Budget makes big strides in superannuation

“Fairer tax laws for employment based retirement savings and a larger-than-forecast contribution next year to the New Zealand Superannuation Fund make this a super budget for super,” Finance and Revenue Minister Michael Cullen said.

“Under the present SSCWT (specified superannuation contribution withholding tax) rules, all employer contributions to superannuation funds are taxed at 33 per cent irrespective of the employee’s income. The effect is to overtax anyone on less than $38,000 a year.

“A tax bill, to be introduced within the next few weeks and to come into force in April next year, will offer a solution to this problem by allowing employers to tax contributions made on behalf of employees earning below $38,000 at 21 per cent rather than 33 per cent.

“We recognise there may be compliance costs involved with paying the lower rate so have made it optional rather than compulsory on employers. But we hope there will be a strong pick-up rate because employment-based super is one of the best ways of getting New Zealanders into long-term saving,” Dr Cullen said.

The change is expected to cost the government $7 million in foregone revenue in the first year and $29 million in each of the following three years.

“Budget 2003 also allocates $1.879 billion to the New Zealand Super Fund. This is significantly higher than the flat $1.8 billion flagged in the 2003 Budget Policy Statement and represents the full contribution rate according to the formula set down in the NZSF legislation.

“This is the third year we have been paying into the Fund and we have been gradually building up the rate of payment over that time with a view to reaching the full rate in 2004-05. The strong state of the government’s fiscal position has allowed us to bring that target forward by a year.

“It is indicative of the government’s long-term approach that we try in the good years to set aside a little more so that we have a cushion to soften the impact of the bad times when they occur,” Dr Cullen said.

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