There is support for removing the annual $521 KiwiSaver member tax credit to fund lower tax rates for the scheme, the Financial Services Council says.
It has been lobbying for some time against what it says is preferential tax treatment for residential property investment compared to investment vehicles such as KiwiSaver.
One of the suggestions it has proposed is that the Government should reduce the tax levied on KiwiSaver accounts, and finance the move by removing the $521 tax credit currently paid to members who contribute at least twice that, in each year.
The FSC said the change would mean someone who earns an average income, who moved from a conservative to a balance fund, could cut his or her KiwiSaver contributions over 40 years by $164,000 and reduce the impact of tax on their KiwiSaver earnings by $288,000.
It commissioned Horizon Research to carry out a poll asking New Zealand adults: “If KiwiSaver were to become compulsory, the current tax credit would no longer be needed to encourage people to join. The saving to the Government could be used to cut taxes on KiwiSaver investments to increase retirement incomes with lower contributions. How strongly would you support or oppose this?”
FSC chief executive Peter Neilson said more than 49% of KiwiSavers supported the idea and 11.5% opposed it.
“Even the 8% of KiwiSavers who only contribute just enough each year, $1042 to get the $521 annual tax credit, were more supportive (48.8%) than opposed (24.5%).”
He said: “The current effective tax rates on KiwiSaver funds are the highest we could find on retirement savings anywhere in the world compared to investments in rental property. KiwiSavers see the long-term benefits from cutting KiwiSaver fund tax rates. When tax removes 54.7% of your retirement nest egg after 40 years of saving compared with only 7.9% on rental property, KiwiSavers know something needs to be done.”