WELLINGTON - The tax treatment of private superannuation schemes will be part of the general review of the tax system a Labour-led Government would undertake, says Labour finance spokesman Dr Michael Cullen.
Under the present taxed-taxed-exempt (TTE) regime put in place by Sir Roger Douglas, retirement savings come outof taxed income, the earnings they make each year as they accumulate are taxed and the final payout is exempt.
In a speech to the Association of Superannuation Funds in Auckland yesterday Dr Cullen said the tax review would consider:
* Whether the TTE regime was the best long-term option.
* Whether there should be any form of direct tax incentives to save.
* How to deal with the fact that many people's savings were taxed at a higher rate than they were.
* What the appropriate tax rate for employers' contributions should be.
The TTE regime, he said, was an intergenerational tax grab, at the expense of future generations.
The taxman takes his cut up front rather than when the savings are paid out. But with an aging population, the need for tax to fund health care, for example, would be greater then than now.
"I am not in the least an enthusiast for direct incentives," Dr Cullen said.
"Nevertheless, we have ended up with a regime which is inconsistent with those operating in what might increasingly be seen as New Zealand's wider labour market, countries such as Australia, the United States, Britain and Canada. Our exemption on pay-out is not, in effect, recognised in other tax jurisdictions, and the taxation of the earnings in funds distorts savings decisions compared with non-taxed options such as real estate."
But Dr Cullen said that if all superannuation funds were moved rapidly out of the present TTE framework, the fiscal effect would be very serious in the short term.
Just under $2 billion flowed into retail superannuation funds, unit trusts and similar products in the year to June, suggesting that the revenue lost if they were tax-exempt would run into hundreds of millions of dollars.
New Zealand's households savings rate is widely seen as inadequate and discussions are under way between the Treasury and the Insurance, Savings and Investment Association on the subject.
