Campaign says savers overtaxed
The Government's tax take could increase if it cut taxes on savings, one of the organisations behind the Fair Tax for Savers campaign says.
Half of people's KiwiSaver earnings are being eaten up by tax, costing the average retiree more than $100,000, according to the new campaign, which is seeking a better deal for savers.
The campaign is backed by Age Concern, Consumer NZ, the Financial Services Council and the Taxpayers' Union.
They said other savings, such as term deposits, were also "overtaxed".
Financial Services Council chief executive Peter Neilson said income tax should be charged on the interest that savers received after subtracting inflation, not on all interest.
Revenue Minister Todd McClay said the campaign's arguments were not new.
"What is being proposed would likely result in a significant reduction in government revenue and disproportionately benefit those who earn the most and typically have more savings," he said.
"This would mean that tax rates would more than likely need to increase elsewhere to meet this reduction in tax take."
Taxpayers already made a significant contribution to retirement incomes through New Zealand Superannuation, $1000 KiwiSaver "kickstarts" and tax credits of up to $521 a year on KiwiSaver contributions, he said.
But Neilson said the tax credits matched the level of overtaxing of KiwiSaver, and the changes the campaign was proposing could be cashflow-positive for Inland Revenue, in part because they would have the flow-on effect of encouraging overseas firms to better capitalise their local subsidiaries.
It was the tax authorities in other countries who might lose out, he said.
"The likelihood is there would be a net positive overall impact on the fiscal position of New Zealand which may be enough to pay for, or make a big contribution towards, the KiwiSaver changes we are proposing," he said.
Age Concern chief executive Robyn Scott said taxing only the "real" component of interest payments on term deposits would improve the lifestyles of the elderly.
"We think this is a fairness and equity issue," she said.
Taxpayers' Union executive director Jordan Williams said the union's view was that taxing the inflation component of interest was "taxing an income the consumer never gets to spend".
The organisations behind the campaign will insert 120,000 postcards in newspapers that they will encourage supporters to send to MPs.