90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Compulsory KiwiSaver?; Term Deposit tax breaks?; Strong German growth; Cash under mattresses

16th Aug 10, 8:49am by Bernard Hickey

Bernard Hickey details the key news over the weekend in 90 seconds at 9 am in association with BNZ, including news over the weekend that the government is considering convening a Pensions Working Group.

Similar to the Tax Working Group and the Welfare Working Group, the Sunday Star Times reported the government would bring together a group of experts to look at the issues of whether KiwiSaver should be made compulsory, whether tax breaks should be provided for term deposit savings and what to do with the Cullen fund.

Meanwhile, in Europe, the German economy grew 2.2% in the June quarter, thanks to very strong export growth to emerging economies such as China and Brazil.

This was the strongest German growth since reunification in 1990 and helped power Eurozone wide GDP growth in the quarter of 1%, the strongest in 4 years.

But markets saw the glass as half empty for the Euro, which fell sharply on the news and on fears of an even wider gap between stronger Northern Europe (Germany and France) and Club Med Europe (Greece, Italy, Spain and Portugal). The very strong German growth emphasised fears that single currency does not reflect the differing growth rates inside Europe.

The gap between Greek and German bond yields blew out to over 800 basis points and Greek government bond yields rose to over 10.55%.

Meanwhile, back in New Zealand, the Reserve Bank has disclosed to the Sunday Star Times that New Zealanders withdrew an extra NZ$190 million of NZ$50 and NZ$100 bills in the midst of the Global Financial Crisis in September and October of 2008 and have yet to deposit the cash back in the banking system.

This begs the question: where has the cash gone?

The New Zealand dollar was down at 70.5 USc in morning trade as concerns about the global economy mount and appetites for risk shrivel.

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22 Comments

by Kakapo | 16th Aug 10, 9:47am 1281908834

Think of the outrageous riders buyers will be able to get away with putting in the purchase contracts when the sellers get really desperate. 'Yes, I will deign to purchase your shack, on the condition that you come back and mow the lawn every two weeks until 2025'.

by Vera Fayed | 16th Aug 10, 9:53am 1281909186

Anon says "anyone with half a brain knows they are dropping ".

But the people with the whole brains Anon, what do they think.? Terribly sorry about your brain. What was it? Accident, alcohol, drugs? Latest research shows brain cells can regenerate, contrary to prior beliefs. Don't give up hope.

by Vera Fayed | 16th Aug 10, 10:06am 1281909985

Calm down anon. Just taking the p1$$. On the balance of evidence my bet is that prices will fall as well. But from experience, people that claim to absolutely know what the future holds usually don't.

by Gummy Bear Hero | 16th Aug 10, 10:32am 1281911544

Ha ha haaaaaaaa : Well spotted , Zaphod . Maybe there's enuff real news today , no need to stir up the property folk so early in the week .

by Gummy Bear Hero | 16th Aug 10, 11:16am 1281914162

Question is how much of this shift in sentiment is due to wild Bill's budget , clipping the depreciation allowance ; and what proportion of this anti-property movement is attributable to the lofty levels that house prices reached .

by David George | 16th Aug 10, 9:53am 1281909218

Thanks for the Telegraph link, always a good read the old EAP.

Makes you wonder, with the heroic battle the Irish people are enduring, how much better off they would be to have let Anglo Irish bank fall over? That one bank failure added about 7% to the GDP deficit, far larger, proportionally than our finance companies. Difference is that that debt has been largely written off.

This whole business of keeping unpayable debt on the books is a huge mistake IMHO. Be like if we pretended that our finance companies will come good and that a hole in the ground in Auckland really is going the generate income to service a $50m loan at a 20% interest rate.

What can't be paid won't be paid.

by VeeDub | 16th Aug 10, 9:29am 1281907794

Paul Holmes's latest article is interesting.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10666087

I personally wasn't in the work force (too young) when the system he refers to was in place, but perhaps some of you that were could comment on whether you agree with what he's saying, or not. If what he's saying is right, I think it's a damned shame we didn't stick with it. The current scenario sounds so hopeless!

by Christov | 16th Aug 10, 1:27pm 1281922067

Whoo hoo.......... now that's putting it out there.... hats off to Holmes on this occasion.

I would say however that the chap with a last name like a Banana... in fact I think it is Nana, has been very direct about the situation we are faced with. and he tends to talk in plain English not the dribble trotted out by your average Bank Economist.

by Blair Rogers | 16th Aug 10, 4:05pm 1281931509

@VeeDub

You need to look at the Super Scheme that the 1972-75 Labour Gov't set in place.

One of Muldoon's first act once they gained the Treasury benches was to dis-establish the Super Scheme.

The famous Dancing Cossack (YouTube it) plays up on the fears of that super scheme.

Pretty much the boomer parents and the baby boomers voted that super scheme out of existence. Why save for the future - lets live for NOW The next generation can pay for us.....

opps - that next generation is leaving.

by VeeDub | 16th Aug 10, 4:22pm 1281932520

@ Blair - so the BBs didn't want compulsory savings? Who did they think was going to fund their retirement, and how? I'm curious......the mindset seems to have changed a bit since then. Or are we just so bombarded with facts and figures now about how Govt Super is unsustainable, coupled with the fact that Kiwisaver is a fairly lucrative deal and very easy to participate in, that most Kiwis seem to have accepted it as fait accompli?

I genuinely wonder what BBs think of compulsory savings now? Are they still vociferously opposed? If at the next election it was tabled as a done deal for XYZ party would the BBs repeat their earlier actions and vote said party out (or ensure said party wasn't elected?). I don't mean to cause offence here, but if that scenario was to play out, my God, that's the height of selfishness. I get that folk hate the Nanny State etc, but is borrowing $250m a week to fund Govt Super (and other benefits) really the way forward for NZ? Or do some people really not care, so long as they "get what they were promised"?

by Blair Rogers | 16th Aug 10, 5:33pm 1281936788

Don't know all the arguments for that 1975 decision and all the reason's why people voted, but selling the compulsory Super as a Govt money grab was part of that cossack ad. Very effective as well.

A whole generation of people have died since then - and at the time the age cohort for that period of time showed a massive pyramid and not the slab sided rectangle we have now.

Dealing with the boomer population cohort really just didn't figure too much I guess - although I've read that the super scheme was a way of trying to address that coming cohort and the effect that it would have 40 years or so into the future.

Probably didn't help also coming at the same time as the first oil shock.

by Blair Rogers | 16th Aug 10, 6:10pm 1281939054

Oh yeah and of course - far more of the working population back then 74/75 would also have had a private pension scheme. Many Gov't workers would have got a Gov't Super. My father had a very good pension scheme - every dollar he put in his company put in $2.50.

You don't get scheme's like that anymore.

Well there is ONE group that gets a great pension scheme - paid for by you, me and everyone.

The one the MP's get.

In my mind TOTALLY UN-DESERVED.

Grrrrhhhh

by andyh | 16th Aug 10, 9:30am 1281907859

Cant have that Zaphod!

Worth keeping a very close eye on this graph which shows the inventory of unsold houses in NZ.

http://www.interest.co.nz/charts/real-estate/houses-sale

(extend the graph back in time to get the whole picture).

Over winter listings drop before picking up again as the Spring rush to sell takes-off. Judging by that graph it looks as though the seasonal minimum for unsold inventory has just about been reached. This years minimum is much much higher than in 2009, and pretty close to the levels of unsold houses in 2008 (when house prices were last correcting downwards at a fair rate of knots).

So we are about to enter Spring which will bring a flood of new listings with levels of unsold inventory close to where they were in 2008.

Increasing inventory with record low sales volumes are only leading in one direction

Worth then taking a look at this graph:

http://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png

We have just gone through the 'return to normal' section, and are just about to embark on the 'fear' section.

by Gummy Bear Hero | 16th Aug 10, 10:36am 1281911815

Bernard : $ 190 million divided into a population of 4 million , is a tadge under $ 50 bucks per person . Not so much at all . I surmise that the dosh is circulating around farmers' markets / cafes / and Warren & Tarquains' Salon .

by Christov | 16th Aug 10, 1:15pm 1281921318

Some of our new found citizens successfully laundered the money right out of the system..... it's what they do.......... Don't worry Bolly it'll turn up again... just as soon as they can buy some serious landscape with cash and not have to deal with those nosey I.A. people. They can't quite figure out what's wrong with us..... stupid Kiwi can't tell me who to bribe... it just normal business...... how things get done........ stupid Kiwi...?

by Hard worker | 16th Aug 10, 1:27pm 1281922026

Regarding compulsory supper, I am in the camp of lead the horse to water but don't make it drink it. Instead make the water attractive and tasty to drink.

by Christov | 16th Aug 10, 1:31pm 1281922285

supper should be available provided you ate your greens at dinner.........if not it's off to bed with rumbling tum................

by Hard worker | 16th Aug 10, 2:06pm 1281924382

haha.. . excellent!

by Hard worker | 16th Aug 10, 2:12pm 1281924724

Agree, Kiwisaver is a great incentive to save for retirement. However, its attractiveness should sell itself without the need to make it compulsory.

by Christov | 16th Aug 10, 2:17pm 1281925030

Compulsory Super..? We'll you bastidos won't invest in stocks and lose your shirts ......

soooo we're going to make you.

How do you like that peons.!

by Wolly | 16th Aug 10, 2:27pm 1281925626

Why was the Kiwi jogging along at about .92au circa 2005?.....have a gork at the trend over the last 10 years...one big fat cycle up from about 77 and back to about 77. Any comments?

by Christov | 16th Aug 10, 3:52pm 1281930763

Yep.....77 is about where it would be if not for interference from fx markets say 77 to 80.

I maintain our true posi to the USD is about 57 but the cycle would probably reflect 63 to 65 as a mean average.