Cullen outlines plans for changes to savings tax regime

4.55pm

Finance Minister Michael Cullen says he will change the way employment-based superannuation is taxed by 2004.

In his budget speech today, he ruled out up-front tax incentives for all savings. They were too costly before they "had any desirable effect on overall saving", he said.

The easiest way to increase savings at a "reasonable fiscal cost" was by reducing the tax on contributions to employment-based superannuation.

Two options were being considered for implementation by April 2004.

"The first is to reduce the employers' specified superannuation contribution withholding tax for those earning under $38,000 to their statutory marginal tax rate. The alternative is to extend the present 6 per cent concessional rate enjoyed by those earning over $60,000 a year to all income earners".

Dr Cullen also said further work was still being done on encouraging foreign investment, but lashed out at those who criticised New Zealand as a high tax society in comparison to other countries.

"This assertion usually rests upon a misrepresentation, wilful or otherwise" of tax structures in different countries.

"New Zealand is highly unusual in having very little by way of social security taxes or levies ... this can give a very misleading picture if comparisons are made without taking all such factors into account.

"That New Zealanders themselves make such comparisons to the detriment of our image overseas in order to support partisan arguments domestically is a sad commentary on our inability to deal rationally with taxation issues."

Dr Cullen said he was still considering a "time limited exemption for overseas earnings of new migrants" to encourage rich foreigners to our shores.

Lower tax rates for foreign investment had been ruled out, but he confirmed a new agency would be created to attract such investment.

The Investment New Zealand arm of Trade New Zealand and Industry New Zealand's Major Investment Service would become a single body under Industry NZ. It would have a budget of $14.5 million over two years with around $5 million going into a new Strategic Investment Fund to attract foreign investment here.

On the other side of the coin he was looking at a "risk-free return method" for New Zealanders with foreign investment overseas. Currently variable rates of taxation apply to such investments depending on what they are and which country they are in. The risk-free return method assumes a rate of return for all investments and taxes them on that basis.

The policy was complex and another "round of consultation with the private sector was necessary".

- NZPA

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