The Savings Working Group Interim Report

[eri]

Universal enrolment in KiwiSaver and a hike in GST to 17.5 per cent has been suggested by a Government-appointed working group, which this morning raised alarm over New Zealand's "depressed economy".
....................
The report says New Zealand's level of debt is too high and a sudden shock could cause a "dramatic and damaging fall to the economy".
"Saving … must be increased. Continued foreign borrowing is not a viable option," the report says.

http://www.stuff.co.nz/business/mone...KiwiSaver-call

[fudosan]

The report says New Zealand's level of debt is too high and a sudden shock could cause a "dramatic and damaging fall to the economy".
"Saving … must be increased. Continued foreign borrowing is not a viable option," the report says.

It's the same old story I've been hearing for years. Where is the action? Another year, another committee, and another report repeating the same story.

[Perry]

Nowhere does reduced government spending
seem to feature. Strange that, dontchafink?
.

[speights boy]

Yes, it does appear there could well be a tax reduction for savers and fixed interest investors in the coming budget.

Will be interesting to see in what areas they target in order to make up the lost revenue.

[Shalodge]

Yes, it does appear there could well be a tax reduction for savers and fixed interest investors in the coming budget.

Will be interesting to see in what areas they target in order to make up the lost revenue.

Since the recession all areas of Government. local and central, have been spending (borrowing) in order to keep the 'ecconomy' on the go. The result has been a boom in government staffing. It costs money to spend money.But this has been seen as a good thing as these folk spend their wages to also keep the ecconomy bubbling along.

But the crash is comming and it is going to hurt. The plan was the ecconomy would 'rebound' and that in a year or two things would be back to normal. Well that is starting to look like 3 or 4 or more years and politicians are getting nervous.

They are well aware of the debt spiral and the effect of interest rate increases. It is no surprise to find the reserve bank fighting hold interest rates even though inflation has crept up.

Its a bit like the old story about making money on the roulette table. Take 1K and put on red. If you win take your 2K and leave. If you dont keep doubling your bet until you win or the bank refuses to lend you any more money.

Guess where we are at?

[Sepherial]

The Savings Working Group Interim Report

Universal enrolment in KiwiSaver and a hike in GST to 17.5 per cent has been suggested by a Government-appointed working group, which this morning raised alarm over New Zealand's "depressed economy".
....................
The report says New Zealand's level of debt is too high and a sudden shock could cause a "dramatic and damaging fall to the economy".
"Saving … must be increased. Continued foreign borrowing is not a viable option," the report says.

http://www.stuff.co.nz/business/mone...KiwiSaver-call

Groundhog day!

[eri]

Investments should be spread around to reduce risk
After listening to Kerry McDonald on the news on Tuesday night, and then reading the headline "NZ at dire risk of financial crisis" in the Herald the next morning, I'm seriously worried about what to do with our hard-earned money.
We came to New Zealand 25 years ago with nothing, and have worked really hard to get where we are today. We have absolutely no debts.
My husband isn't so concerned, but New Zealand doesn't have the European Union to bail us out. Will Australia come to our aid?
We have $500,000 with a fund manager, and $900,000 sitting all in one bank on term deposit. The $900,000 is to buy a house, but we are hesitant to buy at the moment, so we are renting at $350 a week.
If New Zealand goes the way of Greece and Ireland, will our money be safe? Should we open a bank account in Australia and transfer the $900,000 over there?


Should we divide the money among many New Zealand banks? In which case, which ones are the most financially secure?
Please write something in the Herald this week to allay people's fears, because I'm sure I'm not the only one thinking of getting their money out of New Zealand at the moment.
I wish I could say that everything will be fine. But after five months of reading, writing, talking and thinking - as a member of the Savings Working Group of which Kerry McDonald is chairman - I'm worried too, and I don't think we can rely on Australia to prop us up.


http://www.nzherald.co.nz/personal-f...ectid=10704144

[Keithw]

The Savings Working Group Interim Report

Has no-one picked up on the potentially devistating recommendation made by the SWG to index to inflation both the interest on savings/ investments AND THE EXPENSES !!!!

ie if you get 5% interest but the inflation rate is 3% you are only taxed on the 2% difference. - sounds good.
Whereas on the opposite side, for rentals (or business) the amount you can claim for mortage interest expenses would be reduced to the amount above inflation eg you pay 6% interest, inflation is 3%, you can only claim 3% !!!!!

SWG report here

Comment in Herald here
As signalled last year, the group made a number of recommendations for tax changes more favourable to savers.
They included indexing savings tax rates to inflation and reducing the tax rate on portfolio investment entities like KiwiSaver schemes so they are up to 10 percentage points below savers' marginal tax rates.
The group also favoured continuing the present Government's switch from income taxes to consumption taxes including a further increase in the GST to 17.5 per cent.
The group said future policies should include measures to prevent asset price inflation such as the recent housing boom which saw a large increase in New Zealand's indebtedness.

Comment from dipstick Holm here (why the hell a Journo was part of such a group is beyond me !)

One of our suggestions is the indexing of investment returns and expenses to inflation. That would mean:
* People would pay tax only on interest earned over and above inflation - which would increase returns on bank deposits and bonds. In your example, you would be taxed on only 0.2 per cent of interest - the difference between 4 and 3.8 per cent.
* Deductions for interest expenses - including mortgage interest on rental property - would be allowed only to the extent that the interest exceeded inflation. If, for example, you were paying 7 per cent interest, and inflation was 3 per cent, you could deduct 4 per cent. While landlords wouldn't like such a change, it would be fairer to all.

[Keithw]

Excurpt from report

Page 16 of the report

Recommendations
Policy
 Recommends a more integrated and strategic approach to economic policy.
 Recommends that government pursue with urgency an increase in national saving of some 2% to
3% of GDP.
Fiscal policy
 Recommends a return to a fiscal surplus of not less than 2% of GDP earlier than the projected date
of 2016, and maintain that level of surplus in the medium term.
A high-performing public sector
 Recommends that the government set a target for public sector productivity and performance
improvements of the order of 2% a year for the next five years and 1% thereafter, with a clearly
defined measurement basis and significant incentives/penalties relating to those targets.
The Crown’s balance sheet
 Supports moves to improve current management of the Crown’s balance sheet, and endorses the
publication by the government of its investment statement, which provides an overview of
government’s investment intentions.
Tax policy
 Recommends that at a minimum, interest income and expenses be indexed at a notified standard
rate for tax purposes that reflects the rate of inflation (e.g., 2% per annum), and that asset cost
bases for depreciation and, potentially, trading stock opening balances are also indexed.
 Recommends that the portfolio investment entity (PIE) tax rates should be changed to target a rate
reduction for all investors closer to a benchmark of 5 to 10 percentage points below investors’
marginal tax rates.

[Bluekiwi]

The Savings Working Group Interim Report

Yep but it wont be a goer.
Look at the supply side of housing in Auckland right now and consents.

Key wont be that stupid.

[One]

It'd kill small businesses that have borrowings. I can't see any politician being that stupid.

But I must send Key and English an email, just in case.

[speights boy]

Has no-one picked up on the potentially devistating recommendation made by the SWG to index to inflation both the interest on savings/ investments AND THE EXPENSES !!!!

Surely you are not saying that your property investments are only worthwhile because of the current tax regulations?

I thought it was normal to use tax as icing on the cake when it came to investments; as the rules change over time.

[Perry]

Has no-one picked up on the potentially devastating
recommendation made by the SWG to index to inflation
both the interest on savings/ investments AND THE
EXPENSES !!!!

Now if that notion was applied to any CGT . . . .
ahhh . . . there wouldn't be any - right?

As always, deal with symptoms, never causes.
Perhaps the W'gton woodenheads don't know
just how much they cause inflation?

It is always possible, I suppose . . . . How's
that line go: never put down to conspiracy
that which can be attributed to stupidity.

[Keithw]

Surely you are not saying that your property investments are only worthwhile because of the current tax regulations?

I thought it was normal to use tax as icing on the cake when it came to investments; as the rules change over time.

SB this is not a matter of tax being icing on the cake, it is fundamental income minus expenses stuff !

at present if you earn $1500 income from a rental, & the interest is $1200, your net taxable income is only $300

lets say for simplicity that $1200 interest comes from borrowings of $20,000 at 6%
lets also say for simplicity that inflation is 4%

If you inflation link the interest expenses, then 4% is disallowed, leaving only 2% of the interest claimable as an expense, ie $400

So now your taxable income is 1500 - 400 = $1100

Using a nominal company tax rate of .28
without indexing your tax liablity is 300*.28 = $84 leaving you $216 after tax. (1500 - 1200 - 84)

with indexing your liability is 1100*.28 = $308 leaving you actually paying $8 more than you have earned !! (1500 - 1200 - 308 )
because the 1200 expense is a real cash outlay even though for tax purposes it is discounted to $400


Someone tell me there's a flaw here somewhere !

[TheLiberalLeft]

But that's offset by the much-reduced tax you pay on the $20000 interest earned by your bank deposits. Bloody ace idea. Rock on!