Copeland Gordon: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
Copeland Gordon: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
[Volume:613;Page:10111] 
GORDON COPELAND (United Future) 
: 
 I would like to take a brief call concerning Dr Cullen’s amendments to the specified superannuation contribution withholding tax on Supplementary Order Paper 170 which is being considered with Part 2 of this bill. 
I am delighted that the Minister of Finance has decided to introduce this important Supplementary Order Paper. I think it will give a very very fair outcome to taxpayers. Over 70 percent of all New Zealand taxpayers pay tax at a marginal rate of 21c in the dollar which is something that we frequently overlook. That is by far the overwhelming majority of taxpayers. For those people around the margin at the $38000 threshold it is important that this Supplementary Order Paper will determine that as long as their wages or salary in the previous year—or in the current year if that information is not available—are below $38000 they will in respect of the whole of the employer’s contribution enjoy that 21 percent rate. As it was originally introduced the bill provided that the whole of the amount in those circumstances was taxed at 33c in the dollar which would have been a clear case of overtaxation. 
Initially Dr Michael Cullen looked at a truly progressive rate—part of that amount being taxed at 21c and the other part at 33c—and there is now a move to tax the whole amount at 21c in the dollar. 
That is a great step forward. For once we are giving the benefit if one likes of that threshold-bracket situation to the taxpayer instead of to the consolidated account. It is a big step forward and I agree with Rod Donald that it sends a very important message to New Zealanders about the need for us to encourage private savings. Like Rod Donald I call on the Minister of Finance Dr Cullen to continue to work in this area because it is a step in the right direction. However on its own it will not get the job done. 
The next thing that needs to be tackled is the taxation rate on earnings derived from superannuation funds where again we have a flat rate of 33c in the dollar. As I have mentioned given that over 70 percent of taxpayers pay tax at 21c in the dollar they are clearly overtaxed in that regard. I think the solution to that is not difficult. I have had extensive discussions with the Investment Savings and Insurance Association and others who have expressed a willingness to undertake at their end—the investment end—the kind of compliance costs involved in allocating the earnings of the fund to each individual member and then deducting tax and sending a cheque to the Inland Revenue Department at the marginal tax rate of the employee. I would like to see that work move in that direction and I would like to see it pursued within the next year as well. 
I must say though that even then—like Rod Donald—I harbour some doubts as to whether that will be enough. We have a “taxed/taxed/exempt” superannuation regime in place at present. I sometimes wonder whether the overriding solution ultimately will be to grandfather the present scheme—I think we are one of the very very few nations in the world that has that approach—and go back to an “exempt/exempt/taxed” superannuation regime approach like most other nations in the world. I very much encourage the Government to keep working in that area because the stakes are high and we need to encourage more private savings in this country. 
Finally I say to Rod Donald that I am unable to support the amendments to Part 2 on his Supplementary Order Paper—which are now vetoed anyway—that would bring the rate back down by 6 percent to the lower tax bracket. The argument he put forward is actually based on a fallacy. He seems to think that the 33c rate for people on the 39c in the dollar rate is some sort of concession. The reality is simply that the Government increased the rate from 33c to 39c for people in the upper income bracket but at the same time it said that if people decide to contribute or have their employers contribute some of that into long-term savings for superannuation they would be taxed at only 33 percent. That is not really a concession in favour of high-income earners because they are already paying so much more tax than the people further down the chain. I do not think it is logical to say that because we are not taxing the people who are paying most—even in real dollar terms—of the tax in this country quite as much as we could be we should therefore give some relief to people down the chain. To me the logic of that does not stack up. Furthermore the officials advised the Finance and Expenditure Committee that that sort of system has been tried elsewhere notably in the USA and it was not successful.