Budget to flag new savings incentives

The biggest win for the savings industry in Thursday's budget is likely to revolve around extending tax incentives for retirement savings.

Currently high income earners (those on a marginal tax rate of 39c) are given a tax break if they put earnings over and above the $60,000 mark into a super scheme.

A number of groups, including the Investment Savings and Insurance Association (ISI) and the Greens have been pushing the Government to extend this tax break to people on other marginal tax rates (such as 33c and 19.5c).

Finance Minister Michael Cullen told the BIIA Super Summit in Wellington on Tuesday to watch this space.

Although he has been advocating changing the tax system for savings from TTE to TET, he is also considering the idea of extending the 6c tax break to other groups.

Earlier he said TET would cost the Government about $500 million a year in lost revenue. On Tuesday he suggested the cost of extending the 6c tax break was around $80 million.

He says the $80 million figure is "big but not terrifying."

At the conference he said he was keen to take an "intensive approach with the industry" on this issue to try and reach some "sensible outcomes".

He also said that his view had sifted somewhat and extending the 6c tax break maybe a good way of providing people with an incentive to save.

Greens co-leader Rod Donald says his party "has hammered" the Government over this issue.

This is important as the Government wants the Greens support for its super fund and may be prepared to use this issue as a bargaining chip.

Likewise the ISI has been pushing this issue with the Government.

The two other major items of interest in the Budget for the savings industry will be the future funding of the Office of the Retirement Commissioner and the implementation of the New Zealand Superannuation Fund to help partially pre-fund the state pension.

The industry has been pushing the Government to fully fund the ORC, yet Cullen (as reported earlier) reckons the industry should fund the office in partnership with the Government.

On the super front the Government hopes to have its dedicated super fund up and running (in a limited form) on July 1. It plans to put $600 million of taxpayers' money into the fund during the coming financial year.

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