NZ govt pulls plug on super package
New Zealand’s Labour government has back-tracked on its pre-election promise to introduce an income tax funded superannuation fund in the face of parliamentary op-position.
New Zealand’s Labour government has back-tracked on its pre-election promise to introduce an income tax funded superannuation fund in the face of parliamentary op-position.
Both the Alliance and the Green party, whose support Labour rely to remain in gov-ernment, have indicated they would not support the proposed dedicated superannua-tion fund.
The dedicated fund was intended to partially pre-fund national pension payments (New Zealand superannuation) by setting aside eight cents in every dollar of income tax.
However, Finance Minister Michael Cullen says discussions are still continuing on other ways of creating a superannuation fund.
Cullen says implementing the dedicated tax is less important than securing agreement around partial pre-funding and removing the uncertainty surrounding the current pay-as-you-go system.
“What I am most keen on trying to establish is firstly a firm framework as to what future entitlements will be because I believe very much that stabilising that set of in-stabilities that we have had for a long time, will have a crucial, beneficial impact on private savings,” Cullen says.
Head of the Investment Savings and Insurance Association (ISI), Vance Arkinstall, says he is very “comfortable” with the apparent change of Labour’s plan.
“Whatever path forward New Zealand superannuation takes needs widespread support and clearly the dedicated tax proposal didn¹t have this,” Arkinstall says.
“The ISI is pleased that Dr Cullen is taking a realistic approach and is not forcing it through at any cost.”
While the ISI applauds the on-going consultation Arkinstall says the uncertainty sur-rounding the long-term plans for New Zealand superannuation still need to be ad-dressed.
The ISI will shortly meet with Cullen as well as politicians from other parties to gather a complete political picture of their current views on superannuation.
Arkinstall also says the Government has listened carefully to industry opinions on how employer sponsored superannuation funds should operate in the new tax envi-ronment.
Labour recently hiked up the tax rate for those earning over $60,000 from 33 per cent to 39 per cent but indicated it would allow the tax to be avoided if earnings over that amount were placed in an employer super fund, which are taxed at 33 per cent.
However, in order to stop abuse of this loophole the Government has indicated it will lock in the savings till retirement or put a cap on contributions.
“We’re pleased at the way our views on how the employer super tax should be han-dled have been listened to by the Government,” Arkinstall says.
“We are confident the Government will adopt an approach that is more sympathetic to employer super.”
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