The National Institute of Accountants (NIA) is disappointed that 5.7 million Australians will not be able to benefit from a proposed tax incentive that would allow Australians to save tax on interest income earned through deposits held with banks, building societies, unions, as well as bonds and annuities.

The planned discount of 50 percent on interest on the first $1,000 of interest earned on deposits will be put off for one year to help fund additional government spending in regional Australia.

The incentive was proposed by the NIA in its pre-budget submission to help encourage Australians to boost their savings.

NIA's chief executive officer Andrew Conway said that delaying the tax incentive might affect the level of savings.

"The recent global financial crisis really highlighted the need to introduce incentives for income earned through savings. With the election now over, it seems this has been deferred for a further 12 months possibly affecting the savings of millions of Australians.

"Our economy has become reliant on foreign savings and this would help to ease the disparity. With the current tax system there is an inconsistency between returns on savings and other investment types.

"The current tax system penalises those who earn an income or extra income through their savings. After adjusting for inflation and income tax there is little after tax return as compared to other investment classes which receive more preferential tax treatment.

"In our pre-budget submission we put forward a number of recommendations, one being improving the incentives available for savings. This recommendation was backed by Dr Ken Henry who welcomed the idea and was adopted in part by the government in its pre-election budget commitments."

The NIA is now calling on the government not to delay the introduction of the tax discount on interest income.

www.nia.org.au