Tax savages small savers—Opposition

Press, 26 July 1989, Page 8

Tax savages small savers—Opposition

By

PATTRICK SMELLIE

in Wellington

The new withholding tax on interest and dividend income passed through its third reading last evening, amid Opposition complaints that it “savages small savers.”

The new bill will allow the deduction of interest from people’s bank accounts for automatic payment to the Inland Revenue Department from October 1 this year.

The tax will be levied on interest income at 24c in the dollar, the only substantial amendment to the Income Tax Amendment Bill (No. 8). The rate on dividends will be 33 per cent. Defending the bill, the Minister of Revenue, Mr

Caygill, said the tax was one he had always supported. Interest income was already subject to tax, but was often not paid, and often surprised people who had not expected the tax liability at year’s end caused by interest or dividend income.

The old system had been unfair because of this unexpected element, and because most taxpayers had to pay income tax throughout the year through PAYE or provi-

sional tax. The Opposition spokeswoman on finance, Miss Ruth Richardson, said the Government was souring its relationship with taxpayers with an “illconceived, ill-designed bill.” It was a shambles which had been saved only by its time in the select committee stages. BY removing the existing $2OO interest income exemption, it was penalising small savers, who

were the only people affected by the bill.

National would review but not repeal the new tax, she said. It would reinstate an exemption level for people with bank accounts with balances of less than $2OOO.

The Government was proceeding only because the Government was “desperate for money.”

Government members of Parliament argued that the new tax would stop tax evasion.