NZ Economy: Where Will Money For Superannuation Rise Come From?
March 11th, 2010
John Key sought to de-fang the political onslaught of Grey Power lobbyists against the Govt’s planned GST increase by promising superannuitants a “double whammy” increase: a rise in the actual super rate plus tax cuts. These include the tax cut to their pension payments, and to any other income they receive from interest, dividends or part-time work. As well, because across-the-board tax cuts would increase the after-tax average wage, the superannuitants would benefit from a rise in “floor” super payments which are linked to the average wage. The effect would be to lift incomes of superannuitants quite significantly, and by an amount which exceeds the increase in prices.
Key says the compensation for the GST impact on low-income groups and superannuitants will be worth “hundreds of millions of dollars.” Given recent Treasury estimates which show revenue from a GST rise might be lower than in the Tax Working Group’s scenario, base broadening options might have to be wider than just changes to depreciation on property which earlier seemed to be the only TWG recommendation which had survived. Senior Govt sources have confirmed still “on the table” (read: almost certain to be implemented) are several other recommendations of the TWG.
An extra $500m revenue in aggregate could be secured on changes to the “thin capitalisation rules,” and by axing the extra 20% depreciation loading (over and above the normal rates) on new plant. Though the Govt has ruled out a comprehensive capital gains tax, it may well adopt the TWG’s recommendation the tax base needs to be widened (so there could, for example, be tougher rules around the time property can be held, without the profit on sale being taxed).
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Duncan Cotterill