NZ Super Fund returns lowered

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The government has revised downwards the expected return from the New Zealand Superannuation Fund.

Thursday, December 18th 2003, 11:38PM

by Rob Hosking

PRG REPORT OUT TODAY

The Periodic Review Group's report on the state of superannuation in NZ will be released at 9am Friday. Good Returns will post a story about what the report says, plus reaction soon after it is released.

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Tucked away at the bottom of a page in the December Economic And Fiscal Update, released by the Treasury today, the Treasury says the new long run net after tax return is 6.8%. That is down form 7% at the start of the year, and 7.5% when the fund was announced.

The change is based on advice from the Guardians of the New Zealand Superannuation Fund.

The economic release also shows the government could reap an extra $20-40 million a year from the proposed changes to how offshore portfolio investments are taxed.

Those options, announced on Tuesday, could pull in extra revenue “expected to range from being broadly operating balance neutral to increasing the operating balance by between $20 million and $40 million per year,” according to the DEFU notes.

That may be offset by tax changes elsewhere, however. In a briefing to journalists Finance Minister Michael Cullen dropped a heavy hint that tax changes for superannuation are on the way.

In ruling out across -the-board tax cuts, Cullen suggested that the government would be foregoing revenue in some specific areas.

“There will be more material coming out soon in the savings area that will be fiscally negative, and that will have to be paid for.”

That, and other tax changes in the family assistance area, would take priority over reductions to the company tax rate.

Cullen has previously indicated enthusiasm for the ‘TET’ tax model of savings: taxing individuals at income, allowing earnings from savings to be tax free, and then taxing the drawdowns on those savings.

The current ‘TTE’ model leaves the drawdowns exempt but taxes earnings.

The Treasury has in the past opposed the TET model and in 2000 talking Cullen out of the notion because of the cost to government revenue.

With the state’s coffers now bulging at the seams, Cullen is understood to be looking at the idea again.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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