Govt ponders tax changes

Despite the marked lack of detail in Prime Minister Helen Clark’s ‘ownership society” rhetoric last week, tax relief for savings appears to be on the way.

Thursday, February 10th 2005, 2:00AM

by Rob Hosking

Asked about broad tax relief on National Radio’s ‘Morning Report’ Clark immediately began talking not about tax rates but about changing the regime to one where people are taxed net of savings rather than on their gross.

She did not commit herself to this though, but added that she is “not ruling anything in or out.”

The prime minister’s office would not elaborate on the comments when contacted by Good Returns: instead Clark’s earlier statements about not writing a Budget in front of the media were reiterated.

The prime minister’s unprompted comments on the specific taxation of saving is however a clear indication that the government is revisiting earlier plans to change the present “TTE” regime for taxing savings.

Finance Minster Michael Cullen has previously spoken of his desire to change this regime, allowing some tax relief for earnings while savings remain unspent. J

Just under two years ago Cullen told Good Returns "If we can do something about the middle ‘T’ I think we can move towards a more favourable regime for savers…. There’s various options – some might go so far as having E in the middle, and an optional structure for certain sorts of long term savings.”

At the time he said the main issue was the cost to the government – “it’s a question of how you do this without giving yourself huge fiscal anguish over the initial five to 10 years."

With the present run of government surpluses running – again – higher than expected, the government now has the fiscal capacity to consider this option.

Investment Savings and Insurance Association executive director Vance Arkinstall says Clark’s speech, despite the lack of detail so far, represents a "watershed" for the industry.

“It’s the first time the prime minister has come in behind these issues so publicly.”

And on the specific issue of changing taxation of savings Arkinstall says there is a need for a change in thinking.

“We’ve got to get away from considering these as incentives and see them as deferring tax. If people are deferring consumption then perhaps the government should look at deferring taxation.

The tax will be paid in the end, and probably on a greater accumulated sum.”

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

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