NZ Savings Working Group Given Wide Brief

by Mary Swire, Tax-News.com, Hong Kong

25 August 2010

New Zealand’s Finance Minister, Bill English, has announced that an independent savings working group will have a wide brief, including the impact of the tax system, to consider how the country’s national savings can be improved.

"We have deliberately set wide terms of reference for the working group,” English said. “The only exclusions are superannuation, which this government will not change, and the broad taxation of capital gains or land, which we have previously said we will not introduce. Otherwise, we are not ruling anything in or out."

"Increasing our national savings and investment levels is a critical issue for New Zealand,” he added, “because of our heavy reliance on foreign capital. This has produced high and rising debt to the rest of the world, which cannot continue."

Net foreign debt - across government, households and business - jumped from about NZD100bn (USD70bn) in 2000 to almost NZD180bn currently, and forecast to be almost NZD250bn by 2014.

The savings working group will canvass a range of options, and encourage public debate, for improving New Zealand's overall savings performance, including government savings. It will develop a practical menu of options for the Ministry of Finance by January 2011.

It will consider all areas of importance to national savings, including fiscal policy and taxation. The latter will look at the impact of the tax system, particularly the taxation of income from savings and investment, on the level and composition of national savings and investment decisions.

This will also include the case for moving to a dual income tax system, where labour and income from savings and investment might be taxed at separate rates; and for the indexation or part-indexation of the tax system so that real, rather than nominal, income from savings and investment is taxed.

The working group will also consider the role of KiwiSaver in improving national savings, such as options where it is either voluntary or compulsory, and the fairness and effectiveness of current KiwiSaver subsidies.

The working group will be supported by the Treasury, which will shortly publish a discussion paper setting out savings and investment issues and trends.

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