Group proposes KiwiSaver tax break
KiwiSaver members should be given tax breaks and more freedom about where they invest their money, a working group has suggested.
The Capital Markets 2029 working group was tasked with developing recommendations to help revitalise the New Zealand equity market, which has struggled for new listings in recent years.
The group said it had observed a number of trends that could ‘‘undermine the effectiveness of capital markets and have longterm consequences for the country’s wealth’’.
They included a KiwiSaver regime that encouraged investment in lower-growth assets and had limited exposure to private markets.
A large number of New Zealanders were not actively participating in KiwiSaver, even though large numbers of people are enrolled.
Among its 42 recommendations, the report said New Zealand should move from a system where KiwiSaver contributions were made from taxed income, and returns were taxed, but the final withdrawal was exempt, to a system where both contributions and earnings were tax-exempt but the final payout was taxed.
The report said New Zealand generally taxed savings more heavily than other OECD countries.
A different tax system would provide a better outcome for savers, because untaxed returns would compound over the years.
People could sacrifice their income to KiwiSaver to reduce their tax bills.
Group chairman Martin Stearne said he believed New Zealand was out of step with the rest of the world.
‘‘The holding period is when the taxation of a long-term investor’s investment will have the most significant impact. As such, for this change to be effective it is also important the investment income is exempt or taxed at further concessionary rates through the duration of the KiwiSaver investment.
‘‘Taxing KiwiSaver on withdrawal still ensures that tax arises on such savings and investments, but that it arises at the appropriate time and on an aspirational greater amount than that which the current savings path may project.’’
The report said members should be allowed to self-direct and invest with multiple providers, and employers’ contributions should be mandated, with a stepped contribution rate for low-income owners, among other changes.
The NZX, Financial Markets Authority and Commerce Minister Kris Faafoi welcomed the report.
‘‘The report indicates areas where our capital markets are working well and this is pleasing to see,’’ Faafoi said.
He said work was already under way in a number of areas but the report would provide a starting point for further discussions.
Stearne said that next steps would include formal responses from the NZX and FMA, as well as from certain other parties to whom recommendations have been made.