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Hard work ahead to sell the Budget

Thursday, May 19th 2011, 4:25PM 3 Comments

by Philip Macalister

So this was a savings and investment Budget. Lots of attention has been focused on the KiwiSaver changes and quite rightly. It’s one of the most successful products the country has ever seen and has $8 billion of funds invested in it. The government is proposing to cut the member tax credit in half, which is what I predicted last week. What’s more worrying is that employers are the losers. They lose the tax-free status of their contributions and they will be forced to increase their contribution rate from April 2013. These changes aren’t going to be popular with the 1.7 million KiwiSaver members or with employers. I wonder whether the government has underestimated the backlash they will generate, especially from the business sector which is a core constituency group. What interests me is how several other changes will impact on investors. The government wants to partially privatise state assets; it wants to have an earthquake bond and it plans an inflation indexed bond. I have spoken to a number of people since the February 22 earthquake arguing that the government should have quickly put together a bond to help fund the rebuild of Christchurch. It is an excellent funding idea and if done earlier could well have been sold offshore, particularly to investors who were sympathetic to what happened in Christchurch. Index-linked bonds are useful too. There is a view emerging that there are growing risks of strong inflation growth coming. Deepening capital markets and getting more New Zealanders investing is a good thing. But what we really need to do is wean people off fixed interest investments and into growth assets. Unfortunately there is nothing in the Budget which does that. You could argue listing bits of state assets on the NZX falls into this category. The reality is the companies suggested aren’t really growth stories. They are income plays and reinforce the fixed interest addiction. One thing I was hoping for was a rearranging of PIE tax rates to slightly advantage PIE funds for all investors over other forms of investing. That hasn’t happened but is something which would have been worthwhile. Overall the Budget moves KiwiSaver more towards being a true workplace savings scheme. The next thing will be ever increasing compulsory contribution rates. It’s a plus that the government talked about resuming contributions to the NZ Superannuation Fund, but it missed the target in some areas. It will also, I predict, be a hard sell for the government.
« Irregular timesIt’s time to engage investors about the new regime »

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Comments from our readers

On 23 May 2011 at 12:25 pm Peter said:
Very interesting to note that none of the examples quoted in the Govt Press Release re affect of changes to Kiwisaver http://pr.co.nz/kiwisaver-budget-changes-20052011/ feature a self-employed worker! Astounding given how much of the NZ workforce is made up of self-employed people, contractors, farmers etc. Am interested in any feedback from other self-employed people or those advisors dealing with self-employed people, about how appealing Kiwisaver is now. Is it still worth selling to self-employed?
On 25 May 2011 at 8:44 am JAFA said:
'Employers' 3% contribution when subject to ESCT for tax-payer at 33%, results in 2.01% contribution.

i.e. No saving's change, & we should acknowledge that this was simply a tax increase.

Ya tax something, ya get less of it. There will be less KiwiSaver employer contributionss - especially by closely-held companies.
On 30 May 2011 at 11:12 am Majella said:
Correct, Jafa - that part of the change is nothing more than a thinly disguised tax on business. Gee, THAT'S encouraging for us all isn't it?
Commenting is closed

 

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 ▼5.65 ▼5.55 ▼5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 ▼6.39 ▼6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - ▼6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 ▼5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.79 6.49 6.49
TSB Special 7.89 5.99 5.69 5.69
Unity ▼7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.50 ▼6.19 ▼5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.17 5.79 5.69

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