Budget preview: What's in it for the savings industry?

The savings industry is not expecting much in the way of concrete measures when Finance Minister Michael Cullen unveils his fifth Budget on Thursday.

Tuesday, May 25th 2004, 6:44AM

by Rob Hosking

That is in part because of the progress that has been made the last year. Back then, the industry’s shopping list was for removal of some of the red tape around workplace savings schemes, removal of the tax penalties for lower paid savers who take part in those schemes.

A substantial amount of progress has been made in those areas, says Investment Savings and Insurance Association chief executive Vance Arkinstall.

The regulatory requirements which hidebound workplace savings schemes have been lightened, and the tax treatment of income from those schemes is now more in line with the earner’s marginal tax rate.

There has also been an attitudinal shift within the bureaucracy.

“This time last year there was hardly any acknowledgment by officials that the tax and regulatory environment was hostile to savings. We have now got that acknowledgment and that is a major shift.”

The setting up of the group to develop a generic workplace savings product earlier this month is also seen as a good move.

“I don’t think we will see any tax movements in the Budget, but if we did they would be very focussed in a particularly savings product for the workplace. The chances of that though are not great.”

There have been signals of some tax moves in the Budget – the government has told the Opposition parties there may be a need for Parliament to go into urgency on Thursday and Friday, which usually means tax changes – but these are not likely to be focussed specifically on the superannuation area.

While there is a chance of measures to tidy up the taxation of investment income, this is very much an outside possibility. There has been a well-signalled process for this by Cullen and although the shape of those changes are still unclear, a Budget night ambush is highly unlikely.

There may though be further signals within the Budget speech of what form those changes may take, and whether – as expected – Cullen goes for the modified ‘risk free rate of return’ method of taxing investment income.

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

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