By Alex Tarrant
Labour is calling for a discussion about not allowing people to move their KiwiSaver savings out of the country, meaning KiwiSavers could only access their funds if they lived in New Zealand.
The Labour Party came out swinging against Budget 2012 over the weekend, saying the government needed to introduce a capital gains tax and compulsory KiwiSaver, reinstate research and development tax credits, and discuss raising the Super age.
Speaking on TV3's The Nation programme on Saturday, finance spokesman David Parker said those policies were four fundamental steps needed to be taken to dis-incentivise property investment and raise exports, build a larger domestic capital base, and tackle the rising cost of an ageing population.
A capital gains tax would remove a current incentive to invest in property over other asset classes, which should mean more capital was directed toward other types of investment, like into businesses, Parker said. See more on the capital gains tax policy Labour contested the 2011 election on here.
"It actually changes the investment signal the day you introduce it. The tax revenues are long term. The effects on the economy start the day you do it," he said.
Universal KiwiSaver would also lead to a larger pool of domestic capital for business investment, like there was in Australia. See Labour's 2011 election KiwiSaver policy here.
"On the savings front, we’re going to have to consider whether we make our savings sticky, rather than having open borders - people being able to take their savings pool with them to Australia," Parker said.
"Someone suggested to me the other day - a senior business person - that we’re going to actually have to have a closed system that says once you get universal savings you actually can’t take them with you to Australia," he said.
"We’ve got such a problem now between income differentials between New Zealand and Australia that we’re going to have to do better. We’re actually also going to have to move on inequality, you know, inequality in New Zealand is rising to atrocious levels, and a capital gains tax helps fix that as well."
Currently, people moving overseas permanently from New Zealand can apply to have their KiwiSaver funds paid out to them, minus the government's tax credits. There is a minimum 12 month wait to get the money.
Alternatively, if a person is moving to Australia, their KiwiSaver funds are supposed to be able to be transferred into an equivalent savings scheme there, where workplace savings are compulsory.
However, at present there is a minor hitch with that savings transfer option. In order for Kiwis to transfer the money into a super scheme across the Tasman, the Australian government needs to sign off on the Trans-Tasman Portability Agreement. New Zealand signed off on its end in 2010, but Australia has yet to do so. It is expected they will have done so by the end of this year.
See more here in Personal Finance Editor Amanda Morrall's KiwiSaver Q&A: If I go to Australia can I take my KiwiSaver with me? If so how long will it take, how much do I get and where does the money land?
Inter-generational conflict of Super age
Meanwhile, within the four-year forecast period of Budget, more would be spent on superannuation than on the total cost of education, Parker said.
"That’s more than preschool, primary, secondary, tertiary combined. We are actually getting to the point that through not addressing that issue we’re actually having intergenerational conflicts being set up," he said.
Labour's Super policy is to raise the age of eligibility of Super from 65 to 67 between 2020 and 2032. It would allow for those in manual work to still retire at 65.
(Updates with KiwiSaver links)
70 Comments
Why shouldn't a Government spend more on superannuation than on education? Surely that is exactly what you would expect if the age structure of the population changes such that there are more old people than school and university age people. Would we be complaining if the unemployment rate halved such that Government was now spending less on unemployment benefits?
If the age structure is more oldies and less young folk, then the govt 'should' spend more on superannuation than education.
But, I think the point is that (some) spending on education might be seen as an investment for the future, whereas one could hardly say that re. super.
Isn't it just a way of comparing the relative size of the income generating versus income spending parts of the economy?
...... can someone explain David Parker's logic , that if NZ Labour introduce a CGT , folk will push more money into business , and be less focused on rental properties as investments ..
But the CGT will apply to businesses too .....
....... am I missing a connection here , anyone ?
Not sure I can explain his logic, but ...
I think that the problem has been that a lot of investment in housing has been speculative (negative geared, so reliant on capital gains, which are untaxed), whereas investment in a business is generally for the ongoing profit it is expected to generate (any capital gain at retirement/sell out is a bonus).
Have you ever heard someone talk about setting up a business for the capital gain when they re-sell as the primary purpose for establishing that business? Can't imagine it was/is very common, whereas with housing it was all too common.
...... so a couple who've worked their freehold motel business , for instance ..... and who wish to retire after many years in the industry ....... have to pay a huge chunk of their businesses value to the government ..... a big piece of their nest egg gone , probably assessed as " income " , and taxed at the highest marginal income tax rate .....
Is that fair ?
But that raises the point, though, philly. Why should they have to pay a GCT tax on the business when they sell it, when they have already being paying tax on the profits derived from it? Any good business always plows back a proportion of their profits back into the business to grow its value. A CGT means they are being doubled taxed. Some incentive for a productive investment that is!
That would be NZX listed companies like 42 Below and NZAX listed Charlies then?
Or that kiwi icon TradeMe?
They never made a profit as such, continued to run up large losses funded by equity calls or increased debt, and the founders only made a profit when selling up.
So? Other income classes are taxed. Why not the profit made when selling up? All the costs of building the business up were tax-deductible, so why shouldn't the resulting profit?
It seems as tho tax is ok when applied to wage slaves, but not to the income earned by the wealthy. Even if charged at a very modest rate. "Greed" is the word that comes to mind.
Cheers DB ..... one thing that Gareth Morgan said , years ago , which I do agree with :
-- NZ doesn't need Kiwisaver , nor the Cullen fund ..... it only needed to raise the age of retirement on the universal pension by 2 or 3 years .... it is affordable ( most of it is re-spent within the community on food & energy , anyway ! )
All the rest of it is a windfall for the KS fund managers and the Cullen fund board .... but they are basically a waste of taxpayers' time & money .......
I tend to agree. National Superannuation is one of the cheapest old age pension schemes in the OECD as a percentage of GDP. It is affordable. It is inevitable that the age is going to get raised to 67, why, because we are healthier and living longer and are staying in employment longer. Really, raising the age has got nothing to do with affordability but about whether it makes sense to pay super to someone while they are still working and not retired. What makes super affordable now and in the future is ECONOMIC GROWTH, and this is what we should be holding all govt’s feet to the coals over, economic growth.
And your comment that super is re-spent in the economy is both spot on and insightful. Spending by superannuataints carries the same economic weight and advantages that spending by anybody else does, yet we get economic weirdos who somehow seem to think that a $5 note in the hands of a 77 year old holds less value than a $5 note in the hand of someone who is 37! Age doesn't determine the value of the money spent in the economy.
I do like some form of saving for retirement. I think it sets up discipline with money, and a savings culture, two things that New Zealanders lack, that have benefits that feed into the greater good.
That's true, but not particularly relevant. The Baby Boomers do not represent a temporary bulge in the proportion of old people in the population as a whole, after which everything reverts to how it was before. They are merely the start of a permanent shift in the demographic balance. A larger proportion of older people is going to be a permanent feature of future populations in NZ and many other parts of the world.
As such, the criticism that a policy change not implemented until 2032 is too late, is misplaced - there will still be an increased cost of NZS at that point and afterwards. David B's point that economic growth is a better way to address the affordability issue is much more germane
Personally I'm not convinced that there will be a permanent shift in the demographic balance that can be predicted with any degree of confidence or certainty in the future. My feeling is that trying to predict what the birth rate and population of the country will be 20, 30 and 40 years time is one fraught with difficulty and error. But you are correct, as predictions currently stand it's not the baby boomers as such who pose the threat to the long term affordability of National Super, it those who come after that do. e.g., Gen Y and X. Prehaps we should put the age up to 80 for them?
All this does is confirm - Kiwisaver is not actually your money.
I worked in NZ, I contributed to it. I should be able to do with it as I please. This is nationalisation by stealth. So how would I access my super now that I'm in Aussie? Is it only as asset my kids get on after I'm dead? Labour has some real Cuckoo policies.
No wonder, I only ever contributed the absolute minimum and continued to save privately. Further at least Aussie has Self-Managed Super Funds. Which allows me to avoid the gluttony of fees which are charged by fund managers whom seldom consistently beat any benchmark.
Yeah, but if you leave it in NZ and don't contribute the greedy fund managers will destroy it with fees. I don't have alot of money $8k with no contributions and fees it will be worthless in 40+ years.
It should be portable into a similar scheme. Aussie Super is typically not accessible until 60.
Its my money Jimbo - they the government garnished it from my after tax wages. Its mine - I worked for it. I should be able to use it when I retire regardless of location.
Politicans are so greedy. Wonder if NZ got into a situation like Argentina/Ireland what would stop the government raiding my Pension account? For me 40+ years is a long time to wait and it would only take one nutty leader to raid the biggy bank. Private savings is the only way to protect yourself.
\Its a shame NZ does not have private Self-Managed Super, I bet alot of people would buy real assets - Gold, Property etc which greedy pollies can't grab.
I'm considering buying a house in NZ just to get my Kiwisaver funds out.
At least in Australia you can elect to self-manage your retirement fund. It is this lack of ability to self-mange your kiwi-saver that is an issue.
In Australia and America many people have lost over half of their retirement funds when the GFC hit. It all depended on how the Fund managers were investing. Some of them were playing with fire and got caught with no protection on the Options they were trading. Some of these people lost 50% of their retiremnet savings. Well that's no good to anyone.
If you buy a house with your kiwisaver - you can't use the Govt contribution part.
But should you get the kick start if you leave? And should you be able to get it before 65 if you leave?
Surely the current law that you can take it when you leave regardless of age is encouraging people to leave the country? Why not make them wait to 65, same as if they stayed?
On the savings front, we’re going to have to consider whether we make our savings sticky, rather than having open borders - people being able to take their savings pool with them to Australia," Parker said.
And so we have a political party making eyes at peoples PRIVATELY saved Kiwisaver accounts and wanting to make policy restricting citizens access to their own savings?!
As a self-employed person I've put a handful of years contributions to get the tax credits, but resisted this year after they were halved - and that clear signal from Labour shows why most people still distrust politicians and retirement savings.
Far better to handle this privately and far away from government clutches IMO.
Labour governments have wrought incalculable economic damage on New Zealand over the years. Many of our current problems stem directly from their actions. The above highlights that they have learnt nothing, haven’t changed and are none the wiser. As soon as these clowns are re-elected, I'm taking me and my not inconsiderable wealth and I'm outta here - and no, it won't be to Australia!
.... unlike the incalculable economic benefits brought to NZ by National Prime Ministers like Rob Muldoon! lol
When it comes to NZ, I think each party is as bad as the other. The present regime with its refusal to contemplate raising the super age etc is an indication.
However, clearly you are bonded at the hip to National, so your spleen is understandable.
Muldoon did a good job for this country. Think Big has turned out extremely well. Name me one project that we have now that we wish we didn't, or that we are the poorer for having it. Don't want the Clive damn? What, should we have more wind mills, or burning our dung for fuel? The electrification of the main trunk was a waste of time? And what about that pipeline that sends fuel from the Marsden point to Auckland. No that was a dumb idea too. It's better to send our fuel to Auckland by 50 trucks a day.
Let’s contrast that to the disaster that befall this country with the Labour Govt. that followed him, and New Zealand’s worst Prime Minister of the 20th century, David Lange. The botched selling of our State assets, criminally cheaply and out of New Zealand’s control, with no retention of 51% ownership by the govt. Did Muldoon do that? No. Or the infamous cup of tea, damaging the economy by halting reforms half-way through a process that resulted in massive distortions in the economy. And what about the share market bubble of the 80s and the real estate bubble of the 2000s? Both on the Labour Party’s watch. Did Muldoon do any of that? No.
Well, I notice that you don't include the Motunui plant in your list! Wise man! & as for the "Clive Damn" - nice one, presumably you are referring to the Clyde Dam. Did it ever turn out to be cost-effective, after all the advice of economists & geologists were ignored? Questionable.
I notice that you didn't include Muldoon's overturning of the Kirk govt's superannuation policy. Instead of a pool of assets that would have put us on a par with the comparable Australian one, Muldoon made a pay-as-you-go at 60 version, that every economist ever since has decried as the biggest act of economic sabotage in NZ history. And which National is currently trying to pretend is affordable, regardless of all the evidence.
Huge deficits, over-regulation, price and wage controls, the list goes on for Muldoon!
But apart from those minor things, Muldoon was a great man of course!
that every economist ever since has decried as the biggest act of economic sabotage in NZ history.
Please provide the quotes and names that show that every economist ever since has decried the introduction of National Super as the biggest act of economic sabotage in NZ history.
Lol, what hysterical nonsense! I suppose you were one of those sad, Citizen's for Rolling, creatures.
So you don't want the Clive damn, here and now in 2012, then? Pfft!
Tiwai Point - is massive subsidy to Rio Tinto. It was the stupidest plan in history - import bauxite to the furthest place from market in the world (Invercargill might as well be on the moon), use electricity from a national park and then export it by boat again. How was this ever going to be a national asset, how was it going to be competitive? Now days the plant makes more from manipulating the national power network than it does from making Aluminium.
Refusal to float the exchange rate until it was way way too late. Still laughing Johnny Key made a lot of money...
The Salary and Price Freezes
Yes, the dams are useful today. But on any form of investment review they yield negative returns.
Muldoon was a well intentioned fool
New Zealand has had a significant void in leadership for a long period.
Line 3 was built during the 1980's as part of Think Big.
It uses 15% of National Power output.
Sorry but State Planning is often very very poor. Unfortunately no body deserves a job which required so much funding from the tax payers to create just 750 jobs for all that expense.
Further I bet the thing is structured with enough related party debt to insure it does not pay NZ taxes.
What actually will be interesting, when Meridian is privatised will Rio Tinto make an offer to buy Manapouri from them?
Hang in there with Tiwai Point. It may become one of the few aluminium plants left operating in Australasia. RIO has several smelters in Victoria using coal-fired-electricity and paying $0.03 kw/h on 15 year contracts with the state government. The contracts are due to expire in the next few years and RIO is already threatening to shut the smelters down unless they get a renewal at $0.03 kw/h if not a lower tariff. A NSW aluminium smelter "hydro" (of all names) has just shut down with a loss of 500 jobs. With the introduction of the carbon-tax on July 1 the generators are in trouble and RIO won't be getting any more subsidised holidays.
Expecting 3 cents a kwh seems somewhat un-realistic...if only ofr the costs of getting the coal out and re-newing plant to burn it....sure they could close down, the Q is then where do they go....um.....they could easily end up with a head office owning nothing....and producing nothing....oh dear.
Time me thinks that NZ govn's and OZ's govn's should make sure they are on the same side in this...
regards
The domino effect. It's a small world. Which happened first. Hydro, or Hastie, or Heyday. They're all connected. Heyday is a subsidiary of Hastie. See bottom of SMH report.
The losses at Heyday group follow as many as 400 jobs which are expected to be lost with the planned closure of the Kurri Kurri (Hydro) aluminium smelter in the Hunter Valley announced last week. In addition, as many as 800 jobs are exposed to the anticipated shutdown of the Kurnell oil refinery, with a decision here due mid-year.
http://www.smh.com.au/business/heyday-sheds-500-jobs-in-wake-of-hastie-collapse-20120528-1ze6f.html
How much is RIO paying for Manapouri power, how long is the contract for, and when was it last renewed?
Oh I agree there are plus points for some, however you have to way those up v the bad and Im wondering where that line is. For instance if you look at the USA its quite typical for US companies to put a state over a barrel to avoid paying any tax because of these "good effects". The problem then is, who is really paying...
Rio is really playing hardball and thats not a bad thing....the Q is is the State/Nation up to playing as good a game of poker.
I do have issues with having plant put in a place to keep employment going, while yes OK I can see that might make some sense if its at the expense of the Nation overall it doesnt make sense. For instance rio gets power at 1 or 2 cents a kwh....15% of our output? retail cost to us is 20cents, most businesses pay 6cents plus....and we are outside of a recession expanding at 4% a year....so the Q has to be asked what cost keeping that employer v letting it go and saving buying/building new generation plant....
I'd also like to know just how much corporate tax they pay....wouldnt be surprised if we see its very little...
regards
It will be interesting to see what the long term environmental cost is. I understand they currently bury the significant amounts of toxic fluoride based byproducts in sealed pits along the coastline. It is a dirty process and I believe I suffered health problems from working there.
I love how Labour NOW want to introduce all this 'way too late' legislation to apparently solve the severe economic problems THEY created from 2003-2008 by ignoring key issues like the property bubble, NZ personal debts, and government borrowing. Of course, National are no different, hence they continue with Labour policies like WFF and KS
While Labour actually paid down debt and we had little debt pre-2008...so its not a public debt issue but they allowed a private one to go out of control I agree.....
What we see here IMHO is an attempt by Labour to shanghai our pension funds in order to get capital for Govn programs. I expect they are feeling the water and if this goes OK the next thing will be a forcing of kiwisaver accounts to buy Govn and council debt and fractioanl cost prices....We can see whats happening in Spain right now for that outcome (pension wipeout).
Its really tax by stealth and guess what, its the middle (and even lower classes) getting ass raped yet again.....
regards.
The mad proposal by Labour to lock KiwiSavings in New Zealand demonstrates exactly why many people are reluctant to join the scheme: they fear to put their money into a vehicle that can be interfered with by the government. No wonder they want to make it compulsory; that way no-one will be able to escape their meddling.
I agree. Politicians from both left and right just can't stop themselves from tinkering with KiwiSaver, and this would have to be the intervention that would reduce the credibility of the scheme the most.
I can see where they are coming from - at the moment a taxpayer subsidy is at risk of ending up being spent offshore. But still a daft solution.
So true. Restricting peoples own use of their own money is a terrible idea. People have pumped their own money into this scheme, and signed up to it in good faith, and under far more favourable conditions. If they are going to impose these new conditions, then they should at least allow anybody who signed up under the old conditions, to withdraw all their money and opt out. This wouldn't be allowed if a private company changed the T&Cs after the contract is signed, otherwise the contract becomes null and void. I now regret signing up, as the government contributions have been halved, to what I signed up to.
Just goes to show that there is no incentive to save, and the best investment is to put your money into property. They can't stop you selling a house and using that money overseas.
Absolutely right. By simply suggesting this in opposition, David Parker is undermining confidence in the scheme, because it illustrates what we all fear - that some future government will stop us from retiring the way we may want to.
Other countries trade off this risk with things like tax breaks for income in an official pension plan. But we get the worst of both worlds - you are better off with your savings in a bank account.
The rate of return is about the same (or twice as much compared to Gareth Morgan's fund), the returns are taxed the same amount, but I can take it out of the bank at the retirement age I choose, and I can live anywhere in the world when I make the withdrawal.
Also, if the NZ economy is doing badly I might like to invest in another market where things are doing well, rather than being told that I have to participate in NZ's misfortune.
FYI from a reader via email:
Bernard, i can`t quite understand the clamour, for this panacea for our economic ills, of raising the retirement age. I am trying to get some traction for my point of view. Although once i talk to friends about my point of view, they are supportive. To take it to a wider audience is almost impossible. There seems to be a complete lack of objective debate about the issue. There is an almost unanimous voice from the economic community, that our salvation is raising the pension age. I don`t think it is so clear at all, but to get any traction is almost impossible. Perhaps you might be able to express another point of view, being a very objective economic analyst. The only way for raising the pension age, to work, as i see it, is to have almost zero unemployment. If you don`t have that you have not created any more jobs so opening the door at one end, means you close it at the other. There is still only the same amount of jobs available. We already have a huge unemployment rate at the youth level, that will just grow as people don`t leave from the other end of the chain and everything inbetween slows down. This causes frustration, friction and instability in the workforce. Young people, with brighter fresher ideas could be held back, as the older staff limp towards there retirement. Not really a nimble economy. If you are not paying the pension, you will be paying for employment programmes, dole etc at the other end. It will probably end up being very little difference in monetary terms. I can`t also see gangs of pensioners roaming through shopping centres mugging people, where as the social problems of having more youth unemployment could be catastrophic. These are questions that i have not heard asked or answered. John Key is adamant he doesn`t see the need for the pension age to go up, but he gives no reasons to the questions asked. Is he keeping his powder dry and will give the answers i have outlined when he sees it as necessary, maybe. But i for one would like a bit of a debate, about my conclusions. There is also the thorny problem of the manual labour part of the population, who through body fatigue can`t often make it part 60. I have heard an argument from them, that most didn`t go to university or other training but went straight into the workforce, so from there standpoint have already on average worked approximately 10 years longer than those that did go to university. Interesting point. I was drawn to this vexed subject, when i was in France a couple of years ago and they were in the process of raising the retirement age from 60 to 62, and in the normal French way there were protests in the streets and there was a lot of students supporting the demonstration and the commentator was asking them what it had to do with them as they were years from retirement. They were really voiciferous in there comdemnation of the increase, as it would directly affect there job and promotion prospects and would detrementally affect everone throughout there working lives. It is an argument that has to be put. Maybe you disagree i would enjoy the debate.
In the good times where we have little unemployment there would be a much higher percentage of people working and contributing tax, and a much lower percentage not working and receiving a handout, if the super age was higher. Just because we have an unemployment problem now, does not mean we will have one in 5 years time, or 20 years time.
I don't know why people expect that they can work for 40 years, pay probably about 25% tax on average, and then get paid NZ super for the next 20+ years as well as free education, health, etc. It just doesn't add up...
A retirement age of 65 might have been OK when people lived to 75, now they are living to 85 it seems a bit low
It would seem to be a complex subject...
To start with PAYE and GST make the tax 30%+....
Fairly sure that when 65 was set, a decent % didnt see 70....now its more like 75....and the healthcare costs rise....
I suspect that we really need a decent spreadsheet calc to take all the factors into account properly....
The biggest one is of course you are not forced to retire at 65....those with a decent IQ, skill set and health will probably continue past 65, so its the unskilled and in ill-health that will be most impacted I assume....and they already benefit the least from the OAP as they live the shortest time after "retiring".....
regards
First thought, whats stopping younger ppl having their own business? if they are truly "young people, with brighter fresher ideas" then they will run rings around oldies...and take the work off them.
Also there is no compulsory retirement, for myself I hope to be working at least part time past 65......so I wonder if the ones really effected greatly by this are the un-skilled labourers who Im sure the "young and bright" wont be eager to replace.....maybe the idea is to kill off the old and poor so they dont live long enough to claim....
Another point, in IT for sure younger ppl are preferred....they are generally more technology savvy, can be paid less, bribed with pretty toys and work longer hours.......
So actually Im not sure raising the age achieves much....
regards
Google "lump of labour fallacy". Your French students were simply wrong. Keeping one group of the population out of the employment market does not improve employment prospects for other groups of the population. They tried reducing the retirement age in Belgium so as to reduce youth unemployment and it failed completely
http://www.pensionreforms.com/Preview.aspx?523
Bernard, the person who wrote this email subscribes to what is known as the "lump of labour fallacy": the idea that there is a fixed amount of work to do, therefore if older people work longer it is directly at the expense of young people.
This couldn't be more wrong. There is little overlap between the jobs performed by those 55+ and those in their teens. For instance, when was the last time you were served at McDonald's by someone with grey hair? I've yet to encounter an 18-year-old chief executive either.
The reason unemployment is so high amongst New Zealand's young people is largely because of the ridiculous decision to abolish the youth minimum wage. Last time I checked the youth unemployment rate for 15-19-year-olds was about 25%, while the adult unemployment rate was under 5%.
This suggests that New Zealand's minimum wage isn't so ridiculously high as to cause mass unemployment for adults, but it is certainly having that effect for children.
Edit - I see the comment above has beaten me to it with the "lump of labour fallacy". Good to see some economic literacy among readers of interest.co.nz!
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