By BRIAN FALLOW
The Government is to change the law so employers pay less tax on their superannuation contributions - but only if it is worth their while.
Speaking to a savings and fund management conference in Wellington yesterday Acting Prime Minister Michael Cullen said employers' contributions to employees' retirement savings were taxed at a flat rate of 33c in the dollar.
That resulted in the overtaxation of employees earning less than $38,000 a year as their marginal tax rates were much lower than that, he said.
This was inequitable and might discourage employees from taking part in employment-based superannuation schemes.
But Dr Cullen said some people had raised concerns about imposing further compliance costs on employers, especially at a time when they were increasingly concerned about the cost of providing superannuation schemes.
So legislation to correct the anomaly by aligning the rate of tax on employer contributions with the employee's marginal tax rate would be permissive rather than mandatory, he said.
A similar anomaly exists in the taxation of returns on savings while they accumulate in a superannuation scheme.
The returns are also taxed at 33c in the dollar, meaning workers' savings may be taxed more heavily than their income.
Previous work on correcting that was abandoned as involving too much in compliance costs for employers and risking a further reduction in the number of employer-backed schemes.
Dr Cullen plans to hold a forum this year to discuss ways of revitalising employer-based schemes, which now cover only one-eighth of the workforce.
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