Questions about size of sacrifice problem

The Financial Planners and Insurance Advisers Association has sounded a highly sceptical note about the Inland Revenue’s alarm about “salary sacrifice” packages.

Thursday, March 16th 2006, 6:00AM

by Rob Hosking

The FPIA says there is little hard evidence there is a real problem, and that what numbers there are – an increase in employer-paid withholding tax – can at least partly be explained in other ways.

“It is highly likely that some of this increase could be due to genuine superannuation activities by employers and employees in providing for employees’ retirement,” says the FPIA’s submission on the issue.

Revenue Minister Peter Dunne, speaking at an FPIA lunch in Wellington on Tuesday, defended the government’s examination of the salary sacrifice issue.

The first question from the audience following his speech was on the topic and Dunne conceded there is no hard evidence of a significant problem.

“On the one level you get told anecdotally that it’s happening, but on another level its difficult to get any idea of the extent of it. There is though enough evidence to suggest we should have a look at it.”

Dunne also told the meeting the government is not looking at a “blanket move” against salary sacrifice, only the more extreme examples of it.

The FPIA’s submissions argues the government, when it change the rules relating to the employer withholding tax, deliberately left the door open for salary sacrifice packages.

It quotes Finance Minister Michael Cullen as conceding at the time that top income earners would be taxed at 33% rather than 39% on their superannuation earnings.

“This incentive may persuade people to increase their superannuation savings, with some loss of potential tax revenue to the Government, but we are not averse to this,” Cullen said at the time.

On that issue, the FPIA says “there should continue to be Government funded encouragement to encourage people to save for their retirement,” and noting with approval that the IRD propose allows this to happen.

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

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