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Criticism of KiwiSaver Fund Taxation Proposals - Assumptions questioned
August 2014

We welcome the Chapman Tripp support for the Fair Tax for Savers Campaign proposal to tax only the interest income above the rate of inflation and allow a deduction only for interest costs above the rate of inflation.

Unfortunately, the Chapman Tripp Brief also attacks a proposal for KiwiSaver fund taxation that is not in fact the one the Fair Tax for Savers Campaign is actually promoting. The author of the Chapman Tripp Brief wrongly assumes that our proposal is to stop KiwiSavers paying income tax on their KiwiSaver earnings as they are earned and delay payment of tax until the KiwiSaver withdraws their funds at retirement. No such proposal has been made by the Fair Tax for Savers Campaign.
Chapman Tripp appears to have inadvertently made a "straw man" attack which wrongly assumes that the Fair Tax for Savers Campaign is proposing KiwiSavers pay tax at their marginal tax rate only when they withdraw their savings at retirement, having paid no tax on their KiwiSaver fund earnings prior to that date. But that is not what we are proposing.
Briefly, we have asked our politicians to "look at making the effective tax rates on savings the same as the marginal tax rates savers pay on their other income"
What this means is that the tax rates on KiwiSaver fund earnings during the period of savings need to be lowered so the impact of tax on those earnings is no greater than the marginal tax rate paid by that KiwiSaver on their other income.
When the Fair Tax for Saver Campaign was launched, along with the media release we distributed copies of the peer reviewed report on "The tax barrier to retirement prosperity in New Zealand" published last year. That report contains on page 43 the calculations showing that the effective rate of tax on KiwiSaver earnings over 10 to 40 years of saving are considerably greater than the marginal tax rates KiwiSavers pay on their other income.


Peter Neilson
Fair Tax for Savers
Chief Executive
Financial Services Council of NZ

 
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