New Zealand's Experiment in Tax Neutrality for Retirement Saving

Susan St John
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Susan St John: Department of Economics, University of Auckland Business School, The University of Auckland, Commerce A Building, Private Bag 92019, Auckland Mail Centre, Auckland 1142, New Zealand

The Geneva Papers on Risk and Insurance - Issues and Practice, 2007, vol. 32, issue 4, pages 532-552

Abstract: Reforms in the late 1980s made the New Zealand system of retirement income policies unique among developed countries. For nearly 20 years the system comprised just a universal state pension, and voluntary unsubsidised private saving. Tax concessions, as is traditional in other countries, were abandoned and the concept of tax neutrality for saving promoted in the context of other wide-ranging reforms to the tax system. This paper examines how New Zealand was able to achieve this radical tax change and sustain it. Strident calls to promote saving for retirement gradually undermined the accord around tax neutrality, bringing the 20-year experiment to an end in 2007. The reintroduction of tax incentives for certain types of saving, and other types of state intervention in private provision has implications for the future of New Zealand's unique retirement system. The Geneva Papers (2007) 32, 532–552. doi:10.1057/palgrave.gpp.2510142

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