In responding to a National Party claim that extending capital gains taxation as recommended by the Tax Working Group would mean that “the average person’s KiwiSaver” would be worse off, Tax Working Group Chair, Sir Michael Cullen said that the analysis failed to take into account the important TWG recommendations which would actually reduce tax on most KiwiSaver accounts.
“The Tax Working Group gave careful consideration to the impact that its proposals would have on KiwiSavers. Therefore, as complementary measures to an extension of capital gains taxation, the Group made four KiwiSaver recommendations (See recommendation 43 of the Group’s Final Report):
- Reducing the lower portfolio investment entity (PIE) rates for KiwiSaver funds (10.5% and 17.5%) by 5 percentage points each.
- Refunding the employer’s superannuation contribution tax (ESCT) on employer contributions for a KiwiSaver member earning up to $48,000 per year, with a phase-out of the rebate for savers earning over $48,000. KiwiSaver members earning less than $70,000 would receive a partial refund of the ESCT to their KiwiSaver balance.
- Ensuring that a KiwiSaver member on parental leave would receive the maximum member tax credit regardless of their level of contributions.
- Increasing the member tax credit from $0.50 per dollar to $0.75 per dollar of contribution (increasing the maximum annual benefit from $521 to $718.50).
“Three of these measures (reducing the lower PIE rates, refunding ESCT, and the parental leave initiative) were included in all four of the Group’s revenue neutral tax packages in Chapter 8 of the Final Report. These measures would ensure that, as a group, people earning less than $70,000 per year would have improved KiwiSaver outcomes if the Government adopted the Group’s recommendations for extending capital gains taxation (see table 8.3 of the Final Report for the tax cost/benefit for KiwiSavers from the different illustrative packages).
“If all of the TWG’s proposed KiwiSaver measures are adopted (as per Package 3 of the Group), then KiwiSaver members earning over $70,000 would also, as a group, be better off.
“While some individual KiwiSavers might not be fully compensated by the Group’s measures, for the most part, KiwiSavers would most definitely be better off.
“It’s good to have this national debate on tax and how we could be affected by the recommendations, but the debate should be based on full consideration of the facts”, says Sir Michael.
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 Some of the packages target the ESCT refunds to only those earning less than $48,000 per year.