Call for lower tax on savings

Last updated 15:29 29/07/2014

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A campaign for lower taxes on savings and KiwiSaver will be launched tomorrow.

The Fair Tax for Savers Campaign is being backed by Age Concern, Consumer New Zealand, the Financial Services Council and the Taxpayers' Union.

They argue the current income-tax regime "hugely overtaxes" savings.

One bone of contention is understood to be that income tax applies to the nominal as well as the real return that savers earn from their investments.

Labour deputy leader David Parker highlighted the impact of inflation on the tax treatment of savings during a debate at Victoria University yesterday.

If people were earning 4 per cent interest on a bank deposit, inflation was 2 per cent and their income was taxed at 33 per cent, they would be paying an "effective rate of tax" of more than 50 per cent on their savings, he said.

That was because two-thirds of their real return of 2 per cent would be eaten up by income tax.

The Financial Services Union argued in a report last year that the tax treatment of KiwiSaver compared unfavourably with property investment. This was because KiwiSaver contributions were taxed as income and earnings were taxed as they arose, eating into compound returns, whereas capital gains from property investment were often tax-free.

If nothing was done to address those issues, housing would become "increasingly unaffordable" and people would be left without sufficient savings to fund a comfortable retirement, the council said.

The Fair Tax for Savers Campaign would involve newspaper and online advertising. A website would be set up through which New Zealanders could ask their MPs for change, it said.

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