Savings discussion document released

The Savings Working Group will consider a range of reforms, including dual income and capital tax, as they look at how to increase national savings.

Treasury today released the discussion document to guide the independent group.

The document, Saving in New Zealand - Issues and Options, showed New Zealand's savings were low compared to other OECD countries at about 0.3 percent of gross domestic product in 2009 and fluctuating between 0 and 6 percent over the last decade.

Private and business saving has been significantly less than government saving for the last 15 years.

A number of complementary policy changes were necessary to improve national savings, the document said.

Among the options were lowering personal tax rates, inflation indexation for taxes on savings and investment, partial exclusion of interest income, dual income tax with capital income at a low flat rate and labour at high progressive rates, and a capital gains tax.

International evidence shows the so-called tax-switch, increased GST and decreased income tax, as announced at this year's budget was likely to have only a modest impact on how much people save, the document said.

"This means that tax changes may have a part to play in a wider package of reforms to promote increased and more efficient national saving, but are unlikely to on their own deliver a significant increase in the level of national saving."

The current tax system also distorted saving and investment decisions because there were different tax rates on different types of savings and returns on savings accumulated over a long period are taxed at high effective rates.

The document said New Zealand Superannuation, student loans, the welfare system and subsidised health services reduced the need for precautionary and lifecycle event saving.

Finance Minister Bill English has said the Savings Working Group must work within the Government's current policy positions.

He ruled out changes to the eligibility age and amount for New Zealand Super and the Government has also stated a commitment to retaining interest-free student loans.

The Savings Working Group will also consider how KiwiSaver impacts on savings and possible changes to the scheme, including compulsory savings.