Govt looking at extending tax break for saving schemes

The Government is looking at extending tax breaks for the Kiwisaver scheme to existing workplace-based retirement saving schemes.

Finance Minister Michael Cullen in a speech prepared for delivery to a superannuation funds conference today said that officials were currently looking at extending the breaks.

The Kiwisaver scheme will have employer contributions exempt from withholding tax and this with other incentives such as start-up contribution of $1000 has led some to fear for the future of existing workplace savings schemes.

In the speech, which was delivered by Associate Finance Minister Clayton Cosgrove, Dr Cullen said extending the tax break would come at a significant cost.

"That will have to be balanced against competing demands on the fiscal purse and the impact an extension would have in encouraging greater savings," Dr Cullen said.

A spokesman for Dr Cullen told NZPA that Treasury was working on how much the extension would cost and no ballpark figure was available.

Speaking to journalists today, Dr Cullen said the Government was seriously considering the tax exemption extension and officials had been working on the issue for some weeks.

Dr Cullen said in the speech that any decision to extend the exemption would likely be on the condition the schemes met the same criteria as Kiwisaver schemes, notably that they were portable when people moved jobs and were locked in until retirement.

Dr Cullen said the British were considering a similar proposal to Kiwisaver, but were looking at a 3 per cent compulsory employer contribution.

"Interestingly, there hasn't been the outcry by UK businesses that I'm sure would have ensued had we proposed something similar in New Zealand," Dr Cullen said.

Under the Kiwisaver scheme, employees have to make a minimum contribution of 4 per cent of their income, though half of this can be made by the employer.

Dr Cullen said he hoped to foster a savings culture amongst employers without compulsion.

The speech underlined the Government's hope that Kiwisaver would be a catalyst for significant change in savings habits.

Dr Cullen and others have long been concerned that New Zealanders rely on home ownership for savings and tend to cash in gains made in housing value rises on consumer spending.

- NZPA