Stobo and Harris give budget the OK

The two men who headed the two big 2004 working parties on savings and investment issues, Peter Harris and Craig Stobo, have given a cautious thumbs up to the Budget announcements on savings.

Thursday, May 26th 2005, 6:49AM

by Rob Hosking

The Kiwi Saver scheme is based on work done by the Harris group on workplace superannuation, although it has some significant differences.

One of the key differences is that, unlike the initial Harris report, the government's package locks in the savings until the saver turns 65, and it will also provide a $1000 incentive for employees to stay enrolled.

It has also linked its package to initiatives that will encourage first homebuyers. Harris told Good Returns the terms of reference of his working group meant it was not able to look at the housing issue or recommend the government give any money away.

"We did say it depends how much the government puts in whether you can lock in the savings. If you want lock in you have to pay people for not being able to access their money."

The Harris group recommended 5% of salary, beginning at $27,112: the government has instead opted for 4% from the word go, with the option of going to 8%.

"No doubt that is something that will be discussed at the select committee stage. Four percent may be quite high if you applied it across the whole range, but the issue is that if it's too low you won't get a worthwhile amount by the time you buy a house."

Stobo also gave the Budget the thumbs-up, even though Cullen has rejected his recommendation for an Investment Savings Tax (IST) based on the risk free rate of return method of taxing offshore investments.

"I always said the foreign investment side of things would be very tough," says Stobo.

"I don't mind that they're looking at something else, so long as we get rid of the grey list countries."

"It was always clear that if the IST was not pragmatic enough then they would look at the alternative. The government is instead looking at a form of comparative value method, and will release a discussion document shortly.