Finance Minister Bill English has announced the creation of a working group to consider savings policy, but has ruled out the consideration of changes to the existing New Zealand Superannuation or the introduction of either a land tax or a capital gains tax.
The creation of the Tax Working Group-style advisory group was foreshadowed by Prime Minister John Key last week when he sanctioned the discussion of making KiwiSaver compulsory.
However, Key also ruled out any change to the eligibility age for NZ Super of 65 or the super level for a married couple of 66% of the median wage. He has promised to resign if he ever changed those.
Finance Minister Bill English announced the creation of the Savings Working Group to improve the level of national savings and said it was the "next step in the Government’s programme for tilting the economy towards savings and exports.
“We have deliberately set wide terms of reference for the Working Group. The only exclusions are New Zealand Superannuation, which this Government will not change, and broad taxation of capital gains or land, which we have previously said we will not introduce," English said.
“Otherwise, we are not ruling anything in or out,” English said.
Here is the rest of English's statement and the Questions and Answers below. Here is the full Terms of Reference attached.
I welcome comments from readers and pointers on any details we should all know about.
The Savings Working Group will not focus solely on options for retirement savings: it will canvass a range of options for improving New Zealand’s overall savings performance, including government savings.
“The Government has an open mind about what might be required and we don’t want to prejudge the outcome,” Mr English says.
“We also hope this exercise stimulates constructive public debate and discussion along the way. “Increasing our national savings and investment levels is a critical issue for New Zealand, because of our heavy reliance on foreign capital. This has produced high and rising debt to the rest of the world, which cannot continue.”
New Zealand’s challenges around savings and investment are stark, Mr English says.
They include:
* Running a current account deficit every year since 1973, implying that investment in New Zealand has continuously exceeded national savings. The difference has been funded mostly by borrowing offshore.
* Net debt to the world – across government, households and business – jumping from about $100 billion in 2000 to almost $180 billion currently, and forecast to be almost $250 billion by 2014.
“So we have a big task to turn around this economy and rebalance it towards savings and growth,” Mr English says.
The Savings Working Group, which will develop a practical menu of options for ministers by January 2011, will consider all areas of importance to national savings. This will include:
Fiscal policy: The role of Government savings as part of the national savings picture, including long-term savings/debt targets and any offset between government and private savings.
Taxation: The impact of the tax system, particularly taxation of income from savings and investment, on the level and composition of national savings and investment decisions.
This will include: · The case for moving to a dual income tax system, where labour and income from savings and investment might be taxed at separate rates. · Indexation/part-indexation of the tax system so that real, rather than nominal, income from savings and investment is taxed.
KiwiSaver:
The role of KiwiSaver in improving national savings, such as:
· Improving the operation and outcomes of KiwiSaver – including options where KiwiSaver is either voluntary or compulsory.
· The fairness and effectiveness of current KiwiSaver subsidies.
The Savings Working Group will be chaired by experienced company director and consultant Kerry McDonald.
Other Working Group members are:
* Dr Craig Ansley - Capital Markets Research director.
* Dr Andrew Coleman - Motu Economic and Public Policy Research senior fellow.
* Mary Holm - financial columnist, Auckland University senior lecturer.
* Dr John McDermott - Reserve Bank assistant governor.
* Paul Mersi - PricewaterhouseCoopers partner.
* Stephen Toplis - Bank of New Zealand head of research.
The Working Group will be supported by Treasury, which will shortly publish a discussion paper setting out savings and investment issues and trends. Working Group members will be paid about $70,000 in total. This and all operating costs will be met from within Treasury’s existing budget, with staff support from the Reserve Bank, Inland Revenue and Statistics New Zealand. See more in the Treasury website here.
Qs AND As
1. Why is the Government using another working group? The challenge of increasing New Zealand’s national savings is important, requiring consideration of a number of issues and potential options. The Government wants this process to be open and transparent – and to encourage constructive public debate. Working Groups have fulfilled this role well in other areas such as taxation, social housing and welfare.
2. What is the Working Group’s brief? The Savings Work Group has been asked to report to the Minister of Finance with advice on options for improved national savings in New Zealand. The Group’s scope will include: · The role of Government savings as part of New Zealand’s overall savings picture, including long-term savings/debt targets. · The impact of the tax system on the level and composition of national savings and investment decisions. · The role of KiwiSaver in improving national savings.
3. What problem is the Working Group looking to fix? Savings and capital formation are essential parts of any economy. Over the next four years, New Zealand’s net debt (private and public sector) is projected to grow to more than our income. New Zealand has produced current account deficits every year since 1973, which implies that national investment has continuously exceeded national savings across both the private public sectors.
4. How do New Zealand savings rates compare with other countries? There are a number of ways of measuring this – and this is something the Working Group will look at in detail. On at least two measures, our challenges are stark: New Zealand’s net debt to the rest of the world has increased to almost $180 billion and the country has run a current account deficit every year since 1973.
5. Is the Government committed to changing savings policies after the Working Group reports back? The Government will consider the Working Group’s advice when it receives its final report. At this stage, we are not ruling anything in or out – apart from confirming that we will not change entitlements to New Zealand Superannuation and that we will not introduce a broad taxation of capital gains or land.
6. What timeframe is the Government working to – when will the Working Group report back and will there be changes announced in the Budget next year? The Working Group will hold its first meeting this month. It plans a series of six meetings, before a final working session in December 2010, with interim papers to be made public along the way. The Working Group is scheduled to report to the Minister of Finance in January 2011.
7. Will this lead to compulsory retirement savings? The issue of compulsory retirement savings is just a small part of New Zealand’s overall national savings picture. The Government is focused first and foremost on comprehensively understanding the wide range of savings and investment issues facing New Zealand. At this stage, we are not commenting on specific ideas that might come out of this debate.
8. What will this mean for taxpayer-funded New Zealand Superannuation? There will be no changes to either the age of entitlement or payment levels of New Zealand Superannuation. The Government has already committed to keeping existing arrangements in place.
9. Could further tax changes be part of any savings package? We have asked the Working Group to look at the impact of the tax system, particularly the taxation of income from savings and investment on the level and composition of national savings and investment decisions. In particular, the Group will consider the case for moving to a dual income tax system, where labour and savings and investment income might be taxed at different rates. It will also look at indexation or part indexation of the tax system so that real, rather than nominal, savings and investment income is taxed.
10. Will the Working Group exercise influence Government decisions around contributions to the New Zealand Superannuation Fund? No – this exercise is about increasing national savings. As we’ve said, borrowing to invest in the Super Fund does not increase national savings – it simply changes the mix of the Crown’s balance sheet. Contributions to the Superannuation Fund will resume when budget surpluses permit.
11. How much will the Working Group cost? The cost of members’ fees will be about $70,000 and there will be additional operating and salary costs of the secretariat supporting the Working Group. All of these costs will be met from within the existing budget baselines of Treasury, with staff contributed from the Reserve Bank, Inland Revenue Department and Statistics New Zealand.”
28 Comments
Not they will take any notice but here goes: This govt bond thingee that might be cpi adjusted...yeah that stuff...seems obvious the cpi bit should not be taxed....make sure the banks don't get to take the cream off the top by charging stupid fees for peasants to buy the bonds because the banks will steal all they can.
Trouble is the rate on offer will be kept low..otherwise the banks will have to shove up rates to attract loot....and that would threaten the property ponzi scheme and the govt has no intention of seeing an end to that rort.
My bet is the effort will go into the spin and BS side of things with silly Kiwis encouraged to save and dream of a better future through poorer returns. All a waste of bloody time as long as the govt continues to hold on to the ponzi scheme. Let's not BS here...property remains seriously unaffordable after more than 18 months of this govt....some sort of record! How they can expect people to save a penny in such a stupid economy is beyond me.
JT's got the right idea - recourse to not use active fund managers would be a good idea.
The problem I have with a compulsory scheme (like they are suggesting and in the same way Kiwisaver is) is that one has to give their pot to active managers to invest. As three decades of empirical peer reviewed research has showed (again and again), after fees c95% of active managers under perform their benchmarks year after year. There is no option in these schemes to either invest your pot yourself (i.e. be your own active manager) if you have the skills/ time, or to invest in passive structures such as broad market tracking ETFs.
These schemes reduce the investment options for your pot to those of the lowest common denominator.
The bizarre thing about all this compulsory super public discourse, is that Australia is the only scheme that's being examined. Why is it that the NZ public is so insular that it hasn't even occurred to most that other viable schemes might exist beyond Oceania? There are schemes out there in the USA and UK which are very successful and are different. The USA's participant-directed 401(k) scheme and the UK's SIPP and ISA schemes are excellent and widely subscribed to. All these schemes ring-fence the subscriber's yearly allocation to the scheme from taxes - thus encouraging their use and responsible investing for the long-term. Other than putting schemes like the above in place, the government will need to educate to get take-up and illustrate to the public how important it is to use them (just like the UK and US governments do). Moreover, the scheme providers put a lot of material out in the public arena to push take-up. Then you have a system that positively encourages proactive investing responsibility - not nanny-state reactive regulations that force a particular one-size-doesn't-fit-all solution upon everyone.The savings generated by their super funds kept Australian banks afloat during the GFC, and of course NZ's too!
There is some truth to what is said that the success of the Australian economically in the last 10 years can be entirely attributed to the super fund scheme. Don't tell me they are rich because of their minerals; it takes serious investment to extract minerals out of the ground - they didn't just pop up over night and ask to be sold to China!
Chris, I challenge you to prove that the government ignored the reccomendations of the Tax Working Group. Best starting point is this document, page 15: http://www.pwc.com/nz/en/budget2010/Budget-2010-final.pdf
The two most important recommendations were to shift tax benefits away from property (rejected a land tax) and revamp welfare, both of which they failed on. I also note that they have put a tick next to Aligning tax rates - align means "align", not "nearly align".
Oh, but don't worry, we now have a new working group to further discuss welfare.
Government also ignored the recommendations of the Law Commissions report on drinking.
It's OK though, as long a Key's cronies have jobs as consultants for these working groups.
I would consider they had missed the two most important recommendations if they had left GST at 12.5% and not aligned the trust and top personal tax rate.
Come on, actually look at what percentage of recommendations they took on. The TWG was well worth doing, and hopefully this new WG will be too.
Maybe a reason debate on cgt and land tax has been ruled out is because comp. super can be equated to another form of tax, to derive revenue and capital we now recognise the need for.
If the taxation burden was more evenly distributed over wealth generating mechanisms we'd probably have a lot less need for this debate. How can the the 'economic apartheid' that we suffer be brought to a close, so such debate can address these problems in a whole system context?
As you can see, South Africa managed it, why can't we?
Cheers, Les.
Note to Amir - I can't seem to delete the link just below?
Agree. Key's pronouncements on the pensionable age/ pension were idiotic and immediately tied the hands of his Finance minister.
Faced with a fiscal deficit an obvious and relatively straight forward mechanism for balancing the books has been consigned to the dustbin.
However, in the medium term events will force a change anyway, but it does show Key at his most brainless.
I would agree with this.
If additional money were required it could be found by removal of all government subsidies from Kiwisaver. Of course this would likely result in the sheeple finally working out Kiwisaver is an inefficient way to get back a smaller amount of your own money in 5-60 years time.
By implementing these recommendations the government should be able to save billions p.a.
The 'Government' has a savings problem! STOP SPENDING AND BORROWING MR ENGLISH !Yet again they are looking at screwing over the last handful of NZders who ARE productive.
Don't hear a word about removing Resident Withholding Tax do we? The ONE major disincentive created back in the 90's to screw over anyone willing to reinvest back into this country's infrastructure via local funded mortgages and loans etc. Add to that annual inflation and the pathetic interest banks pay out and you can see why a property ponzi scheme seemed so attractive to most NZders.
The country could save a bundle IF the government had the 'balls' to tell ALL kiwis that benefits(in this case Labour’s political bribes) WFF's is unaffordable!
If the government refuses to make a stand and change the NZ benefit culture then all my taxes will be going to a charity of my choosing from now on. That charity will be the SPCA
"The savings working group faces what appears to be an insurmountable challenge - finding a way to convince cash-strapped New Zealanders to put more of their hard earned money into a bank account." stuff .co
What's so difficult...just punnish the spenders by raising gst to 25% on non food items leaving food at 15%...offer a tax holiday on the first $5000 of interest earned each year...get Tolley to make 'saving is good' a lesson for all toddlers, churn out some cartoons in the same manner for the socialists...it's soooo easy.
Am copying these comments I made on another thread of same topic.
1) The problem is earnings. Sort that, problem solved. Practical solutions, actually, abound. Shame gubmints of either colour can't do what is really required. Many know what needs to be done, even the stuff* we dare not speak of in polite company, err, about 4 to 6% of NZ wasn't it, and at least 60% of parliamentarians?
How can we save enough before we are earning enough?
Address earnings.
2) Garth George gets it:
Poor pay leaves little for forced savings
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10667088
Are the group of people selected by government for this work capable of developing strategy for improving earnings?
Cheers, Les.
* government know the logic, they just don't have what it takes to do the right thing - hence the stated exclusions. Oh well, at least we are only wasting $70k on this 'smile and wave' (pr) activity. Suggest the group members seek counseling from the TWG members about rejection/futility syndrome.
Reduced taxes on investment income. The dipper has suddenly got my interest. That'd create a powerful incentive to invest more in NZ.
But how about all you angry BB haters - wouldn't that just bring fresh tirades of abuse from you about we wrinklies being subsidised by the full tax rates you have to pay on your wages ? .
Do we really need our hands held and to be spoon fed? Surely if some people aren't willing to save for a rainy day then that can be their choice. I don't know if compulasory savings is the answer, there are alot of Kiwis out there that are really struggeling. Where is that extra bit of their income going to come from?
I read in the Herald the other day about a case from a lady in West Auckland who is currently studying with kids and doesn't have enough money to feed herself. So how will she cope if she is forced to save x amount from her income?
Whilst I have been saving for a deposit on my first home for some time, I am fortunate enough to have some disposable income to do so. Unfortunately there are too many Kiwis that are not as fortunate as me. The gap between the poor and the rich is getting bigger.
Not sure what the solutions are here?
If we want to shift investment away from housing, then set up an NZX traded index of house prices for each of the major suburbs throughout the country.
Then investors could buy puts or calls on each suburb, without the hassle of tenants. Home owners could hedge their own properties.
Cut taxes and balance Govt budget, float SOE's so that solid Infrastructure investment opportunities are available. Call it investment not savings. Govt to provide seed capital for development funds, float these as well. Get rid of RWT (the tax on bank interest) and the imputed return taxes on overseas investments. Remove the preferential tax treatment of overseas depositers.
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