Finance Minister Nicola Willis has asked officials for advice on whether to make the New Zealand Super Fund tax exempt, as its annual bill begins to outgrow Crown contributions.
In the 2024 fiscal year, the Super Fund paid $1.5 billion in tax after achieving a 15% return, which increased the value of its assets to $76.6 billion.
This was a strong result for the world-beating sovereign wealth fund. Since 2003, it has added roughly $50 billion of value to a $26.5 billion contribution from taxpayers. This money will be used to help pay for superannuation starting in 2034.
But by then, the Government’s net contributions to the fund will have fallen to just $6.9 billion, according to the Treasury, as taxes effectively claw back most of the money given to it.
The Crown has contributed a net $16.9 billion to the Super Fund when accounting for the $9.6 billion it has paid back in taxes in the past two decades.
Jo Townsend, the Guardians of the New Zealand Super Fund’s new chief executive, said the taxpayers' net contribution during the year ended June 2024 was only $100 million.
“Based on the current modelling, that is effectively expected to switch into net negative tax contributions in the year going forward,” she said
Free the fund
Townsend said it was for the government to choose the net contribution rate. However, there were cost savings and efficiencies which could be realised if the NZ Super Fund were tax-exempt.
The fund has to sell long-term assets to pay each annual tax bill which comes with transaction and opportunity costs which were ultimately paid by taxpayers and could be avoided.
In theory, Willis could exempt the sovereign wealth fund from paying tax and adjust the contribution rate to minimise any impact on the Crown’s day-to-day finances.
The Guardians of the New Zealand Super Fund asked for this to be considered in its briefing to the incoming minister after the 2023 election. It was also one of many recommendations made by the Tax Working Group in 2019, which described its tax status as an “oddity”.
On Tuesday, Willis confirmed she had asked officials for fresh advice on the tax status of the Super Fund and was expecting to hear back in the next few months.
Barbara Edmonds, the Labour Party’s finance spokesperson, said she had discussed the issue with the Guardians of the New Zealand Super Fund several times.
If elected Finance Minister, she would review the contribution rate and would lean towards making the fund tax exempt — after taking advice.
Fiscal implications
The Guardian’s have argued transfers between the Super Fund and the Crown are fiscally neutral as its assets are already counted on the Crown balance sheet.
However, there are implications for what can then be done with that money and on politically important fiscal indicators. Crown contributions are funded from the annual operating allowance and crowds out other spending priorities or gross debt repayments.
Willis has also opted to set a net core Crown debt target in her fiscal plan. This measure excludes the Super Fund and would improve if assets were sold to pay down core debt.
These are the two indicators used to demonstrate the Coalition Government’s fiscal position and judge their performance as stewards of taxpayer money. They are politically and practically important, even if the overall balance sheet isn’t affected.
One reason why the Super Fund was given tax obligations was to provide governments with some flexibility to manage the short-term fiscal implications of filling up the fund.
A government can opt to suspend contributions and effectively withdraw money from the fund to bolster the operating balance, or pay down debt elsewhere on the balance sheet.
The previous National Government did this in 2009 to improve some fiscal indicators during the recession and contributions were not resumed until Labour was elected in 2017.
Guardians of NZ Super said in their briefing to Willis this was still possible but “inconsistent with the intergenerational purpose of the Fund and with the express intent of the Act”.
Willis has previously said she doesn’t plan to stop contributions, despite being in a tight financial spot. However, the balance between taxes and contributions means the Crown will begin withdrawing small amounts of money from the fund starting next year.
Benchmark beaten
Whether that's a feature or a flaw is likely what Willis has been seeking advice on. It’s essentially a choice between saving more for the future or pulling back some funds to address immediate needs.
To date, saving money in the Super Fund has paid a handsome dividend. It has averaged a 10% return over the past 20 years and outperformed Treasury bills, a measure of risk-free returns, by 6.5% each year.
This year, it beat that risk-free benchmark by 9.33% or $6.3 billion, even though it marginally underperformed its passive reference portfolio — which was driven by huge returns among a handful of US tech stocks.
Treasury and the Minister of Finance arrange an independent performance review of the Super Fund every five years. The most recent report was tabled in Parliament on Tuesday.
It found the fund had an exceptional investment process and was still outstanding among its global peers. However, it also noted it would need to be ready for change in the next five years, with new leadership still settling in and likely headwinds in capital markets globally.
Townsend said the reviewer’s feedback would be “front of mind” as it scaled up the fund over the coming years. Treasury projects that by 2044, the fund will be worth over $200 billion.
At that point, it is expected to contribute $1 billion annually towards pensions and pay $4 billion in taxes.
83 Comments
It is absurd that the NZ Superannuation Fund pays tax. And it is folly that 'the Government can opt to suspend contributions and effectively withdraw money from the fund to cover short-term expenses'.
The NZSF is vital to provide for superannuation in the future to the rapidly growing cohort of over-65s. Contributions to it need to be hugely increased, from the proceeds of introducing a capital gains tax, and reintroducing inheritance tax and gift tax.
The $1 billion a year being dished out in $521 state subsidies to private KiwiSaver funds ought also to be going into the NZSF instead.
The $1 billion a year being dished out in $521 state subsidies to private KiwiSaver funds ought also to be going into the NZSF instead.
Why not first worry about the $1b+ a year being dished out to superannuants who haven't actually retired and are earning in excess of $100k p.a.?
Then we can have a conversation about this Kiwisaver state subsidy.
"Why not first worry about the $1b+ a year being dished out to superannuants who haven't actually retired and are earning in excess of $100k p.a.? "
Yep, worry about the people who are actually personally funding both their own Super as well as others. What's wrong with this picture?
Yes, the Government must reimpose some form of the surtax on all other income of superannuation welfare beneficiaries that Winston Peters opportunistically persuaded National to abolish in 1998.
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
So are we gonna do that with WFFTC as well?
Because if I'm being told I have to save squillions for retirement to cover long-term inflation, the deal can't be that after a life-time of covering footing the bill for everyone else's retirement, I'm suddenly on my own when it's my turn to step back from the workforce.
We don't have the kind of super schemes and disposable income to just suddenly find the equivalent value of Super a week in retirement - elder milennials are now over half-way through their working lives.
I thought working for families was income tested? High earners get a lot less than low earners, quite different to super.
You've misinterpreted the rest of my comment. I'm saying if you decide to work past 65, and earn a sufficiently high income (another poster suggested 100k as an example), you can't also claim super. Once you quit or downside work, you can claim again.
I would probably go further and ask for means testing so we're not supporting people that are quite capable of supporting themselves, but that's a separate discussion.
I would suggest a new tax code for people who receive Super, (such as the Student Loan one, M-SL) which takes an extra bit of tax on income earned.
You could set the rates to only kick in at a certain income level and make it so that someone earning over say $100k while receiving Super effectively paid for their Super with increased tax.
It is 'income tested' but if you have a bigger family, that threshold gets higher and higher.
It's eiminently relevant to an argument that just focuses on household income, without the bigger picture.
I'm more open to the idea of 'active employment' being the driver for super eligibility for this reason, rather than any other income you may have passively, otherwise it basically becomes a reward for those who and spent down their savings instead of investing over the course of their career.
'Why not first worry about the $1b+ a year being dished out to superannuants who haven't actually retired and are earning in excess of $100k p.a.?'
A different discussion, but yes, the Government must reimpose some form of the surtax on all other income of superannuation welfare beneficiaries that Winston Peters opportunistically persuaded National to abolish in 1998.
https://www.auckland.ac.nz/assets/business/about/our-research/research-…
When I get retirement age, it’s likely I’ll be earning in excess of 300k per year (from salary). The problem with retirement is some people get bored (that’s likely to be me), and so continue working either full or part time. Some people have to keep doing things. If I’m in that situation and choose to continue to work, I’ll take the super too. Reality is I will be paying 120k in tax on that, and receiving 30-40k back. Seems like a sweet deal for the tax man. The alternative is I quit, take the super, and start burdening the Health system due to not being active any more (with associates health issues). People that work past 65 should be encouraged if they are net tax payers.
While they wait 10 - 20 years for averagejoe to eventually drop dead so they can get that promotion, carrying the slack of his cognitive decline and inability to keep up with basic tech tasks like editing a spreadsheet.
We wonder why young people are leaving the country.
It's as huttman says below. Everyone who gets to 65 or whatever the retirement age is gets the same super payment. It is pretty simple. You guys are arguing that if you can work and do, then you should be punished by losing the super you contributed to. That's a crazy idea. Sorry. Yes, it is fair that I would pay 40K less tax effectively than someone who is 61, as they have not reached retirement age so that is blindingly obvious. Go to WINZ when you are 61 and try collect super, see what happens, and tell them it is not fair.
That is the problem others identify on a $300k salary and "...and choose to continue to work, I’ll take the super too". So you would likely squeal when the government impinges on your freedoms and right to choose but you lack the integrity and apply for the pension when you don't need it? I'll admit I am assuming you are smart enough to have save a significant portion of your income and have quite a nest egg.
It's not the fact that they've applied for it, go for gold. If I reach retirement age and it's there I will apply for it too. I am happy to be called a hypocrite, but I'm not a moron and if the money is there for the taking (for everyone) then I will take it and just pass it on to my children
But I won't hold this entitlement mentality that I am deserving of it and will still be of the belief that it should be tested. This generation wide mentality is where the crux of the issue is, and why things won't change in the short term.
You don't know how much I earn, and I have 20-30 years to go till retirement age so it is an assumed figure in 20-30 years. To answer your question, no, I don't give to charity. I pay taxes. I hear too many stories about charities that simply collect money and pay enormous salaries to the CEO or however else and no much is left to actually give away. So, maybe some direct giving, but not to charities, no. To much corruption involved there.
It's a shame you've become jaded, and you're right I don't know your current income.
I give automatically to effective altruism NZ and trust the money will go to good, well researched causes. I expect to save a life every year or two. Other than that, I give to local environmental groups like the Native Forest Restoration Trust, Hinewai, the Summit Road Society, trapping networks etc.
Except that NZ Superannuation is social welfare benefit, not an entitlement. If you choose to give up your $300,000 a year to get your $30,000 a year in NZ Super, that's okay. However, I think any surtax on superannuitants would be tailored to encourage continued work; though I doubt the tailoring would indulge $300k.
Means testing is too hard. Do you include assets as well as income? Do you include the family home? If not how is that fair to renters?
Just raise the age to 70 and have an easily obtained benefit for 65-70 year olds not able to work. The main reason we are having this discussion is because way too many people are still able to work at 65.
Perhaps we're looking at the difference between equity and equality. You want an equal system where everyone gets the same, regardless of need. I would prefer an equitable system where scarce government resources go to those who actually need them.
Funnily enough, all of our other welfare payments roughly follow the 'equitable' system - you get them when you need them, if you need them. It's only Super that has no requirements to prove your need, in any way. I just want to bring it in line. What makes it different in your mind?
It's funny how a country such as Australia that does not have the same resource scarcity as ours, still finds it worthwhile both income and asset testing their Government pension.
We have a Nordic style Government Super but haven't had the high level of tax burden to fund it. I don't want high taxes, and I don't want a Nordic style Super either.
Australia balances that by having a tax treatment on retirement investments that is logical and sane, where as are blindly clipping the ticket every way can imagine and writing off any opposition or suggestion we do things better was not being 'fair' - whatever that means.
I would argue those who contributed are much more entitled, and those that freeloaded their whole lives are not entitled
Yet those who receive super, keep working, also received free tertiary study, a reduction in tax rates across their lifetime, reduction in real interest rates allowing vast wealth to be accumulated through property assets, yet still complain when there's any possibility of super being addressed for those who have, through all of the above, enough wealth and income to live very comfortably in retirement without super. They likely also claim winter energy supplement and rates rebates as well as various discounts all round.
Wouldn't this be kind of cutting your throat to spite your face.
The way I see it (and I'm far from retirement age) is that if they are getting the supper whether they are still working or not, society is better off with them still working as this means they're still contributing to the tax take. If all over 65s stopped working I suspect it would have a noticeable affect national tax revenue so why would this be what we what to encourage. I'd want our decision makers to acts in the best interests of society as a whole not one that an emotional or purely ideological position damned what the evidence indicated what's best.
So what you're saying is the over 65s who are working, are the best people for the jobs, and if they retired nobody would be able to replace them? The jobs only exist because of the individual, not due to the market need?
They better not die then because society will collapse.
Re-read the thread for the context of my comment.
The argument was if we stop paying the oldies their super if they work, then the oldies will stop working just to get the super. Well 40 year olds don't just quit their jobs because the jobseeker benefit is waiting for them if they do. Why would old people be more likely to make that decision?
Superannuation is a benefit only available to oldies. Paying them that while they are also working so dont actually need the money is not a good use of taxpayer money.
I guess you can argue that until you are blue in the face. But the fact remains, this is the system, they are the rules. People live by them and are advised by an army of financial advisors to build a next egg, to supplement super, and work as long as you can. That’s how it is. You have zero change of changing that. Constant moaning about receiving what everyone else gets is frankly, a waste of time.
Should Govt be collecting a huge pile of company shares and financial assets in the hope that they will be able to turn those shares into nurses, old folks' holidays, care workers, residential homes, hospitals, and Wurthers Orignals in the future?
Won't it be highly inflationary to liquidate those assets to pay for services (etc) in the future? How will we make space in the economy to accommodate the additional demand that will be driven by the release of all of the 'savings'?
Would it not make a whole lot more sense to invest now in building the stuff we need to make health and care affordable and good in the future? And, in the future, when we need to dedicate more of the country's productive capacity to meeting the needs of older people, could we not use taxation to free up the real resources we need?
I think we ought to be building the infrastructure of hospitals and geriatriums now out of current taxation. But given the predictions of ever more over-65 welfare beneficiaries and fewer tax-paying workers, it seems essential to build a sovereign wealth fund from which to make future Super payments.
Have you considered the impact of ever increasing sums being paid into equity markets that are largely stagnant in terms of output?
It has the same impact as ever increasing credit on RE...higher 'values' but no increased availability.
Some may describe it as a ponzi.
When you adjust for risk that hindsight view might seem less compelling.
It's akin to being unable to pay your bills without borrowing and using some of that borroed money to punt on the sharemarket.
Meanwhile the Fund is pretty much a protected empire, no competition from the private sector and little risk of losing your job unless the politicians close it down.
I posted a day or two ago about this fund being taxed and providing millions and possibly even between $1bill with a high figure of $2bill. It was a guesstimate so I'm glad to see Dan providing the actual figure. Those who say it shouldn't be taxed where is the $1.5bill going to come from? Funny this some of this amount is achieved via the FIF and fair dividend rule on many shares with unrealised capital gains. Let's have unrealised capital gains on rental houses taxed as well. After all they are an investment. Funny that many people opposed to that. I wonder why.
I agree. Universal tax on unimproved land value can easily be added to existing rates bill, and collected regularly at no extra cost to the state; important for building infrastructure and running the country now.
But capital gains tax on sale, no matter how patchy and lumpy, can make an important long-term contribution to the NZ Superannuation Fund, where patchiness doesn't matter.
Sets up structure for all property to be owned by company, that is owned by trust. and obviewscate beneficiaries = never gets sold so never pays any tax. To much scope for avoidance.
Query - if we really need the tax, and it looks like we increasingly do, why is a capital gains tax superior to a land tax....?
That might not be the pertinent question GV. Would it be better or worse than the status quo?
That said, I'm not sure your assumption is correct anyway. Have you not seen the valuations on farms lately? The young are equally locked out rurally - all land needs to come down in price in my opinion.
Places like Auckland have long had peppercorn local rates compared to smaller districts that often don't get as many services - so there is a good reason they have lower land values on a sqm basis, but that doesn't mean there is inbuilt unfairness.
Aucklanders could choose to pay what they were 10 years ago for property and see their land tax fall relative to elsewhere. Whether they do that or not is entirely up to them and not a fairness issue, heck, if it's so unfair then why not move like many current citizens are being 'forced' to do.
It's crazy we have a wealth tax on shares but not on land. PIEs effectively pay 1.4% tax on foreign investments due to FIF (FDR). We pretend problem solving activity is just as legitimate as rent-seeking behaviour. There should be a 1% tax on land at the very least. Own $1M you pay $10k which is still far less than a salary.
That tax rate is going to have to be higher in the provinces or else it's not going to work. The mechanics of land allocation in Auckland are so broken that a postage-stamp sized section for a town-house or duplex is valued at the same price as a lifestyle block on the Coromandel.
How do you think the values are arrived at?
Do you think the prices paid on recent sales have a large effect as I do? If so, the buyers and sellers are free to set the land value as they see fit irrespective of the 'mechanics of land allocation in Auckland'.
I'm yet to meet and Aucklander that wanted to pay the same rates that the equivalent house pays in Gore...
What concerns me about the quality of comments here is the superficiality expressed by the anti-Boomer attitude and the general lack of understanding and questioning of the purpose of the Super Fund and tax it self.
First up the Super Fund was set up to provide an investment vehicle to fund retirement income for retirees. As I understand it, the income of those sources is still taxed by the Government. Taxing the Super Fund itself is effectively two bites at that cherry.
Secondly we should be asking what the purpose of tax is in today's economy. For all intents it is to manage the total amount of money in circulation. The Government's position that they have to tax to spend is utter BS, and the worst kind of lie from a politician. Luxon repeatedly makes the point that he wants to get the economy moving. That can only be achieved through putting money into peoples hands for them to spend, as surplus income. Taxing retirement income undermines this goal in part. Tax would be more effective by targeting business and corporations who are profiteering in NZ.
The problem with taxing profiteering is that you need it to continue to have a revenue base. This is the same for a CGT (endless asset price inflation) and I think part of the conversation that we need to have is "do we actually want these things in the first place?".
In the event the music stops (and we've seen it can, very suddenly) the state could be left with no revenue and have to find that elsewhere - so it becomes hugely likely you end up with the same taxes we have now on income and whatever shiny new taxes people dream up to fund whatever they like, rather than have to make a difficult choice about what is and isn't reasonable in a high cost-of-living economy in a low-wealth country.
I have little doubt that at some point, NZ will have to move to the Australian model-means-testing Superannuation-as the financial pressures of an ageing population keep growing.
I have lived here for 21 years now and it's home. I have enjoyed life here and am fortunate to be financially comfortable- sufficiently comfortable to be able to pay a six-figure sum for my unfunded cancer drugs-but on so many measures, I see the country going backwards. Yesterday, as a volunteer driver for the local Hospice, I took an Indian family to the hospital. The daughter told me that one of her mother's drugs-unfunded here-is funded in India. Her sister, a trained teacher, has already moved to Melbourne and several of her friends have also left.
Mrs Holes & Sausages needs to focus on the dead, Stagflated economy. Its passed the point of no return. Its dead.
It needs a capital Bazooka injection from either a number of offshore investors or another $100b all in Bazooka.
The Banana Republic has run out of Bananas.
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