Letter: Where's the evidence on tax incentives
Aon Consulting’s call for the government to take action on tax incentives for superannuation was a disappointing piece.
Monday, September 23rd 2002, 7:01PM
by Michael Littlewood
Aon Consulting’s call for the government to take action on tax incentives for superannuation (Good Returns, 20 September) was a disappointing piece. I would have expected actuaries to be interested in statistics, evidence, exploring alternatives and anticipating possible outcomes. That’s the sort of stuff that actuaries do. I realise there’s only so much that can be done in 3-400 words but Aon really could have done better.
First, a confession – I suppose I qualify as a member of Aon’s ad hominem class of "a voluble minority …. fooled by macro economic arguments [as I] have concluded that the total volume of savings may not increase." I can live with that.
Here’s Aon’s "evidence" for our apparently dire situation – employees’ savings have apparently "declined since tax incentives for superannuation" were "taken away". That’s it. No numbers; no discussion as to whether what has happened might have had something to do with other things; whether what has happened might even have been a good thing. No, because "more people than ever are becoming dependant [sic] on New Zealand Superannuation" the guv’mint has to do something.
There was, incidentally, no evidence of that increasing dependence – we just have to take Aon’s word for it.
Not good enough, I’m afraid.
Here’s some evidence that might surprise Aon – the recently released Net Worth of New Zealanders (Retirement Commission and Statistics New Zealand, 2002) showed the value of the median "economic unit’s" assets by category:
|
Asset class |
% of total |
|
Home (lived in) |
36% |
|
Trusts & other real estate |
27% |
|
Businesses |
9% |
|
Superannuation |
6% |
|
Bank deposits |
6% |
|
Other financial assets |
10% |
|
Other assets |
6% |
|
Total |
100% |
What Aon is actually saying is that it doesn’t like what New Zealanders have decided to do with their money now that tax isn’t the influence it once was. It apparently wants more than 6% in superannuation and less in …. well, what? And to what end? Higher returns? Greater flexibility? (No, that can’t be the reason because Aon wants to control how savers get their money out of "proper" superannuation schemes). Higher economic growth?
I don’t know why Aon wants more in superannuation because Aon doesn’t say. It sniffs a tax-subsidised boost to superannuation and that seems to be it.
I would like Aon to answer the following questions in its next article:
1. How come all the evidence coming in from overseas says that tax incentives change significantly where people save but don’t seem to increase national saving? The UK’s Sandler Review is the most recent report that Aon can respond to on this – there are several other similar reports (from Australia, the US and New Zealand). I assume Aon thinks that New Zealanders aren’t saving "enough" and thinks that tax incentives might change that. It’s time for us to see the evidence that this might happen.
2. If tax were lowered for savers as Aon suggests, for which group of taxpayers would Aon like to increase tax to pay for that? Farmers? Business owners? Beneficiaries? Non-savers? Perhaps an increase in GST or import duties? Based on the government’s own numbers, we may have to find anywhere from $80 million to probably $200 million a year. Some suggestions please.
3. If we need any sort of a tax break, why is superannuation saving better for New Zealand than, say, encouraging small businesses to grow? While Aon is answering that, it can perhaps comment on where most of that tax-subsidised superannuation saving might actually be invested – that’s unless Aon also proposes investment restrictions in exchange for the incentive.
4. Will superannuation schemes get a tax break to help them pay for the hugely complex controls that will inevitably be a part of any tax-based regime? Aon actually condemns its own suggestion when it grizzles about what it calls the present FWT "nightmare". Life with a wider tax incentive will be more, not less complex.
I don’t think tax incentives will help grow New Zealand in better ways than other uses of those tax dollars but I am prepared to listen and to debate the issues if Aon has any evidence to share with us.
So, come on Aon, let’s have some hard evidence and a more even-handed discussion of the issues. Don’t be frightened by the possibility that you might become part of the "voluble minority". You might actually enjoy the experience.
Michael Littlewood
Earlier Story: Future tax concessions for super savings
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