I disagree most emphatically with extra taxation on retirement savings in any shape or form. Remember that KiwiSaver contributions are made from tax paid money. I bitterly disagreed when the National government taxed the employer contributions towards KiwiSaver, on the grounds that we are trying to encourage people to save for their own retirement, and as such, it is just a tax grab.
However, it seems that Michael Cullen, the architect of the original Kiwisaver scheme, thinks it is perfectly fine to tax the capital gains made on Kiwisaver funds… even though, without them, even if you have a Kiwisaver fund, you will probably have a miserable retirement. quote.
Proposed changes to KiwiSaver by the Tax Working Group would redistribute wealth by boosting savings for low and middle income earners while reducing that of higher earners.
But it would do so in an overly-complicated way which could have unintended consequences, experts say.
Sir Michael Cullen’s Tax Working Group revealed a proposal to apply a capital gains tax to shares which would mean investments in New Zealand and Australian shares by KiwiSaver would be taxed on an accrual basis.
But to balance that out it has recommended that savers be compensated by one or more of four options; a refund of the tax on the employer’s KiwiSaver contribution for those earning under $48k and a claw-back for those earning up to $70k, an increase in the member tax credit and a reduction of the investment tax paid by those on the lowest rates. end quote.
And if you earn over $70,000… fabulously wealthy though you are… you will be considerably worse off. quote.
Taking both into account KiwiSaver provider Simplicity has worked out those earning $40k and investing in a growth fund would stand to gain about $109k extra in their pot at retirement over a life-time of saving while those earning $70k would be down under $1k and those on $100k would be down $13,536.
end quote.
Sir Michael really does love to tax ‘rich pricks’, doesn’t he?
If you earn $100,000 a year, you already pay 33% tax on 30% of your income, so the government has absolutely no right to take away chunks of your retirement savings as well, especially as this does not happen to savers on low incomes. quote.
The same calculations for investment in a balanced fund would mean all three income groups benefitted from the changes.
Sam Stubbs, Simplicity managing director, said the proposals were clearly aimed at redistributing wealth – giving more to the poor and taking away from the rich.end quote.
If you didn’t realise how much of an envy tax CGT is, look no further than this. This policy may also drive people away from KiwiSaver and into other retirement funds, as the disadvantages of Kiwisaver for higher earners are now becoming disparate… probably exactly as Michael Cullen always intended. quote.
Martin Hawes, a financial adviser who chairs the Summer KiwiSaver investment committee, said a low income couple who saved in KiwiSaver and were expecting a baby potentially had the most to gain from the proposals.
“The overall thrust of what they are proposing is that wealthy people will pay a bit more tax. But what they are doing is going to be quite complicated.”
But he doubted the changes would be enough to encourage a low income earner to join KiwiSaver – something the Labour party has been keen on doing.
“We are a low wage economy. It will shift the dial a little bit – those who are in and contributing will be saving more. But I don’t see it as enough of an increase to get people to lift contributions from 3 per cent to 8 per cent or sign up.” end of quoteA Newspaper. end quote.
Since its inception, a lot of people have joined Kiwisaver, and many now have retirement savings that they would never have had otherwise. This is true of both low wage earners and those who are better paid. These retirement savings should not, however, form a source of tax grab for a greedy government. If the government wants us all to save for retirement, then they have to provide an incentive. Taxing retirement savings even further is not going to encourage people to save for retirement. It will encourage people to spend the lot and depend on the government in their twilight years.