Sherry says savings tax discount will be reviewed

Assistant Treasurer Nick Sherry conceded yesterday that the government would review its new tax discount on savings "contingent on the Budget returning to balance in three years time".

While not giving any commitment to change the $1000 cap on the scheme, Sherry said the government would look at the concession if it did not generate an increase in savings.

Speaking at the Australian Retail Deposits conference in Sydney yesterday, Sherry defended the much-maligned scheme.

He said: "This is a major new area of policy. We have not had tax concessional treatment of this form of savings. It is a very important change."

From July 1 next year a 50 per cent tax discount will apply to the first $1000 of interest earned on deposits held with banks, credit unions and building societies, as well as bonds, debentures and annuities.

Moody's issued commentary on the policy this week, saying: "The impact is likely to be muted. The maximum annual saving offered is unlikely to lead to a significant change in investor behaviour."

Last week Commonwealth Bank chief executive Ralph Norris said he did not expect the tax concession to have any impact on the bank's funding task.

And at yesterday's conference economist Chris Richardson said the scheme was "light on". Richardson said: "It's not the 50 per cent discount that's the problem. It's the up to $1000 of interest that's the problem, which frankly is not much of an incentive."

Sherry said he rejected such analysis. "If you are saving you have an additional incentive. It will be of assistance. There will be some behavioural change."