KiwiSavers 'harshly' taxed compared to property investors, book claims
KiwiSavers are being "harshly" taxed compared to property investors, the authors of a book designed to fire up Kiwis over tax fairness claim.
Deborah Russell, senior tax lecturer at Massey University, and tax consultant Terry Baucher release Tax and Fairness this week, published by BWB Texts.
They claim the more than 2.7 million people in KiwiSaver are being clobbered by tax laws, while the roughly 130,000 landlords who own residential investment properties are much more lightly taxed.
The authors believe the favoured tax status of property has contributed to the property price boom, and note that Parliament has long been aware of this concern.
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"Inland Revenue estimated the gross residential rental income reported for the year to 31 March 2015 to be $2,008 million. After deducting the $701m of rental losses claimed, the net rental income returned and taxed was $1,307 million.
"Assuming a 33 per cent rate for individuals and trusts, and 28 per cent for companies, this implies a tax take of about $425m, or roughly $33m less than that relating to KiwiSaver funds and superannuation schemes."
And yet, at the end of March there was just under $39 billion in KiwiSaver, while there were $66.5b of mortgages on residential properties owned by property investors, on properties that were increasing in value rapidly.
The tax bill for KiwiSavers will leave them with less saved at retirement, the authors say.
But Russell and Baucher believe most people in KiwiSaver don't understand how harshly their savings are being taxed as a result of the little-known Foreign Investment Fund (FIF) rules.
They want to dispel that ignorance, and hope their book will get the public interested in tax fairness.
"As both the number of KiwiSaver members and the value of KiwiSaver funds grow, the current tax treatment appears increasingly harsh," they say.
"If membership is made compulsory, as has been suggested, then under present policy settings a very large and growing number of savers will be overtaxed relative to other assets."
They quote then opposition MP Lockwood Smith addressing Parliament in 2006, when he opposed the introduction of the FIF rules.
"This legislation will provide an even greater incentive for New Zealanders to bring back their money from overseas and invest in residential property here in New Zealand," Smith said. "People get the capital gains tax-free and the returns are far better, so why would they not? This is bad legislation because of all those complexities and distortions."
Both the OECD and the International Monetary Fund have repeatedly called for the New Zealand tax system to be reformed.
Russell and Baucher hope to fire up KiwiSavers to demand the tax system be made fairer, but also to spark a national debate about whether it is finally time for the wealthy to pay tax on their capital gains.
"People whose economic worth increases through earning salary and wages pay tax but people whose economic worth increases through some capital gains do not, which is inconsistent with the ideal of horizontal equity, whereby people who earn roughly the same amount of income pay about the same amount of tax. In addition, capital gains tend to be earned by people who have enough wealth to invest in long-term assets, yet those gains are not taxed," they say.
"We need to be able to discuss whether the tax we are paying is fair, whether it is well regulated and whether it is charged and collected in reasonable ways. We hope that this book has provided some of the tools for doing that."
When the public rebels against unfair taxation, governments can change.
Russell and Baucher cite the example of Britain's Margaret Thatcher, whose 11-year rule came to an end following civil unrest over her plan for a "poll tax" to replace property rates.
Russell will stand as a Labour candidate in Auckland's New Lynn electorate in the upcoming general election.
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