extension of capital gains taxation, the Group made four KiwiSaver recommendations,” Sir Michael said.
These included (a) Reducing the Lower Portfolio Investment Entity (PIE) rates for KiwiSaver funds (10.5% and 17.5%) by 5 percentage points each (b) Refunding the Employer’s Superannuation Contribution Tax (ESCT) on employer contributions for a KiwiSaver member earning up to $48,000 per year, with a phase-out of the rebate for savers earning over $48,000. KiwiSaver members earning less than $70,000 would receive a partial refund of the ESCT to their KiwiSaver balance (c) Ensuring that a KiwiSaver member on parental leave would receive the maximum member tax credit regardless of their level of contributions and (d) Increasing the member tax credit from $0.50 per dollar to $0.75 per dollar of contribution (increasing the maximum annual benefit from $521 to $718.50).
According to Sir Michael, three of the above measures (lower PIE rates, refunding ESCT and parental leave) were included in all four of the Group’s Revenue Neutral Tax packages in Chapter 8 of the Final Report.
These measures would ensure that, as a group, people earning less than $70,000 per year would have improved KiwiSaver outcomes if the Government adopted the Group’s recommendations for extending capital gains taxation, he said.
“If all of the proposed KiwiSaver measures of the TWG are adopted (as per Package 3 of the Group), then KiwiSaver members earning over $70,000 would also, as a group, be better off. While some individual KiwiSavers might not be fully compensated by the Group’s measures, for the most part, KiwiSavers would most definitely be better off,” Sir Michael said.
He however agreed that a ‘national debate’ on tax is good.
What Simon Bridges said
The National Party attacked the proposals of the Tax Working Group and the following is a gist of the take of its Leader Simon Bridges on the KiwiSaver Scheme:
A Capital Gains Tax would reduce retirement savings for an average earner’s KiwiSaver by $64,000 over the course of their working life, making a nonsense of the Prime Minister’s claim that her tax plans are about fairness, Leader of the Opposition Simon Bridges says.
This literally poses a $64,000 question because that’s about the same as the average annual wage. Would the ordinary Kiwi be happy to work an extra year when their retirement is in sight?
No incentive to save
The estimated $64,000 reduction in value assumes a 45-year working life and is based on 15 per cent of a ‘balanced’ KiwiSaver fund being in Australasian shares, which would be taxed on an accrual basis on total annual gains. It also assumes the minimum employer and employee contribution rates.
For anyone making more than the minimum contribution it would be worse. At 4%, the value at retirement is reduced by $74,000 and at 8% it widens to $113,000. The more you save, the more you pay. We have not included the possible offsets because the Government hasn’t committed to them and in a whole package of changes, they may not lead to revenue neutrality.
Some Highlights
Tax the Capital Gain on sale of land, shares, business assets, intangible assets such as intellectual property.
Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate.
The tax would NOT apply to the family home, and personal assets such as cars, paintings, jewellery, and household appliances.
A holiday home WOULD be taxed on sale.
No change to GST and no exemptions for certain types of products, such as food and drink.
The Capital Gain on shares in companies would be taxed but in some circumstances capital losses would also be able to be offset against other income.
