48% say scrap KiwiSaver tax credit to fund tax cuts on savings

A Horizon Poll commissioned by the Financial Services Council shows KiwiSavers support removing the annual $521 members tax credit (MTC) to fund lower KiwiSaver fund tax rates.

$288,000 benefit from lowering tax on savings interest:

These proposed changes would mean someone on an average income, if they moved from a conservative to a balanced fund, could cut their KiwiSaver contributions over 40 years by $164,000 and reduce the impact of tax on their KiwiSaver earnings by $288,000.

In October 2013, Horizon asked 2850 New Zealand adults "If KiwiSaver were to become compulsory, the current tax credit would no longer be needed to encourage people to join.

The saving to the Government could be used to cut taxes on KiwiSaver investments to increase retirement incomes with lower contributions. How strongly would you support or oppose this?"

FSC Chief Executive Peter Neilson said: "More than 49% of KiwiSavers supported such a change while 11.5% opposed it. Even the 8% of KiwiSavers who only contribute just enough each year, $1042 to get the $521 annual tax credit, were more supportive (48.8%) than opposed (24.5%)".

The current effective tax rates on KiwiSaver funds are the highest we could find on retirement savings anywhere in the world compared to investments in rental property. KiwiSavers see the long term benefits from cutting KiwiSaver fund tax rates.

When tax removes 54.7% of your retirement nest egg after 40 years of saving compared with only 7.9% on rental property, KiwiSavers know something needs to be done.

Under the current KiwiSaver fund tax rates most New Zealanders earning between the minimum and the average wage cannot afford to save for a comfortable retirement at about 2 times NZ Super, currently $282 for each of a couple after tax.

All political parties need to lay out their plans to make KiwiSaver fund tax rates fairer he concluded.