Will taxpayers save less after moving to new tax regime?
tax incentives serve as crucial catalysts for developing saving habits, others argue for a free-hand approach, suggesting that individuals should be left to make financial choices without government manipulation through the tax code.
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This discussion touches upon a fundamental question about human behaviour. Do external incentives genuinely shape long-term habits, or do they merely create temporary compliance? The evidence from behavioural economics consistently points to the power of well-designed ‘nudges’ in fostering lasting behavioural change, particularly in financial decision-making.
Consider typical young professionals entering the workforce. Fresh out of university, they encounter their first substantial income, along with numerous temptations for immediate consumption. The natural inclination, especially in our increasingly consumptionoriented society, is to spend rather than save. This is where tax-saving investments play a crucial role, not as coercion, but a gentle nudge towards financial prudence.
The beauty of tax-linked savings lies in their dual benefit structure. The immediate gratification of tax savings serves as the initial hook, but the real transformation occurs during the mandatory lock-in period. During these years, young investors experience the power of compounding, learn to weather market volatility and, most importantly, develop a psychological comfort with long-term investing. However, my critics argue that those who are inherently inclined to save
