There is no financial gain for New Zealanders to return money locked in Australian superannuation funds back to this country unless the Government makes significant changes to the tax system, consulting firm Mercer says.
The proposed changes, discussed at last week's anniversary of the Closer Economic Relations agreement, had been heralded as a huge progression for New Zealanders.
But based on financial modelling done by Mercer, the result was that without any complementary changes to New Zealand's tax regime, New Zealanders would be better off financially if they left their savings in Australia and picked them up, tax-free, from the age of 60, Mercer New Zealand business leader Bernie O'Brien said yesterday.
"Our modelling is from a conservative basis and errs in New Zealand's favour. But it still confirms that with New Zealand's current tax regime, leaving money in Australia would provide a better financial return.
"We welcome the closer alignment that makes it easier for New Zealanders to reclaim their retirement savings if they choose to. However, the only advantage of moving money from Australia back to New Zealand is a desire to manage all your retirement assets in one place."
Under the current tax regime, it did not make financial sense to transfer retirement savings back to New Zealand.
For an individual with a balance of $100,000, over 20 years they could be up to $36,000 better off if they left their superannuation savings in Australia.
All KiwiSaver schemes were invested in portfolio investment entities (PIEs) and had their investment earnings generally taxed at either 19.5% or 30%, depending on the saver's tax rate.
By comparison, Australian superannuation was generally taxed at 15%, he said.
Superannuation in New Zealand, especially KiwiSaver, should have a lower tax rate on investment earnings to attract capital into the scheme and encourage savings over time, Mr O'Brien said.
Mercer recognised benefits would be tax-free on retirement in New Zealand and that, in both Australia and New Zealand, certain asset classes received preferential tax treatment.
But the changes to shifting superannuation savings back to New Zealand would be pointless if the Government did not complement them with changes to the tax system.
Alignment of the tax rates within the PIE regime, or having a preferred tax rate, was critical to supporting New Zealanders to manage their finances, save for their future and encourage them to repatriate their capital back to New Zealand, Mr O'Brien said.
Standardising the tax rate at 17% - the weighted average of the new 12.5% and 21% tax rates from April 1, 2011 - would make KiwiSaver more attractive for people to join and would assist in attracting capital into KiwiSaver from within New Zealand and from Australia.
"If further tax changes are not made, New Zealand risks suffering from net migration of both capital and people to Australia. Based on rational financial decisions, we would expect net capital to flow across the Tasman towards Australia given the beneficial tax on investment earnings," he said.
Statistics New Zealand figures released yesterday showed the size of New Zealand's population gain through migration was showing some signs of recovery, although the loss of people to Australia permanently, or long term (PLT), continued to rise.
Departures went down 4.2%, following the previous month's 3.1% increase, but remain at elevated levels and supported by strong outflows to Australia.
The net PLT departures to Australia were 32,300 in the July 2008 year, compared with 25,500 in the July 2007 year.
That was the highest annual net outflow to Australia since April 1989 (32,600).
Departures to Australia were spread across both age and occupation groups.
Migrants aged 15 to 29 years accounted for 40% of the net outflow to Australia in the July 2008 year, those aged 30 to 44 contributed 23% and a further 13% were 45 to 59.
The departures were recorded in each broad occupation group, led by service and sales workers, professionals, and trades workers (each 2100).
There was also a net outflow to Australia of 13,200 people without an occupation, of which most were children or students.
National Party immigration spokesman Lockwood Smith said the number of people leaving to live in Australia in the past 12 months would have almost been enough to start an entire city of their own.
For the year ended July, 80,872 people left New Zealand to live somewhere else.
That was the highest loss for a year ended July since 1979 and the second highest loss on record.
The loss of people to Australia was even more alarming, he said.
The 45,731 people who left to live in Australia was only 4000 short of being enough people to constitute a city.
"Eight years ago, an incoming [Prime Minister] Helen Clark was reported as saying she was ashamed of the number of people leaving to live in Australia.
"Labour has squandered its opportunities to keep these people here," Dr Smith said.
