A report from NZ's Savings Working Group has recommended changes to the tax system to remove serious distortions that encourage rental property investment over other investments. It also highlighted the need to urgently increase savings by two to three per cent of GDP. Among the group's main recommendations are indexation of the tax system; raising goods and services tax, while reducing income tax further, and rationalising tax on portfolio investment entities. The Savings Working Group was created by the Government a few months back as an urgent way of dealing with New Zealand's low savings rate and the fundamental risk it faces from its heavy borrowings from overseas. It suggests that, at a minimum, interest income and expenses be indexed at a notified standard rate for tax purposes that reflects the rate of inflation. PIE tax rates should be changed to target a rate reduction for all investors, and GST should be increased to 17.5 per cent, from 15 per cent, as part of a switch from income tax to consumption tax, the report says. Regarding the main savings product, KiwiSaver, the group said membership should remain voluntary. It advocated the creation of a single, low-cost default scheme to reduce costs, fees and expenses. Other areas to be examined include mutual recognition of imputation/franking credits between Australia and New Zealand; continued focus on ensuring consistency between income from different forms of savings and taxation of non-Australian listed off-shore portfolio holdings.