Goods and services tax increased and income tax reduced
The Government has announced tax changes to take effect on 1 October 2010. The goods and services tax is increased to 15% and income tax rates are reduced to: 10.5% (from 12.5%) on taxable income up to $14,000; 17.5% (21.0%) $14,001 to $48,000; 30% (33%) $48,001 to $70,000; and 33% (38%) above $70,000.
In response to a GSA request for compensation for a GST rise, an extra payment of 2.02% of annuities is to be made to GSF and NPF annuitants from 1 October 2010 to 31 March 2011. This is in effect a down payment on the 2011 cost of living adjustment, due to be paid from 28 April 2011.
The major outstanding issue however remains the need for compensation for the reduction in income tax, from which annuitants receive no benefit, despite the prime minister in his recent letter saying that income tax had been reduced 'across the board'. The tax paid on our annuities was fixed in 1989. The latest income tax cut is substantial and has the most severe effect yet on the value of the annuity.
The Government has indicated no intention to address this issue and a meeting is again to be sought with the prime minister.
Government superannuitants hit again, twice
(Media release 17 February 2010)
The President of the Government Superannuitants Association Allen Hair reports alarm among the 75,000 current and former government employees that the annuities to which they contributed during their working life could again be eroded by income tax cuts. And hit by an increase in the goods and services tax as well.
Since 1990 when Parliament unilaterally changed the way private superannuation schemes were taxed, annuities paid from the Government Superannuation Fund (GSF) and the National Provident Fund (NPF) have been reduced by 30% and 40% respectively to offset the tax-paid status of the annuity. These reductions are not reviewed when tax rates are changed.
Successive governments have refused to acknowledge that reductions made in personal tax rates create an anomaly for their former employees. Their response has been that the 1990 legislation should not be changed. As if to deal with the anomaly, governments have argued that those over 65 years of age also receive New Zealand Superannuation. However, a contractual arrangement between employer and employee in private contributory superannuation schemes such as the GSF and NPF has no connection with New Zealand Superannuation.
This income tax anomaly is now compounded by the government's intention to increase GST to fund income tax cuts, from which annuitants receive no benefit. However, the Prime Minister has given an assurance that those on lower incomes will be compensated for an increase in GST in some other way. Allen Hair notes that the people the GSA represents are predominantly on low incomes, with over half receiving an annuity of less than $14,000. He believes that these annuitants must therefore be candidates for compensation for an increase in GST.
Accordingly, the Association calls on the government to make provision for an adjustment to GSF and NPF annuities to offset an increase in GST, thus honouring the Prime Minister's undertaking.
ENDS