Government cuts tax on savings vehicles to 28%

Finance Minister Bill English has heeded the calls by the Reserve Bank to help boost incentives for savings by cutting tax on investment vehicles, including PIEs, to 28%.

As part of a wide array of changes to the tax system, the government’s 2010 Budget cuts the rate on savings vehicles to the new corporate rate of 28% to help stoke consumer savings, along with raising GST to discourage spending.  

The lower rate for portfolio investment entities (PIEs), superannuation funds, unit trusts, group investment funds and life insurance is forecast to cost $170 million over the next four years. 

“Applying lower and more uniform tax rate to most forms of capital income will improve the durability and integrity of the tax system,” English told Parliament.

“It will encourage individuals to save and companies to invest.”  

Reserve Bank of New Zealand governor Alan Bollard has been a long-time advocate for rebalancing of the economy to higher savings and away from consumption, which shows signs of occurring as households pay down debt in the wake of the worst recession in 18 years.  

New banking regulations that require lenders to source more money domestically than in the past has helped stoke savings as financial institutions have been forced to woo investors from their rivals with higher deposit rates.  

More Budget coverage:

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Government closes loophole and aligns tax rates for LAQCs

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Businesswire.co.nz

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