Tax and Superannuation Literacy: Australian and New Zealand Perspectives

Abstract

The Australian and New Zealand governments both recognise the economic and social importance of building a financially capable population. In Australia this is recognised through the National Financial Literacy Strategy and in New Zealand through the National Strategy for Financial Capability.1 Both strategies define financial literacy (or capability) as the ability to make informed judgements and effective decisions regarding the use and management of money. One of the main aims of increasing the overall financial literacy of populations is creating an environment where consumers have the knowledge, skills and confidence to protect themselves from financial risk. It is argued that taxation consequences often play an important role in investment decisions and are also a major reason why people seek assistance and advice from professionals. Australian research has found that there are basic concepts of tax and superannuation that are important in the context of overall financial literacy and that there are specific aspects that potentially affect financial decision making which are poorly understood.2 There are a number of fundamental differences in tax and retirement policy between Australia and New Zealand, including that New Zealanders with only salary and wage income are not required to lodge a tax return, that the main superannuation scheme (KiwiSaver) is optional, and that there is broadly no capital gains tax. However, in the context of financial decision making, there are also a number of similarities, particularly in relation to the availability of particular tax concessions for families, those with children, on lower incomes and also in relation to Government provisions for retirement. Much like Australian research, financial capability measures in New Zealand have previously found there may be gaps in the understanding of particular aspects of superannuation but that the targeted approach to building capability appears to be increasing this understanding, particularly in relation to New Zealand superannuation.3 This article will explore the extent to which tax and superannuation literacy are considered important in the context of the New Zealand National Strategy for Financial Capability and the extent to which aspects of tax and superannuation have been measured as part of previous financial capability research.4 Using recent Australian measures of financial and tax literacy research as comparisons, it will be argued that irrespective of differences in tax policy between the two countries, having an understanding of basic tax and superannuation concepts is important in terms of building overall financial capability of citizens in both countries.