Personal Finance

  • People are spending more on food, housing and transport, according to the Household Expenditure Survey

    An increasing percentage of household income is being spent on housing related costs for growing numbers of New Zealanders, according to the latest figures from Statistics NZ.

    According to Statistics NZ's Household Expenditure Statistics for the year to June, 31.3% of New Zealand households spend one quarter or more of their pre-tax household income on housing-related expenses, compared to 25.8% of households in June 2007.

    That's an increase of 21.3% (up 5.5 percentage points) in the last nine years.

    In the three years from June 2013 to June 2016 average weekly household expenditure had increased by $190 a week (up 17.1%) while average household income had increased by just 11.7% over the same period, to $95,898 before tax.

    Spending associated with housing and household utilities was the biggest contributor to the rise in household expenditure, Statistics NZ said.

    That included spending on mortgage principal repayments, rent, maintenance, property rates and energy costs. 

    Expenditure on food and vehicles was also up.

    Just over half (51.5%) of households reported eating out in the year to June, compared to 43.3% three years ago, while the amount they spend at restaurants rose by 50% to an average of $25 a week.

    And just over a quarter (25.7%) of households reported buying a vehicle in 2015/16, compared to 21.1% in 2012/13.

  • IAG's chief risk officer believes Wellingtonians will soon stop being subsidised by insurance policyholders in other parts of the country for living in a quake hotspot

    By Jenée Tibshraeny

    Insurance as we know it isn’t here to stay.

    The 2010/11 Canterbury earthquakes saw insurers move full replacement home insurance policies, to sum insured, giving them more certainty about the risk they were taking on and transferring risk to policyholders.

    Six years on, they’re tackling a new disaster, bruised and battered and still dealing with a raft of complex claims from Christchurch.

    Tower’s chairman, Michael Stiassny, on Tuesday said the system was “broken”.

    Something has to change. The chief risk officer and disaster recovery lead of the country’s largest general, IAG, explains what.

    An end to ‘cross-subsidisation’ on the horizon

    Speaking to interest.co.nz in a Double Shot Interview, Karl Armstrong says insurance premiums had been “hardening” since before the Kaikoura quakes.

    “Now you’re going to see an exacerbation of that.”

    A time will also come when those of us in parts of the country less prone to earthquakes will stop subsidising policyholders in more risky parts of the country.

    In other words, Aucklanders may stop picking up the tab for Wellingtonians, sitting on vulnerable fault lines.

    “What we must consider at some stage in the future is a user-based pay system,” Armstrong says.

    Those in risk-prone places like Wellington will pay for it.

    “At the moment there is still an element of cross-subsidisation going on in the industry. We see that across the Earthquake Commission (EQC) as well. It’s a community rate from North Cape to Bluff,” Armstrong says.

    He notes commercial policyholders are already paying premiums according to where their properties are located, how they’re constructed and the type of soil they’re built on.

    While high-risk residential policyholders in Christchurch for example have already had their premiums bumped up, this risk-based division may become more pronounced.

    Armstrong says insurers will “return to more disciplined underwriting”.

    Asked whether he believes people in Wellington will struggle to get insurance, he says “not at the moment”.

    IAG has no intention of withdrawing from Wellington and reinsurers are still committed to the New Zealand market. Reinsurers have recovered from Christchurch and are benefiting from a world currently awash with capital.

    IAG not directing customers to EQC  

    The other change the Kaikoura quakes have brought about is around the way claims are handled by EQC and private insurers.

    Armstrong says the Insurance Council of New Zealand (ICNZ) is working on a memorandum of understanding with EQC, to enable private insurers to deal with their clients’ claims on the first instance.

    Up until now, those who have suffered damage to their homes, contents and in some instances land, due to a natural disaster, have had to submit claims with EQC first.

    The government agency has assessed these claims, passing those over its $100,000 cap on to private insurers.

    This system has seen a substantial number of new claims continue to drip through to private insurers nearly six years after the quakes, causing insurers to buy additional reinsurance and increase their provisions for the quakes.

    “Scopes were wrong, clients, as they’ve been paid to go and do their own repair work, have discovered further losses,” Armstrong says.

    “We’re frustrated that we haven’t had clear sight of this. However there’s a working party currently with EQC and the rest of the industry to highlight some of the gaps in the data.”

    The escalation of costs in the wake of the Canterbury quakes saw IAG buy another $900 million of costly emergency reinsurance, known as Adverse Development Cover, in the 2016 financial year. This is a significant amount, relative to the $4.4 billion of regular reinsurance cover IAG Group Limited has exhausted for the February 2011 quake.

    Should we brace ourselves for a similar scenario with the Kaikoura quakes?

    Armstrong says IAG is adamant to avoid “claim fatigue”.

    “Most of our [Christchurch] clients were subjected to multiple agencies - EQC, ourselves, external loss adjustors, external claims advocates - all of those people creating confusion. Confusion because they expected one party to talk to them.

    “We’re now working, trying to get a collaborative agreement with EQC so that we can actually approach this as one party - a seamless approach from the customer’s perspective.”

    Armstrong says this requires real time data being made available to both EQC and private insurers.  

    While the ICNZ is still working through the details of the arrangement with EQC, Armstrong says in the meantime: “If the customer comes to us, we’re not directing them to EQC necessarily. We’re dealing with the claim ourselves.”

    Insurance industry taking matters into their own hands

    The pinch is that the EQC Act 1993 review, which was meant to be completed in 2013, but has now been pushed back to next year, deals with this issue around whether EQC or private insurers deal with claims in the first instance.

    Insurers have been vocal in urging the government to get on with the review; Swiss Re a month ago saying the New Zealand economy is vulnerable to the risk of reinsurers charging insurers a premium for the uncertainty caused by the delayed review.

    While it now appears the industry is taking matters into its own hands, Armstrong denies it is working “separately” from the government.

    “There’s a reality here that we have to deal with the customer that’s got a challenged situation.

    “Working with EQC and ourselves, how do we come to one solution? We don’t know if this is quite the right solution. We don’t know if this is where the review will end up, but what we are saying is, we have to have a seamless approach so that the customer is protected.”

    Armstrong also acknowledges being involved in a claim from the get-go, should give IAG “comfort” that costs won’t keep escalating as they did with Christchurch.

    Yet the bulk of IAG customers affected by the Kaikoura quakes have still lodged claims with EQC first. Armstrong says 7500 IAG customers have made claims with EQC so far, while 1500 have lodged their claims direct with the insurer.

    He says it’s too early to tell what the total cost of the quakes will be for IAG.

    He says the US$3.5 billion figure AIR Worldwide has said the insured cost could reach is “just a figure that a modelling agency rightfully does at the time. Most modelling agencies do this. Everyone’s under pressure to give figures as quickly as they possibly can.”

    People waking up to the fact they’re under insured

    IAG is reviewing the insurance freezes it has on quake affected parts of the country, from the Waimakariri River to the lower part of the North Island including Wellington, every 24 to 48 hours.

    Armstrong says it has lifted restrictions in Christchurch, the West Coast and Buller. Nelson and possibly Marlborough may not be far off.

    Freezes usually last for 30 days after a shake of a certain size but could be longer.

    Armstrong assures property buyers, who need insurance to secure mortgages, will be able to take over the insurance cover the vendor had on the property.

    Asked whether mortgage applicants have run into problems if the vendor of the property they want to purchase is under-insured, he says, “there is underinsurance regardless of this issue” due to sum insured.

    While Armstrong is seeing some under insurance, he says, “What we are seeing is the knock-on effect outside the zone of freeze… People are immediately reviewing their covers and immediately waking up to the fact that they don’t have enough.

    “We’re seeing a tremendous amount of activity in reviews going on at the moment… As the zones open up, we’ll see the same activity.”

    Asked whether insurers are secure enough to deal with a catastrophic quake in Wellington, in the wake of 2010/11, Armstrong says:  “An organisation like IAG has got incredible backing from a parent in Australia.

    “It is a market lead in terms of the size of the organisation, it has a high S&P rating, it has a superb reinsurance programme.”

    He says insurers’ reinsurance programmes have improved immensely since before the Canterbury quakes, with the Reserve Bank now requiring them to have enough capital to get through a one in 1000-year event. 

    *This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

  • Flight Centre launches a Mastercard credit card to enable an expected surge in travel by Kiwis in 2017, a card with rewards but also high interest rates

    Credit cards are being issued by a wider range of merchants.

    Today, Flight Centre has launched a Mastercard credit card offer.

    This new offer features 'Flight Centre Rewards".

    Rewards dollars are 'earned' at the rate of 1 for every $100 spent. Every reward dollar will equate to a NZ$1 credit and can only be redeemed as a credit to this Mastercard account. A purchase at a Flight Centre store gives a double credit. For example, if you spend $1,200 on a Gold Coast trip at a Flight Centre store, you earn 24 Flight Centre Rewards and each equates to $1 when redeemed. Therefore on redemption the amount credited to your Account for this purchase is NZ$24.

    Flight Centre Rewards expire 3 years after the date they are earned.

    This Mastercard comes with relatively high interest rates.

    The Standard interest rate is currently 22.95%, and their Cash Advance rate is currently 24.95%. These rates are higher than for most other cards.

    There is an annual fee of $50, payable in two tranches each six months.

    In addition if you use this card to make a Cash Advance within New Zealand, there is a fee of $2 at an ATM plus the bank disbursing the cash may also charge a fee. If you do this overseas, the same fees apply except the ATM fee is $3.

    You can use this Mastercard for their Long Term Finance offers, but a fee of $55 also applies.

    This card offers 44 days interest-free, but like other cards, that only applies when you start the month with the prior balance paid in full.

    You need to make the minimum payment of 3% each month. Failure to do that will will mean any Payment Holiday, Start-up Interest Period of 0% on a Flexi Payment Purchase, or a Pay Later Purchase all to have expired, and the 'normal' 22.95% interest rate will apply immediately. A default fee of $15 will also apply.

    Flight Centre NZ managing director David Coombes said, “the ‘Golden Era of Travel’ on steroids is what we’re predicting for travel in 2017, with more freedom to travel for Kiwis than ever before.” This card is being offered to enable this surge.

    The offer is branded Flight Centre and made by Flexi Card, the same company that bought the Q-Card business from Haier (Fisher&Paykel).

    Flight Centre has had a long term association with Q Card, exceeding 10 years and this is the basis of their Long Term Finance offers.

    Flexi Cards was the first non-bank to be granted a Mastercard issuing license in New Zealand.

    A comptrehensive list of all credit cards, their rates and fees, is here.

  • BNZ unveils New Zealand launch of Android Pay for the bank's Visa Flexi debit card holders

    Android Pay has come to New Zealand.

    BNZ Flexi Debit Visa cardholders can now make contactless payments using their Near Field Communications (NFC) enabled Android smartphones.

    Payments under $80 can be made by holding your phone over a contactless payments terminal, while those over $80 require a pin number.

    Retailers will need to have the same NFC-enabled terminals they use for contactless cards, for the payment scheme to work.

    Visa says there are 16,000 NFC-enabled terminals in New Zealand - much of these being in supermarkets and other major retailers like The Warehouse, Noel Leeming, Paper Plus, Rebel Sport, Kathmandu, Farmers and JB Hi-Fi.

    BNZ’s partnership rivals Apple Pay, which was made available to ANZ customers with Visa debit or personal credit cards in mid-October, as well as ANZ's goMoney Wallet aimed at Android users. It also rivals ASB Virtual, launched in June for ASB credit or debit card holders with Android phones, and Westpac's PayTag - a sticker you put on your phone to make the transaction - launched in 2014 for Westpac debit and credit card holders.

    BNZ’s Android Pay is not yet available to credit card holders.

    BNZ’s director of products and technology, David Bullock, says there are tens of thousands of BNZ customers with the right technology to start using BNZ Android Pay straight away. 

    “We see clear benefits in bringing Android Pay to New Zealand for BNZ customers - for many, it’ll be the first time they can shop without their wallet. As the uptake of contactless payments increases there will be more places to pay with just a tap of your phone. It’s about simplicity and convenience in payment options for your everyday banking,” Bullock says.

    “New Zealanders have a long standing affinity with electronic payments, as shown most recently by the swift uptake in contactless payments.”

    BNZ assures the technology is secure. When a BNZ customer adds their BNZ Flexi Debit Visa card to the Android Pay wallet, the 16 digit card account number is replaced with a unique digital identifier (a "token") that can be used for payment with a mobile. This token means that the cardholder's more sensitive account information is not exposed when a contactless payment is made. 

    Also, if customers lose their phone they can use the Android Device Manager to instantly lock it, secure it with a new password, or wipe it clean of personal data. 

    Android Pay was first unveiled in May 2015 and has been available in the US since September last year. New Zealand is just the sixth country in the world to have Android Pay. 

    BNZ customers can get Android Pay by installing the app on their phone, and adding their BNZ Flexi Debit Visa card by taking a photo of it. They will need to have the BNZ Mobile Banking app loaded on their phone to verify their details. 

    BNZ doesn't have a payment system set up for iPhone users, as it is opposed to Apple Pay taking a slice of banks' interchange fees, or the charges banks levy on merchants' sales. 

    BNZ's Australian parent, along with Westpac and ASB's parent have asked the Australian Competition and Consumer Commission for permission to act collectively to negotiate with Apple over access for their own digital wallet products in its phones, tablets and watches. 

  • Victoria University's Martien Lubberink encourages the public to give the Reserve Bank feedback on its proposed new approach to quarterly bank disclosure

    By Martien Lubberink*

    At 5pm on Thursday December 15, the deadline for submitting comments on the Reserve Bank's consultation about its dashboard approach to quarterly bank disclosure expires.

    The Reserve Bank proposes a dashboard that includes information on credit ratings, key financial performance and position information, capital, asset quality and liquidity information, and potentially a metric comparing information on large credit exposures. 

    This is a laudable initiative. It reinforces the RBNZ’s three-pillar approach to prudential supervision, which emphasises the role of market discipline. 

    The dashboard approach is innovative. Many regulators keep information of individual banks close to their chest.  

    But it is not all doom and gloom on the global disclosure front. Some regulators are improving bank disclosure rules. Last week, the European Commission published new and significantly improved bank disclosure requirements. The Commission wants banks to disclose information electronically, with a minimum frequency of once a quarter. The information will be disclosed in a standard format, and in tabular form. Now let’s hope the Commission chooses a sensible data-format. Ideally it should avoid pdf, but instead follow the U.S., which discloses bank data in a plain (csv) format. 

    A definitive plus of the RBNZ dashboard approach is that it offers a one-stop shop: Data from all banks will be made available in a central location. This makes it much more easy to compare banks to each other. 

    I encourage you to submit comments, the Reserve Bank will take your comments seriously, though please be mindful of the people at the receiving end. I once had the pleasure of summarising a selection of submissions in the public consultation of Basel III implementation in Europe. With over 150 submissions, this was hard work. But it helped if respondents answered (only) the questions from the consultation document.

    Below is the RBNZ's proposed high level dashboard table

    Also see: RBNZ backs S&P over banks.

    -----------------------

    *Dr Martien Lubberink is an Associate Professor in the School of Accounting and Commercial Law at Victoria University. He has worked the the central bank of the Netherlands where he contributed to the development of new regulatory capital standards and regulatory capital disclosure standards for banks worldwide and for banks in Europe (Basel III and CRD IV respectively).

  • Youi says it's part of its 'business practice' to keep writing new insurance policies in most cases in disaster struck areas, even if its competitors don't

    Youi is bucking the trend of its competitors and not enforcing an insurance freeze in parts of the country affected by the November 14 earthquake and aftershocks.  

    The South African insurer is continuing to write new home insurance policies for properties from North Canterbury to Wellington, provided they have come through the quakes unscathed.

    It is also allowing its existing customers in these regions to increase their sum-insured, irrespective of whether their homes have been damaged.

    As for contents insurance, Youi is continuing to write new policies and allow its customers to increase their cover, irrespective of whether they’ve suffered quake damage.

    Youi’s position differs to the rest of the industry, which has put a widespread embargo on new home insurance and is declining requests from existing customers to increase their cover.

    Different insurers are taking different approaches to contents policies, with some implementing restrictions on policyholders in, or moving within quake affected areas, but not those moving from other parts of the country to the likes of North Canterbury and Wellington.   

    The Insurance Council of New Zealand’s chief executive, Tim Grafton, says insurers are treading cautiously to minimise their losses, in order to meet their reinsurers’ needs. They also need to make “prudent decisions to minimise the risks they take on in an uncertain environment”.

    He says insurers are starting to narrow their restriction zones, as they establish where losses are concentrated. However in the worst hit areas this will take longer depending on the settling down of seismic activity.

    Freezes remained in place for up to two years after the 2010/11 Canterbury earthquakes, and a few months after the 2013 Seddon quakes.

    Yet Youi’s head of communications Trevor Devitt has told interest.co.nz it is part of its “business practice” not to implement a blanket freeze after a natural disaster. It has taken the same approach in Australia, as this is part of its “philosophy”.

    Devitt says Youi, which entered the New Zealand market in late 2014, has a relatively small exposure in the central part of the country, as the bulk of its business comes from in and around Auckland.

    The problem with the insurance freeze implemented by the rest of the insurance market, is that those trying to secure mortgages are running into issues without adequate insurance cover.

    Grafton says: “Our advice to people who are in the process of buying a new property where settlement is subject to insurance and finance, is to check with the vendor’s insurer to see if they will provide cover as that is a common solution.”

    While Youi received a surge in calls straight after the quakes, Devitt says it hasn’t noticed a spike in business due to the position it’s taken in regard to the freeze.

    Youi has been fined $100,000 by the ICNZ for using misleading sales tactics. It is due to be sentenced in the Auckland District Court on December 15, further to pleading guilty to 15 Fair Trading Act charges brought against it by the Commerce Commission. 

  • The separation of bank rate setting from the OCR signals is more about a mismatch between demand for loans and supply of funding than responding to the RBNZ's policy

    In yesterday's Westpac review of inflation and interest rates, they made the following observation:

    Another factor is that banks’ funding costs are evolving independently of the OCR. For several years after the financial crisis, growth in deposits was sufficient to meet banks’ funding needs. But in recent months, deposit growth has slowed markedly, at the same time that credit growth has accelerated. In principle, banks can meet this funding shortfall through offshore wholesale markets, but there are limits to how far they can go down this path – partly due to tightening international regulatory requirements, and partly due to cost. If the constraints on funding persist, this will likely manifest as some combination of higher interest rates and tighter lending standards.

    Domestic funding growth, underpinned by fast rises in household bank accounts, has been a feature of the current New Zealand economy.

    We chart the rise in household deposits here, and the rise in home loan and personal finance borrowing (which includes credit cards) here and here.

    These series have shown stronger long run rises for deposits than borrowing. On this basis, banks have been able to get much of their extra funding needs locally.

    But of course, there is more to the economy than just households. Business and government are also part of the market that banks service.

    Using the RBNZ S6 and S7 series, you can find the overall lending demand and funding supply for New Zealand banks.

    And what that shows is that for the past six months, there has been a consistently more lending going on than supply of funding.

    And that is a new situation, as this chart shows.

    There is no issue when the red line is above zero - in fact when that is the case, banks are oversupplied by savers and can reduce the interest rates they pay savers.

    But when the red line is below zero, banks need to find new sources of funding to meet the demand for loans.

    To stay within their core funding ratio, and to meet minimum mismatch requirements, banks have started to raise the offer rates to savers. They will be doing much more than this of course, but this is one reason we are seeing higher term deposit rates for longer terms.

    The chart above only goes back to 2011, but the data goes back to 2005.

      Annual
    lending (S7)
    Annual
    funding (S6)
    Loan
    growth
    Funding
    growth
    variance
      $ bln $ bln %pa %pa %
               
    Sep-05 221.8 164.7      
    Sep-06 245.9 183.9 +11.0 +12.5 +1.5
    Sep-07 281.3 206.1 +14.4 +12.1 - 2.3
    Sep-08 308.4 220.0 +9.6 +6.7 - 2.9
    Sep-09 315.0 230.7 +2.1 +4.9 +2.8
    Sep-10 315.4 225.0 +0.1 - 2.5 - 2.6
    Sep-11 321.5 240.6 +1.9 +6.9 +5.0
    Sep-12 331.4 255.0 +3.1 +6.0 +2.9
    Sep-13 350.3 276.0 +5.7 +8.2 +2.5
    Sep-14 364.4 287.0 +4.0 +4.0 +0.0
    Sep-15 394.2 311.2 +8.2 +8.4 +0.2
    Oct-15 399.7 312.9 +8.6 +8.4 - 0.2
    Nov-15 403.4 319.2 +8.6 +9.2 +0.5
    Dec-15 404.4 319.7 +8.8 +8.7 - 0.1
    Jan-16 407.3 320.0 +8.5 +8.8 +0.3
    Feb-16 407.5 321.8 +8.7 +8.6 - 0.1
    Mar-16 410.7 325.5 +9.0 +9.0 +0.0
    Apr-16 416.6 330.6 +9.9 +9.5 - 0.4
    May-16 418.3 330.3 +9.2 +9.1 - 0.2
    Jun-16 418.1 330.2 +7.4 +6.6 - 0.8
    Jul-16 418.9 330.8 +7.7 +7.4 - 0.3
    Aug-16 422.0 332.5 +8.1 +7.5 - 0.7
    Sep-16 423.1 330.5 +7.3 +6.2 - 1.1

    There have been consistent shortfalls for most of 2016. In fact, the -3.3% drop in the nine months of 2016 so far is greater than any negative annual change since the start of this data.

    In the year to September 2016, funding levels have grown by just +$20 bln while lending levels have grown +$30 bln.

    Even for New Zealand bank treasurers, this -$10 bln shortfall is a concern and needs to be addressed.

    This may be one reason we are seeing a turn in the market to favour savers over borrowers.

    And it may be a reason we are seeing a tightening in lending standards by banks.

    Bank margins may not be the real driver. This same data discloses "average monthly weighted interest rates" for both series, and you can plot the difference between them too, as per this chart.

    Margins aren't the issue. But the level of funding available to meet the loan demand is.

  • Finance Minister says rise in long term interest rates since Trump's election sign of normalisation of rates and inflation; should signal to home buyers rates have bottomed out; also will help rebalance NZ$ lower

    Finance Minister Bill English talking to reporters in Parliament on June 19. Photo by Lynn Grieveson for Hive News.

    By Bernard Hickey

    Finance Minister Bill English has signalled to home buyers that interest rates have bottomed out, which he said should make them more cautious about house values.

    English told Corin Dann on TVNZ's Q+A  the rise in long term interest rates since the election of US President Donald Trump was a healthy normalisation that would help re-balance the exchange rate and take some pressure off house prices.

    "The interest rates starting to rise is a healthy sign of normalisation in the global economy and here. I see the NZ dollar’s dropped back under US 70 cents for the first time in quite a while," English said.

    "That would be a healthy rebalancing for our export sector. So, in a sense, the thing we’ve been waiting for for three or four years — that is a US economy with enough strength to lead to a rise in interest rates — is starting to happen, he said.

    Inflation was also likely to rise to more normal levels, he said.

    "The criticism for the last couple of years has been inflation too low. This is what I mean by normalising. If interest rates come up a bit, people will get a bit more sensible about the debt and the housing market. A bit of inflation is actually not a bad thing in an economy. We’ve probably had not quite enough."

    Long term mortgage rates have been rising in recent weeks. See David Chaston's article for more on that.

    Debt to income multiple not needed then?

    Asked if the Reserve Bank needed more tools to control the housing market, he pointed to the fact the Reserve Bank's November 10 cut in the OCR had not been passed on to mortgage borrowers as "a pretty clear signal to borrowers and households we’re on an interest rate floor at the very least."

    "And when they see rates rising, that does have an impact. Even if you know that they’re going to rise sometime, it’s still different when it actually happens, and they’ll be recalculating what their debt servicing is going to be, and I think it’ll make our housing market a bit more sensible."

  • Treasury publishes Long Term Fiscal Position forecasts; repeats 2013 warning that net debt will blow out to around 200% of GDP by 2060 without changes to NZ Super indexation and age

    By Bernard Hickey

    Treasury has again warned that leaving the current age and indexation settings for New Zealand Superannuation would force the Government to borrow heavily in the middle of the century, increasing net debt to 205.8% of GDP.

    The Government's top economic advice and forecasting agency published the repeated warning in its Long Term Fiscal Position report, which it is required to release at least every four years.

    The Government chose not to accept the advice because Prime Minister John Key has pledged to resign if either the retirement age or indexation are changed for New Zealand Superannuation.

    Treasury gave similar warnings in its last report in 2013, when it forecast net debt would rise to 198.3% of GDP because an ageing population would see the cost of New Zealand Superannuation with an unchanged age of eligibility and indexation to the average wage rise from 4.8% of GDP to 7.9% of GDP by 2060. Healthcare costs would rise from 6.2% to 9.7% over the same time.

    "While current Government finances remain relatively strong, fiscal pressures are projected to build over the next 40 years," Treasury said.

    "Population ageing is projected to apply pressures through slower revenue growth (resulting from less participation) and increased expenses (primarily through New Zealand Superannuation and healthcare)," it said.

    Treasury repeated the Government had several options to close the Government deficit gap of around 6% of GDP that would build up in the later years if there were no policy changes.

    It proposed lifting the age of eligibility to 67 from 65, which would save around 5.5% of GDP, and moving to indexing New Zealand Superannuation to the rate of CPI inflation, rather than average wage inflation as is currently the case.

    It also repeated suggestions for a rise in the GST rate to 17.5% from 15% and indexing income tax thresholds to inflation, which would allow fiscal drag to lift income tax as a percentage of GDP because of the fiscal drag caused by wages rising faster than inflation.

    The new proposals in the document were for two different types of improving social outcomes through 'social investment' to reduce unemployment, reduce child abuse and reduce recidivism rates. Treasury estimated improving such outcomes could improve the fiscal outlook by btween 5 to 6% of GDP, which would be enough to close the gap.

    Treasury Secretary Gabriel Makhlouf told reporters when releasing the document that he was confident Governments would eventually take the right decisions to ensure the long term fiscal outlook was sustainable.

    "There is absolutely a choice for the Government to make," he said.

    Political reaction

    Labour Finance Spokesman Grant Robertson said the Government was not listening to the Treasury.

    "John Key's head-in-the-sand approach to the long term sustainability of superannuation is reckless and irresponsible," Robertson said.

    "Rather than cut taxes we need to re-start contributions to the Super Fund now we are back in surplus," he said.

    ACT Leader and Epsom MP David Seymour called for a debate on New Zealand Superannuation, including in this Facebook video.

    “Anybody under 30 knows that they will not receive Super on current settings, and that policy adjustments are inevitable. The issue is that we’re not allowed to talk about it, with all political parties in denial,” said Seymour.

    “They intuitively know what the Treasury says in its report, that ‘governments have many options at their disposal to address these challenges, but the challenge gets harder the longer we delay.’ Treasury couldn’t be clearer – we’re going through an unprecedented demographic shift towards an older population, and this will have enormous effects on the affordability of Superannuation," he said.

    "John Key made an ill-fated promise in 2008 not to adjust superannuation. Labour used to have a policy to raise the age but scrapped it after their 2014 election loss. That’s left ACT with the job of keeping this issue into the spotlight," he said.

    “Whether it’s transitioning to a higher eligibility age, pegging the payment rates to inflation instead of average wages, means testing, or all of these measures, we need to have the discussion today, no matter how skittish John Key and Andrew Little may feel.”

    (Updated to include comments from David Seymour)

  • IAG on when we need to update our insurers on a change of circumstances

    New Zealand’s largest general insurer suggests more of us need to add our insurers to the ‘favourites’ of our address books.

    An IAG survey of 800 New Zealanders, undertaken in June, shows not enough of us are contacting our insurers, as we should, when our circumstances change.

    Here’s IAG’s national technical specialist, Chris Kiddey, on when we should and shouldn’t update our insurers.

    HOME INSURANCE

    You renovate

    “A coat of paint, new fixtures, redoing the lino, minor things such as these are no problem. But let your insurer know if you’re doing anything structural – you may not be covered for any related losses,” Kiddey says.

    “Most policies exclude loss or damage related to ‘structural additions or alterations’ or similar. ‘Contract Works’ cover exists to take care of risks like this.”

    Less than a third of IAG survey respondents saw a need to let their insurer know about renovations being made to a kitchen, bathroom or any other part of their property.

    You go on holiday

    “Definitely call,” Kiddey says.

    “Many policies tell you that cover will end after a certain period – unless you contact your insurer.”

    More than half of survey respondents would leave their home empty for more than 60 consecutive days without notifying their insurer.

    You get paid guests or flat mates

    Kiddey says this shouldn’t usually be a problem provided you are also living in the home.

    “But many policies can limit cover for rental homes or even exclude certain types of damage, so it’s best to ask beforehand.”

    Two in three IAG survey respondents would have paying guests in their home without changing their cover.

    CAR INSURANCE

    You modify your car

    It depends on the value of the upgrades.

    “Usually you won’t have to notify your insurer until your policy renews, but better safe than sorry: if in doubt, make the call,” Kiddey says.

    Survey results show a third of respondents would update their policies if they made modifications to their cars.

    Under 25s get behind the wheel

    In most instances you don’t have to contact your insurer if someone under 25 drives your car, as the average motor vehicle policy doesn’t have an automatic restriction for young drivers.

    However Kiddey says you can in some instances elect to pay a lower premium to have a restriction on drivers under 25. In this case, you should notify your insurer if a young person gets behind the wheel.  

    Just under half of IAG’s survey respondents said they’d bypass telling their insurer if they had an extra under 25 year-old drive their car.

    You are diagnosed with a health condition

    “You don’t necessarily have to tell your insurer about this,” Kiddey says.

    “But be careful: if you legally can’t drive and you have an accident, you may not be covered.”

    Sixty percent of survey respondents said they would declare a health condition that affected their driving skills, such as having to wear glasses while behind the wheel.

    CONTENTS INSURANCE

    You make a pricey purchase

    “When you buy something expensive, you should call your insurer,” Kiddey says.

    “Virtually every standard policy has limits payable for items such as these. By contacting your insurer you can discuss whether your policy can assist you should something go wrong, or whether you need to arrange for something more comprehensive.”

    Almost two thirds of survey respondents would update their policies to include an expensive new item, such as a piece of art or jewellery or a coin collection. Women were marginally more likely than men to protect their items.

    You move

    Call your insurer if you shift home or put any of your contents in storage.

    “While some policies have limited cover for contents in storage or transit, you can’t take that for granted – some offer no cover at all. Better to discuss a policy specifically designed for the scenario.”

    Survey respondents were divided when it came to getting the right cover while on the move.

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