Home News Tax Govt slashes return on tax overpayments, jiggles method

Govt slashes return on tax overpayments, jiggles method

Paul McBeth,  Monday, 22 June 2009 16:57

The government has slashed the use-of-money interest rates for overpaid tax 241 basis points, as it jiggled the method of calculating the rate.

The government lowered interest on overpaid taxes to 1.82% from 4.23%, a similar reduction to the 243 basis point cut in March. It reduced interest on underpayments 81 basis points to 8.91% after slashing 4.51 percentage points earlier this year.

"The method of calculating the underpayment rate has also been changed, based on a Reserve Bank index that is more likely to reflect taxpayer borrowing costs," said Revenue Minister Peter Dunne in a statement. "Use-of-money interest rates on underpaid and overpaid tax have been lowered in line with changes in the market rates on which they are based."

The rates were cut in March for the first time since in two years, amid the biggest easing of monetary policy since the implementation of official cash rate a decade ago, where Reserve Bank Governor Alan Bollard slashed interest rates by 575 basis points. Over this period, the Inland Revenue Department has cut the interest on underpayments by 532 points, and overpayments by 484 points.

The new rates will apply from June 28.

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