Surpluses could fund savings

Finance Minister Michael Cullen has refused to rule out using some of his massive surpluses to boost savings. Earlier this year preliminary work on the government’s business tax review included an analysis on a tax cut which would be the basis of a compulsory savings regime.

Thursday, December 21st 2006, 6:58AM

by Rob Hosking

Revenue Minister Peter Dunne told Good Returns in June the work was a serious option, but that it had not been taken further because “the numbers didn’t add up”.

The government has refused a request by Good Returns for the official papers relating to that work – which is highly unusual for work on a policy which has been discarded.

Meanwhile the government’s surpluses have roared on, well above predictions – and this has been at the bottom of the economic cycle.

Cullen, in releasing the government’s Half Yearly Economic and Fiscal Update this week justified not offering larger tax cuts because people will spend the money rather than save it.

Asked whether tax cuts would be more economically desirable if they were put into compulsory savings, as an add-on to KiwiSaver, Cullen would only say that “we’re not thinking in those specific terms…it’s far too early for that.”

Good Returns understands the government is interested in some form of compulsory savings, and that Dunne, along with Associate Finance Minister Trevor Mallard, is particularly keen.

Cullen has always batted away suggestions of a compulsory savings regime similar to the Australian one, pointing out that the Australian policy was the result of particular circumstances at that time.

However those some of those circumstances – the need to provide a non-inflationary wage increase – are beginning to emerge here, and if the government could provide compulsory savings by way of a tax cut, without taking any extra out of people’s weekly pay packet, the political attraction is significant.

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

« Commission bans contributory mortgage broker

Sovereign takes regulation bull by the horns »

Special Offers