Otago Property Investors Association Inc
Phone: 03 477 6220
Towards the end of last year, an organisation called the Financial Services Council (FSC) launched a campaign to reduce the tax obligations for Kiwisaver savings and some term deposits. The FSC is extremely well funded through the investment and life insurance companies it represents.
The FSC produced an extensive marketing campaign to sell its ideas and launched a petition to seek public approval. They claimed that the NZ Government imposes "the worlds harshest tax regime on long term savings" and set up a website encouraging people to bombard Government with emails and postcards.
The FSC rationale for savers being taxed less is that over time, inflation reduces the buying power of their investment. They argue that part of the interest they receive for their savings is to compensate for inflation, yet Government taxes them for this compensation portion of the interest they receive. Because of this, they believe that they should only have to pay tax on the interest they receive that is greater than the inflation rate. To cover the Government's lost tax revenue, they proposed that commercial borrowers, such as property investors, should only be able to claim tax deductions for the mortgage interest payments they make less the rate of inflation.
The NZPIF disagreed with the FSC views and wrote to the Ministers of Finance and Revenue to outline our concerns.
We pointed out that savers look at more than just tax and inflation when deciding how to invest. Key benefits that term deposits have over other investments are a lower level of risk and higher liquidity. As depositors have continued to invest in bank deposits over the years, they obviously accept the returns they make as fair for the benefits they receive. If not, they would obviously place their funds in another types of investment.
We advised the Ministers that the Co-Director of the Retirement Policy and Research Centre, Michael Littlewood, says that "there is no international evidence that tax concessions for retirement savings actually increase savings". This means that the only reason to apply such a policy is to increase the return for existing depositors.
We also argued that the FSC proposal transfers the cost of their tax deduction onto businesses and farmers as well as rental property owners.
For these reasons we requested that the Government should not apply any favourable attention to the FSC proposals.
We received replies from the Ministers saying that the Government has no plans to adopt the Kiwisaver tax changes proposed by the FSC. They confirmed that New Zealand has a broad based, low tax system and that Government is focussed on keeping taxes low across the board rather than favouring one group of taxpayers over another.
We are very pleased to receive the Ministers letters and applaud their stance.
Andrew King wrote this article for the NZ Property Investor
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