NZ First leader Winston Peters attacks savings choices, wants govt guaranteed inflation proof bonds

By Alex Tarrant

New Zealand First leader Winston Peters has attacked a lack of "reasonable" savings choices, saying his party would look to introduce government guaranteed bonds that would pay the inflation rate plus 2.5%.

In a speech to the Hamilton Grey Power AGM over the weekend, Peters also outlined a range of what appeared to be costly policies that would see government pay back half the balance of student loans, the creation of a NZ$500 million fund to buy back 'strategic assets', and strict restrictions on foreign land ownership.

Prime Minister John Key has ruled out working with a Winson Peters-led New Zealand First, although Labour Party leader Phil Goff has left the door open for Peters. The latest Roy Morgan poll showed electorate support for New Zealand First was 4.5%, above the 4.1% of the vote it achieved at the 2008 general election.

Labour is likely to need all, or a combination of, the Greens, Maori Party and/or New Zealand First in order to form a government after the November 26 election.

See Alex Tarrant's April article here on the similarities between Labour's and NZ First's main economic policies.

'Inflation eats into interest on savings'

In the Grey Power speech, Peters said the current National-led government was "full of humbug on savings," which was a "mug's game".

"You are taxed on income; and then you are taxed on the interest your savings earn," Peters said.

"With inflation running at, at least 5%, where can ordinary people save with security and still get a reasonable rate of return? The answer is nowhere," he said.

"And the government has revealed it will cut back on the KiwiSaver scheme. The message that this sends is that the government is not really serious about saving."

New Zealand First would introduce "a bold set of tax incentives to encourage private savings," including making the first NZ$10,000 of interest earned on savings tax free, Peters said.

"We will introduce government guaranteed inflation proof bonds – eligible to New Zealand citizens resident in New Zealand only – and that will pay the inflation rate (measured by the CPI) plus 2.5%," he said.

Based on current annual inflation of 4.5%, such a one year bond would have returned 7% if it expired in March, which would have been 2% higher than the average bank term deposit rate in March 2010 of about 5%.

The NZDMO is planning to issue NZ$20 billion worth of government bonds this 2010/11 fiscal year at interest rates of around 5%. More than 60% of the bonds are bought by foreign lenders.

Annual inflation has been bumped up by the rise in GST from 12.5% to 15% on October 1 last year.

Excluding short-term blips, the Reserve Bank of New Zealand is mandated to keep inflation within a band of 1-3% over the medium term.

The government-appointed Savings Working Group recommended this year that government look at indexing tax on term deposits to cater for inflation in order to make deposits more attractive to savers. The government is set to make announcements on savings incentives in its May 19 Budget, but has already flagged cuts to KiwiSaver incentives.

Savings Working Group member Andrew Coleman discussed the indexation issue on interest.co.nz here.

'Govt to pay back half of student loans'

Meanwhile, Peters also suggested government pay back half the balance of student loans, which would keep young Kiwis in New Zealand and mean their taxes would cover the cost of the policy.

"Student debt has to be sorted out. We will face up to it before it inflicts more damage on yet another generation of young New Zealanders," Peters said.

"The piling up of student debt into the billions has got to end. NZ First will cut this Gordian Knot. We will introduce a scheme where government will make a matching dollar for dollar payment on student debt," he said.

"So, if a student living in New Zealand has a student loan of say NZ$30,000 – (a not unlikely sum) and paid back NZ$15,000, government would match that sum to extinguish the debt."

A matching contribution scheme would effectively halve student debt and remove a big incentive for young Kiwis to go overseas," Peters said.

"It would provide a fair and practical way of ending the dispersal of a generation of young Kiwis who are effectively economic exiles because of student debt. If they return and go into the workplace, their taxes will soon cover the government's contribution," he said.

'Buy back NZ assets'

Peters also recommended the creation of a NZ$500 million goverment fund to buy back strategic assets currently foreign-owned.

"This agency will have a specific mandate to promote New Zealand ownership – and would develop a comprehensive long term plan to buy back strategic assets," Peters said.

"This agency would be able to counter the Sovereign Investment Funds now prowling the globe on behalf of countries such as Singapore, Dubai and China. It is absolute folly for New Zealand to have a ratio of savings funds three to one offshore whist Australia has the reverse - three to one of its funds invested in Australia," he said.

Peters also reiterated his policy that free hold land could only be sold to New Zealand citizens, and currently foreign-owned land could only be bought by New Zealanders.

How to pay for it all?...'Govt debt is ok'...

While not outlining specific ways of funding the policies he announced - Peters said increased tax payments from former students staying in the county could cover the student loan write-off, and that the cancellation of NZ$12 billion for roads of national significance could cover increased investment in public transport - Peters did say New Zealand's public debt was not as bad as made out to be.

"New Zealand does not have a problem with public debt. Our public or state debt is manageable," Peters said.

"The private debt is a problem and that has been caused by the overseas owned banks going on a lending spree in order to make more profits. All the while cheered on by self interested groups in New Zealand. The government does not carry the debts of these banks. It's carried by the people and businesses with big loans," he said.

"So when [Prime Minister] Mr Key and [Finance Minister] Mr English keep talking about the country's staggering debt problem and the costs of servicing it – take it with a grain of salt. It's just an excuse for them to sell more of your state owned assets such as your power stations."