By Alex Tarrant
Labour Party finance spokesman David Cunliffe says he does not favour a recommendation for the indexation of the inflation component of interest on savings for tax purposes, as it benefits those who can already afford to save.
The recommendation was put forward by Savings Working Group in its report earlier this year to the government on how to improve the level of national savings in New Zealand. If implemented it would mean interest earned from term deposit savings would not be taxed for the full amount of interest, but only after the earnings were adjusted to cover for inflation over the period of the deposit.
Labour has been attacking Finance Minister Bill English for not outlining how the government would look to improve New Zealand's savings rate, apart from saying it will look to control government spending, with English replying that both the Opposition and media should wait until the May 19 Budget to find out what moves it will make.
English has repeatedly said the budget would focus on 'savings and investment'.
The government has indicated it will make some changes to the KiwiSaver scheme, although will not provide further details.
Yesterday the Workplace Savings Group revealed concerns the government might cut the member tax credit Kiwisaver incentive and the Housing New Zealand first home deposit subsidy as it seeks to cut budget spending in areas other than health, education and justice.
In Parliament today English told media the government was committed to Kiwisaver, and to increasing national savings, "and you’ll have to wait for the budget for any detail on the changes."
“We’ve indicated that across Working for Families, student loans, Kiwisaver, there will be some changes to make them sustainable, and you’ll have to wait for the budget,” English said.
“We’re dealing with a series of events which have led to a very large deficit. At the same time we also need to increase national savings so we can get more jobs and more investment, and you’ll have to wait for the budget for details on that," he said.
Yet despite not revealing Budget details for Kiwisaver changes, governent has released spending plans for other areas, such as a youth jobs package and healthcare for new mothers.
Labour has attacked the National government for not outlining the changes it plans to make to the Kiwisaver scheme, saying it would have to make up for cuts to KiwiSaver with other initiatives to help lift private savings.
“For National to have any credibility on savings, Mr English will have to announce other savings measures in Budget 2011, such as indexing savings tax for inflation or a lower rate of tax for savings income,” Cunliffe said.
Cunliffe said he did not like the indexation idea.
“Measures of this sort will, however, disproportionately benefit wealthy Kiwis who already have more ability to save. They are also fiscally expensive relative to the additional savings generated," Cunliffe said.
“Labour believes that lifting New Zealanders’ savings is crucial to our future. We will continue to lead the savings debate as we did when we established KiwiSaver. We will carefully analyse measures Mr English announces before releasing any detail of future Labour policy,” he said.
28 Comments
I find myself somewhat exasperated by Mr Cunliffe's reported comments. It almost sounds like he wouldn't want to implement any change that would benefit someone who might be inclined to save, because anyone who does save is by Cunliffe's definition, "well off". Sort of a "Catch-22" type of reasoning.
He has completely overlooked that inflation, under our current economic environment, involves large transfers of wealth from savers to borrowers, and the Government is complicit in this. What the SWG should also have recommended, in my opinion, is inflation indexing of tax deductible interest payments. This would really level the playing field and save the Government more than they would lose on the savings side. It would incline people less to borrow and more to save, which given NZ's massive indebtedness to overseas lenders, would be no bad thing.
Just an idea. Any thoughts, bloggers?
"Labour Party finance spokesman David Cunliffe says he does not favour a recommendation for the indexation of the inflation component of interest on savings for tax purposes, as it benefits those who can already afford to save."
“Measures of this sort will, however, disproportionately benefit wealthy Kiwis who already have more ability to save. They are also fiscally expensive relative to the additional savings generated,"
What a Dumb Arse..... Unbelievable.... Is this guy for real..???? One day this guy could be the next Minister of Finance...
If I earn 5% on $100,000 and inflation is 4%..... then I earn $5000 per yr less 20% tax which gives me $4000 net.. BUT in 1 yr my $100,000 has depreciated by $4000 ..SO my real return is actually ZERO.... Nil...Nothing..!!!!
This is why I, and everybody else, invests in Real Estate.... This is why we have a savings problem. Whats' the bet that Cunliffes' solution to NZs' saving problem will be to "Force" us to save.!!
Allowing a depreciation component on savings simply removes an, already existing, serious fiscal distortion....
It is as basic as that......It has nothing to do with Cunliffes' STUPID logic.
Until they start dealing with first principles... nothing much will change.
Cheers Roelof
Yah, I agree.
Those who can already afford to save compare and contrast the inflation tax and the IRD tax on interest earned to the tax free capital gain on real estate and ... Well, President of Property is your Uncle.
Cunliffe's comments are either directed to people who cannot save. Or are stupid. Or are directed to make people who favor intelligent, left leaning people, decide to either not vote or vote for another party.
"Nil...Nothing..!!!!"
1) We are going from a 30 year bull market where it was pretty certian to earn a decent profit to a 30 year bear market where minimalising loses should be a serious consideration. A bank deposit is after all a risk free rate of return...
2) The Govn's inflation target is 1 to 3%...of the 4.5% half of it was GST....so that wont repeat.
3) What has housing lost in the last 3 years? 10~15%?....so in the last 3 years a deposit account has made you maybe a little, but hasnt lost you.
"everybody else" nope not me....I used to do shares as I considered housing grossly over-valued but I have now bailed to cash....
"to "Force" us to save.!!" rant....rant...rant.....where do I see investment in a business ie something that makes a good and not a tax dodge....or a capital gain... ie that needs to work done just being held on to....
regards
Steven.... Investment requires savings... Savings is simply "delayed consumption"... if we don't save, then there is nothing there for Capital investment. ( this is in a pure fundamental sense.... In todays world we simply create credit.... with all its' manifest distortions ).... Savings are CRITICAL to a robust, balanced, healthy economy that is able to handle shocks and recessions... without digging a deeper hole.
A light came on when I read some of Hayeks writing... The quote below gives food for thought ...of the dangers of macroeconomic views....
"Although much of the debate between Hayek and Keynes is today portrayed in terms of policy differences, those are not the most fundamental divisions between their conceptions of economics. I argue that their economics diverges most significantly in how they understand the role of capital in a market economy, and how capital relates to issues of savings and investment. Specifically, Hayek’s Austrian conception of capital provides a very different, and very much disaggregated, vision of the market process that can help identify the flaws in Keynesian theory and policy. When capital is seen as reflective of human plans and where it is understood to have multiple but not an infinite number of uses, the economist is forced to consider the microeconomic foundations of macroeconomic phenomena in a way that validates Hayek’s complaint that Keynes’s aggregates conceal the fundamental mechanisms of change."
Just my own views... of course... I'm not preaching
Cheers Roelof
Roelof - with respect, I think you (and many here) have not paused to ascertain if 'return from investment' is a perpetual state of affairs.
Sure, it was while exponential growth was happening. But - as all the 'wealth-creating' efforts of the current regime demonstrate clearly, that growth was based on exponential growth of raw resources.
Clearly, in a finite sphere of operations, that comes to a halt, and at a speed which nobody sees coming. (Except some of us who stood back and took in the big picture).
Post the peak of exponential growth - and I'd even qualify that with 'per head' - 'nvestment' can be no guarantee of return. Money simply doesn't beget money, the system was just a man-made construct to facilitate resource-extraction.
Many folk - even supposedly intelligent ones - never question that.
Investment never guarantees a return - whether the economy is growing or not - because the future is always uncertain. Your entire premise is based on flawed Malthusian ideology that has been wrongly predicting population growth-induced doom for centuries. As the situation changes the market responds.
Kleefer - you do hare krishna too?
That's mantra 101.
My entire premise is based in the inability of exponential growth to continue forever within a finite sphere of operations.
Flawed?
Ask any algal bloom.
Better still, read this (with an opener mind):
http://thearchdruidreport.blogspot.com/2011/05/downside-of-dependence.h…
good luck.
(you don't lecture in economics, do you? Those folk have a lot to answer for.
It isnt directly based on malthusian theory but maths....its very simple we are on a finite planet with finite resources, therefore we cant have infinite growth....we will hit a limit its just a q of when....and that when is almost certianly about now.
Malthusian theory, having just re-read it is as above its based on maths...much of his theory is if we do something about it, it wont happen if you will a market response...
Apart from that the "market responds" is just dumb right wing mantra, it assumes no limits to possible solutions based on money.....but money is a proxy for energy....so in reality there is no point in expending 1 unit of energy to get 1 unit of energy. In reality for our civilisation to work we need to get 10 units for every 1 we spend ue our entire global economy is based on cheap energy ie <50USD or at least <80USD we are not there anymore. We are in the >100US territory, the market response to that is a recession or a depression, hardly ideal I would contend.
regards
Don't let that stop you Green Lanten. a long time back GBH and I got close with double warning from Brian Spondre......
hint....he hates being called Cunnie....or Kun..Li...or the Running Kun not that I am saying any of those things you understand ...I am just pointing out what the good Minister finds objectionable.
Anyhow whats your Mantra again...
By darkest days...and somethin nights
no evil shall escape my sight.....,.er thats as much as I can remember......lets know .
Kate ...sorry I just can't resist pointing out that ...Hone.....within hours of my saying he was a Malcolm X instead of MLK...and that his temper and thoughtless behavior lets him down...I never would have believed he would demonstrate this so accurately.
He will requie a lot of medication to arrive at Tim Shadbolts level of mellowing......maybe even some ECT.
I smiled too thinking the same thing. Don't know if you saw the CloseUp interview with him and Don Brash? He remained calm and rational during that... and then 'blows it' elsewhere with the Osama comment.
But I also noted that John Key said this in response to Hone's comment;
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10723707
"Osama bin Laden is the man who was responsible for the murder of thousands of people around the world."
And I had to think that you could virtually say the same thing about the US Armed Forces.
Terrorism in my book is no uglier and no less despicable than the War on Terror. Nothing legitimises the money spent and the resources wasted on military actions the world over - let alone the cost of life where innocent citizens are concerned. Clearly, the US could have captured bin Laden alive for trial in a world court. But they denied the world the opportunity to learn the whole truth likely because it would implicate their government in some pretty horrible home truths as well.
Martin Luther King was into peaceful protest. A long way from what either side of this War On Terror are demonstrating by their actions.
.
Kate you may enjoy this by Charles Hugh Smith
Thanks, andrewj ... sadly true.
Here's a really interesting perspective as well;
To some degree I agree with Cunliffe, but not for the reasons he gives (& on that front I totally agree with the "moron" tag).
The Govt is having to think about what it can do to move savings away from real estate into interest-earning investments and savings. Introducing incentives to counteract the tax-friendly incentives provided to RE is simply adding more complexities and complications to an already dysfunctional taxation system.
It would be better to simply remove the advantages enjoyed by RE and create a level playing field for all investment classes. Such as Gareth's Big Kahuna.
Unfortunately, the RE spruikers saw off the govt handily enough a couple of years ago, when they just removed the depreciation scam & the worst of the LAQC benefits. It is most unlikely that govt will go back to RE a second time & get themselves a bloody nose.
A pity
Cheers to all.
Given the huge problems of a housing melt down as seen in Ireland and the USA moving against the RE brigade to harshly could help or trigger a severe downturn or price collapse which would impact everyone...so in this case its a property market that is too big to fail.
regards
One question Mr Cun_-liffe....why were the interest rates FORCED down all around the world.
Was it to bail-out savers???.
Or was it to bail out the banks. and the over-leveraged??.
Sorry I must chastise my self, that is two questions....sorry........ is that three questions...????.......nope...four.now..
Oh crap....I really must become an economist......or a politician.
as a wee aside...
HONE can spend us into the ground all by himself.....it is his MANA.
BUTT.... KEY can never get his feet or his ARSE on the ground what with tripping and tripping himself up over our assets and our police force, there to protect himself from profligate SAVERS......
As for FARMER ENGLISH....and UNCLE CULL-en.....
Ripping orf the entire country is just what is wrong with this country and the world.
Wanna guess where we will be in a years time.
Wanna buy gold??....or oil...or a kiwi dollar?.
Hedge yer bets and go for property.
As for the above elite...even those who make the rules...STEAL to order.
That includes our erstwhile poll-lies and econo-mists....and now the local councils and armed offenders and drug smugglers are getting in on the ACT....how dare they.
An asset to the nation.....I think not.
There are many forms of theft.
Makes me proud to be a TAXPAYER.
Sorry, I reckon he correct. Yes in an ideal world interest should be inflation indexed before it is taxed. But what he is saying is that the cost of doing that (i.e. loss of tax revenue) is very high but the advantage (more people saving) only really applies to people who are rich enough to be saving anyway.
We don't really need more people to be saving - we need less people to be borrowing. If you are in the position that you earn more than you spend, you are effecitvely saving - you might not be putting it in the bank but that doesn't really matter. Indexing interest tax will not make poor people all of a sudden start saving!!
Compulsary Kiwisaver would be a pretty good way to get all NZers saving...
The cost of savings indexation would be more than offset by additional revenue gained by indexation of tax deductible interest payments. What is your problem? This would act as a disincentive to borrowing. As I posted, under inflation (and its going to get a lot worse before it gets better) there is a stealthy but massive transfer of wealth to borrowers from those who put cash in interest-bearing deposits. Until this is addressed, our economic malaise cannot be remedied (other measures are also necessary).
Forcing people to save (Compulsory Kiwisaver) is not good economics, For all of us, there is a time to save and a time to spend, why should Big Brother decide this for each and every one of us? Unlike you, I value my freedom. My father fought for it in World War 2, but people like you want to chip away at it for the sake of expediency. If the Government got the structures and laws governing commerce right, the decisions the people make would be good for them and good for the society as a whole. I welcome the debate about what those structures and laws should be.
P.S. You don't need to be "rich" (your word) to save. Ask John Key about his mother. You are falling into Cunliffe's double-think logic.
The reality is that an awful lot of people in this country couldn't give a crap about saving, and never will. Give them all the incentives in the world, it won't help. Force them to save via Kiwisaver and they will have to. Yes that means that some people will be forced to save in a way that they don't want to or that doesn't make sense for them, but overall, even they will end up better off if the country as a whole is better off.
Whats all this freedom rubish? Try America if you want your 'freedom' at the expense of society as a whole. Free from public healthcare - but health insurance will cost you much more. You can carry a gun - but you are also much more likely to be shot by someone elses. Companies are free to fire you whenever they want and you only 2 weeks holiday. Your idea of heaven??
Those who choose not to save, by all means try and PERSUADE them saving is good for them, but why are you so intent on removing their choice? Are they allowed to remove one of YOUR choices?Your phrase "even they will end up better off if the country as a whole is better off" - can you prove this assertion (somewhat arrogant in my view)?
By the way, savings indexation is NOT an incentive. It is the REMOVAL of a DISINCENTIVE. Spot the difference (it is important)?
What I find objectionable about your arguments is that basically you are saying, the end justifies the means. I have lived long enough to know that if you follow that road long enough the only place you end up in is hell.
A final note: I have a Kiwisaver account. I understand that it may turn out to be a black hole that I never get a cent from. I am not relying on it for anything important. I am not that trusting. But I was persuaded by the ridiculous incentives that Michael Cullen attached to the scheme. I know these incentives are unaffordable long-term, but in the meantime I will keep putting in. Cullen bought my participation with other peoples money, perhaps in the hope he would get my vote as well. But if it became COMPULSORY I will be taking a contributions holiday for the rest of my life.
The first saving vehicle for many people is paying off the own home. The tax advantages are clear and the social advantages of home ownership to the nation are significant. However the recent earthquake has demonstrated that property can quickly change from being an asset to being a liability. What is a body to do?
As a Christchurch resident living in one of the most severely affected streets, I think I can answer that. If one is well insured, the asset will be repaired or replaced at minimal cost to the owner. Where people come unstuck is if they were planning to sell their home, and move on with their lives, but now find they can't. Property can be an illiquid asset in some circumstances, however, unless it is seriously munted, you can still live in it. The people around here are making the best of a bad situation, and I admire them for it. They are also grateful for all the help we have had from outside.
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