Whether the pay-period basis could be applied more widely than student loans

Submission

(Finance and Expenditure Committee)

The Committee has asked whether the policy of determining student loan repayment obligations on a pay-period basis can be applied more widely across other forms of withheld income.

Comment

In June 2010, the Government discussion document, Making tax easier, was released for public consultation. One of the proposals was that pay-period deductions of pay-as-you-earn (PAYE) from taxpayers’ wages and salaries should be made “full and final” at the point of deduction.

The proposal was to be limited to those taxpayers who were in stable employment for 11 or more months of the tax year. The reason was because PAYE deductions for taxpayers in these circumstances are typically quite accurate. Any over- or under- deductions are often to within $50 either way.

Feedback received was, on the whole, against the proposal. Submitters believed that so long as there is potential for error in the PAYE system, taxpayers should be able to do end-of-year filing so the error can be corrected.

Officials are currently working through the policy issues with a view to developing the proposal in a way that takes into account the concerns outlined in submissions. It is expected that a report will be sent to Cabinet in June 2011.

Recommendation

That the submission be noted.