Budget: Cullen outlines super changes
These are extracts from Finance Minister Michael Cullen's Budget Speech relating to savings.
Thursday, May 23rd 2002, 3:52PM
With respect to New Zealand Superannuation, the previous National Government had determined to lower the wage-relativity floor from the 65 percent base relativity level set in the 1993 multiparty accord to 60 percent. Restoration of that level to 65 percent by the present Government will cost some $684 million during the period over which the counting limit applies. The result is that a married couple on New Zealand Superannuation is now receiving $21 more a week than would have been the case under the policies we inherited.
For the fiscal year 2002/03 the operating balance is forecast to be $2.3 billion compared with the transfer into the Fund of $1.2 billion. For the outyears the operating balances forecast are $3.1 billion and $3.9 billion compared with Fund transfers of $1.8 billion and $2 billion.
The Government will, therefore, be placing New Zealand in a much stronger position for the future. Net Crown debt is forecast to be around 17 percent of GDP at 30 June 2003 and around 15.5 percent at 30 June 2006. The accumulated assets in the New Zealand Superannuation Fund will be $1.9 billion or 1.5 percent of GDP at 30 June 2003 and $8.9 billion or 6.3 percent of GDP at 30 June 2006.
Consequently, net debt minus the Super Fund assets will, at the end of the forecast period, be down to 9.3 percent of GDP. It will continue to fall rapidly thereafter with the surplus in the Fund forecast to equal net debt by 2009/10.
TAX
The second area of great interest to the Government is the taxation regime on superannuation. Considerable discussion has occurred on this matter. It now seems clear that the largest amount of leverage over savings behaviour at reasonable fiscal cost is likely to be achieved in relation to employment-based superannuation. As a first step, I am considering two options.
The first is to reduce the employers’ specified superannuation contributions withholding tax for those earning under $38,000 to their statutory marginal tax rate. The alternative is to extend the present 6 percent concessional rate enjoyed by those earning over $60,000 a year to all income earners. It is my intention that one or other of these changes will be introduced from 1 April 2004.
The Government is not considering upfront tax incentives. These are likely to have to be very large – with fiscal costs running to many hundreds of millions of dollars a year – before they have any desirable effect on overall savings. Their abolition in the mid-1980s represented sensible tax policy on both equity and efficiency grounds.
The third area of the tax system which requires attention to assist economic transformation are those aspects of the international tax regime and related matters which may encourage investment and skilled migration. The recommendations of the McLeod Committee in this area are under intensive study.
Possible avenues for exploration are the introduction of a time-limited exemption for overseas earnings for new migrants and the application of the risk-free return method to the broad area of offshore equity investment on capital account outside a business context. Officials have concluded that significantly lower rates of tax could not be restricted to new foreign direct investment except as a transitional measure. As a consequence, it seems unlikely that such a reduction would produce sufficient benefits to New Zealand to offset the welfare costs of raising revenue on other productive activity in New Zealand.
No decisions have yet been taken in these respects and given the complexity and likely controversial nature of any changes in the international tax regime, a further round of consultation with the private sector will be undertaken.
CONCLUSION
Above all, in that respect, we have begun to build up financial assets to help fund the longer-term costs of an ageing population. And we have done this while continuing to meet our long-term fiscal objectives and, indeed, exceeding them in many key respects.
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