Recommendations

[M] Indicates main recommendations.

The Savings Working Group:

Policy

[M] Recommends a more integrated and strategic approach to economic policy.

[M] Recommends that government pursue with urgency an increase in national saving of some 2% to 3% of GDP.

Fiscal policy

[M] Recommends a return to a fiscal surplus of not less than 2% of GDP earlier than the projected date of 2016, and maintain that level of surplus in the medium term.

A high-performing public sector

[M] Recommends that the government set a target for public sector productivity and performance improvements of the order of 2% a year for the next five years and 1% thereafter, with a clearly defined measurement basis and significant incentives/penalties relating to those targets.

The Crown's balance sheet

• Supports moves to improve current management of the Crown’s balance sheet, and endorses the publication by the government of its investment statement, which provides an overview of government’s investment intentions.

Tax policy

[M] Recommends that at a minimum, interest income and expenses be indexed at a notified standard rate for tax purposes that reflects the rate of inflation (e.g., 2% per annum), and that asset cost bases for depreciation and, potentially, trading stock opening balances are also indexed.

[M] Recommends that the portfolio investment entity (PIE) tax rates should be changed to target a rate reduction for all investors closer to a benchmark of 5 to 10 percentage points below investors’ marginal tax rates.

[M] Recommends that PIE tax rates be applied to interest and dividends subject to resident withholding tax (RWT). As with PIEs, the RWT would be a final tax unless the investor has declared the wrong rate.

[M] Recommends that interest deductions related to PIE and RWT income be reduced consistent with the above lower tax rates on income.

[M] Recommends that imputation credits be refundable to the extent that an investor’s RWT rate is below 28%.

[M] Supports a continuing switch from income tax to consumption tax, and consideration of an increase in GST from 15% to 17.5% (together with compensating income tax and benefit changes for lower income earners).

• Recommends that changes to the thin capitalisation rules, to further reduce the safe harbour ratio, should be considered if the recent reduction to 60% does not result in many companies having to adopt their world-wide group ratio as a benchmark.
• Recommends that the tax base should continue to be broadened and tax rates kept low.
• Does not recommend implementing a full Nordic/Dual approach to taxation.
• Supports mutual recognition of imputation/franking credits between Australia and New Zealand.
• Notes investor frustration in relation to the regime (fair dividend rate or FDR) that applies to the taxation of non-Australian-listed off-shore portfolio holdings.

Compulsion

[M] Recommends that membership of KiwiSaver remain voluntary at this time.

KiwiSaver design

[M] Recommends auto-enrolment of all employees aged 18 and over (or 16 or over – see below) who are not currently in KiwiSaver, but with the ability to opt out.

[M] Recommends reducing the starting age of full KiwiSaver membership from 18 to 16.

[M] Recommends spreading the kick-start payment over a five-year period, and making payments contingent on ongoing contributions.

[M] Recommends keeping the minimum employee contribution at 2% of earnings; but increasing the default contribution rate to 4%, with the ability to opt down to 2%.

[M] Recommends applying the employer superannuation contribution tax (ESCT) rates to all employers’ contributions to KiwiSaver.

[M] Recommends permitting partial withdrawal earlier than NZ Superannuation eligibility age for people with shorter life expectancy, in order to increase KiwiSaver participation.

[M] Recommends not allowing employers to give non-KiwiSaver employees pay increases to compensate for not receiving KiwiSaver contributions. In other words, do not allow a “total remuneration” approach.

[M] Recommends reducing costs, fees and expenses – thus increasing returns, including by creating a single low-cost default scheme.

[M] Recommends rationalising the default scheme so it invests only in index-based shares and bonds and offers a limited number of basic combinations for such investments. Members are then able to select one mix or default to an age-related transition programme through the different mixes.

[M] Recommends creating an additional low-fee, ultra-low-risk fund that invests only in short-term government securities.

[M] Recommends requiring all superannuation fund providers (including KiwiSaver providers) to produce regular, clear and simple reports that show all fees and other charges, and the investment return to the individual after all costs.

Other options to be considered:

• Auto-enrolling self-employed and non-employees aged 18 and over, and possibly also younger people, who are not currently in the scheme, with the ability to opt out.
• Removing or reducing the government-matched contribution for those on higher incomes.
• Permitting self-managed funds.
• Increasing the rate of member tax credit to $2 for every $1 contributed – either with no change to the current maximum annual credit limit, or in conjunction with a reduction in the current limit.

NZ Superannuation Fund

[M] Recommends the continuation of the NZ Superannuation Fund, and consideration of contributions to the Fund on average across the economic cycle to maintain the unfunded liability at a stable percentage of GDP.

[M] Recommends that consideration be given to changing the funding method of the Fund, for instance, through the introduction of a dedicated social security tax (with an offset to ordinary income tax).

Annuities

• Recommends giving investors receiving lump-sum retirement payments the option of converting some of their payout into an income stream. The government should consider helping to develop an annuities market, providing annuities, or providing the ability to buy an increased entitlement to NZ Superannuation. All of this should be done on a full cost-recovery basis.
• Recommends considering whether members of KiwiSaver should be required to take some portion of their withdrawal in the form of such an annuity/NZ Superannuation increase (rather than as a lump sum).

Other long-term saving

• Recommends extending KiwiSaver-style incentives to other saving schemes where contributions are locked-in for reasonably long periods, say a minimum of 10 years.
• Recommends the government consider facilitating long-term investment by issuing inflation-indexed bonds.

The role of business in the national saving debate

[M] Endorses the need to enhance business profitability.

Financial literacy

[M] Encourages all agencies to work together to improve the quality, quantity and evaluation of their initiatives.

[M] Recommends that increased resources be applied to improving financial literacy, including making it part of the compulsory school curriculum.

[M] Supports the work being done by the Ministry of Economic Development on the regulation of periodic reporting for retail KiwiSaver schemes.

• Endorses the recommendations of the Young Enterprise Trust.
• Suggests that the government consider charging a low rate of interest on student loans after a student has graduated.