This overtaxing problem could be easily fixed, but it's doubtful the matter is sexy enough to hold the politicians' attention. However, a small legislative change would put into affected superannuitants' pockets a small annual sum that is rightfully theirs.

It would also clear up confusion, put superannuitants' minds at rest and simplify their tax situation.

The overtaxing happens as an accident of tax brackets. When the tax scale was flattened in 1988, two statutory rates, 24% and 33%, were put in place.

To protect those on low wages from an increase in tax, a low-income rebate was introduced for income from work. This meant the first $9,500 of annual income was taxed at only 15%.

Income earned between $9,500 and $30,875 was taxed at the higher rate of 28% - ie, progressively taking the rebate back.

In the late 1980s National Superannuation was well below $9,500 and it was clear the 24% rate would have taxed the investment income of low-income superannuitants too harshly.

A provision in the Tax Act therefore ensured superannuitants were treated as if all their income (including interest) was from paid work. This meant they benefited from the low-income rebate.

Today, their income under $9,500 still attracts the rebate, so is effectively taxed at 15% instead of the statutory rate of 19.5%.. The value of the rebate is taken back by an additional 1.5% tax as people have income between $9,500 and $38,000, making the effective tax rate 21%. The tax rate becomes 33% at $38,000 and 39% at $60,000.

The problem for the superannuitant can be seen in the case of Joe Brown, who lives lives alone. His income is NZ Super of $15,670 plus a small amount of interest income of $3,500. His total gross income is thus $19,170. He is entitled to the low, 15% rate on the first $9,500, and is taxed thereafter at 21%. His tax should be $3,455.70 and works out that way when he fills in his tax return.

Because the bank deducts tax on the interest income at the statutory rate of 19.5% instead of 21%, Joe finds he has only paid on a pay-as-you-go basis $3,403.20. He therefore owes Inland Revenue $52.50.

Joe is right to feel unfairly treated. His interest income is taxed too highly compared to interest income of all other taxpayers.

This difficulty has been created by the law change of the '80s which was intended to help people like Joe: it treated their earnings differently because, back then, it was an advantage to them. Now it is a disadvantage.

There is an additional unfairness. In practice, Joe must pay the $52.50 extra tax only if he requests a tax summary. If he can't be bothered to "do the right thing" and make a full declaration on a form, the matter is unlikely to arise.

That's not satisfactory to Joe, who is conscientious, likes to keep up with all his financial affairs, pay the right tax and not live in fear of a visit from the tax man.

He is penalised if he takes control of his own tax affairs and probably won't be chased if he doesn't. But he's not reassured by the "probably."

The answer is for the government to repeal the clause in the Tax Act that gives superannuitants the low-income rebate. All their income, including NZ Super, up to $38,000 would be taxed at 19.5%.

Because this would slightly reduce the net NZ Super payment, the gross rate would have to be increased. (The government has committed to a certain level as compared with the average wage.)

Though a small cost would fall on the government, a simple, fair and transparent system would be created.

Superannuitants earning modest amounts from work would see a slightly better return for their efforts too. Mary, who earns $3,500 from a part-time job, would be taxed the same as Joe with his $3,500 of interest income.

Superannuitants with well-paid, full-time jobs might get an unjustified advantage because the gross pension would be higher. A rich single superannuitant paying 39% would gain $254 per annum. It would be worth it to unscramble the mess.