Monday, March 1, 2010
New Zealand’s Prime Minister, John Key, has said that superannuation payments will immediately rise in two separate ways if the government decides to increase goods and services tax (GST).
The government is said to be considering a tax reform package switching from direct to indirect taxation with across the board tax cuts and changes to property taxation, that might include a rise in GST from 12.5% to 15%.
In a speech, Key outlined how the package’s changes would increase pensioners’ income. "Superannuitants would get an income tax cut, which would apply both to superannuation payments and to any other income they receive; for example from interest, dividends or part time work," he said.
"Second, and in addition to their tax cut, superannuation payments would be increased up front, by just over 2%, to reflect the general rise in prices,” he continued. "The increase in super payments would be immediate from the day GST went up, without waiting for the usual annual inflation adjustment.”
"This double-whammy increase means that under an income tax/GST switch, superannuitants would have their incomes lifted quite significantly, and by an amount that exceeds the increase in prices."
In addition, he added that across-the-board tax cuts would lift the after-tax average wage - raising the floor for superannuation payments, which are linked to the average wage.
"Super payments for a married couple cannot drop below 66% of the after-tax average wage, so any tax cut that affects the average wage will also affect this floor for super,” he said. "So when people talk about GST they should bear in mind these different means of compensation, which together are quite substantial."