By Lynn Grieveson
Labour has rejected calls from Economic Development Minister Steven Joyce to specify how much of an increase in the KiwiSaver contribution rate would be needed to have the same effect as a one percentage point increase in the Reserve Bank's Official Cash Rate (OCR).
Joyce has estimated "in a couple of hours with the help of a couple of boffins on the back of a cigarette packet" that Labour would have to increase the KiwiSaver contribution rate from 9% to 15% to have the same impact as a one percentage point increase in the OCR. Joyce again challenged Labour on Tuesday to produce its own figures on how much the Variable Savings Rate (VSR) would need to increase to prevent a one percent rise in interest rates.
Speaking to reporters outside the Labour caucus room, Labour finance spokesperson David Parker refused to take on the challenge and said it proved that, when it came to the complexities of Labour's new economic policy, Joyce "just doesn't get it".
"Steven Joyce makes the fundamental mistake that you can't consider it in isolation. Capital gains tax, the introduction of universal kiwisaver - they are both more important than the VSR and we have said that," said Parker.
"No, I am actually not going to play his narrow little game. He just doesn't get it. Steven Joyce still seems to think it is better to send money overseas to a foreign lender than it is to save a bit more."
Parker said making KiwiSaver compulsory was, in itself, more significant than any rise in the VSR.
"It will be less effect than the conversion to universal KiwiSaver. We know from the Australian experience that as you get everyone into a savings scheme you have less inflationary pressure. You add a capital gains tax, you build some houses to take pressure off house prices and all these things work together," he said.
Joyce said Parker had not detailed how the 'big tool' would work.
“We have estimated a 1 per cent increase in KiwiSaver contributions is only likely to generate about $400 million of net new savings and it would take roughly $2.5 billion in extra savings to keep the OCR 1 per cent lower," Joyce said.
"Mr Parker has to be upfront with New Zealanders, provide some detailed numbers, and show the impact of his scheme on their pay," he said.
Parker said the issue was broad and the policies were inter-linked.
"He makes the mistake of ignoring fixed rates and banks," Parker said.
Labour leader David Cunliffe added that it was that the combined effect which mattered to New Zealanders, saying they wanted policies that "would lead to lower home mortgage rates, lower rents and a lower cost of living and, of course, the fact that everyone would rather put their money into their own savings account than see it bleed off to a bank or a landlord."
No word yet on KiwiSaver ratios
Parker and Cunliffe also refused to say how much employers would need to contribute to increased KiwiSaver rates, saying they hadn't yet made up their minds on the matter. They promised an answer before the general election.
"At the last election we said it would be two (employee contribution) plus seven, " said Parker.
"It's since moved to three plus three (which is six of the nine) and we haven't made up our final mind as to how the additional percentage to nine will be made up. What we have said is it will be a slow transition where it increases at half a percent or one percent per annum."
Reshuffle
Before discussing the VSR, David Cunliffe announced to reporters what he called a "mini re-shuffle" of the Labour front bench, in the wake of the departure of Shane Jones.
Housing Minister Phil Twyford picks up the Transport Portfolio and Grant Robertson will take on Economic Development.
Trevor Mallard, who was demoted by Cunliffe in a previous reshuffle, takes up the immigration and associate economic development roles.
24 Comments
No Mr Parker , YOU dont get it , a Capital Gains Tax is nothing more than a resentment tax.
Your VSR policy is , for lack of a better expression ..... hare-brained .
I dont see how it could possiblly work .
Firstly , There is no relationship between compulsory saving and the OCR .
Simply , you have to pay the providers of Capital with a fair return , and that must be a real yield over and above the inflation rate.
Anything else is perilous and will lead to Capital flight , followed by a cash crunch
If you fail to pay a fair interest rate , who is going to provide the capital of tommorow ?
With regards to CGT , If you remove all the advantages of private investors risking their money providing housing stock to rent , then who is going to provide the houses needed to home people ?
The State ?
I dont think so.
Ordinary Taxpayers wont have a bar of it .
As it is we run a budget deficit that looks dangerously like rotten Greek Yoghurt so we know cannot afford it
Housing New Zealand is already a massive burden on the taxpayers of New Zealand , and simply cannot provide houses for everyone.
You folk are stuck in the last Century's socialist ideological thinking , and its time you moved past Y2K.
In a fair world, all sources of weath would be taxed equally, including capital gain.
People have to live somewhere. Houses will be built or renovated to accomodate people regardless of whether property investors are making a 'fair' ROI. Rent is solely a function of supply and demand.
Resentment tax! Ha, thanks man, I love hearing angry landlords spout that old chestnut - gets me every time.
With all due respect, it's quite evident you don't represent the ordinary tax payer. Everybody I've spoken to about this are very supportive. Obviously as they increase the savings rate people have less disposable income hence less money circulating in the economy, taking pressure off inflation and alleviating the need for an OCR increase, or at least not so many OCR increases. What don't you understand?
And what rubbish that investors will retreat with a CGT. We're the only country in the western world without one - does Australia or the UK have the problem you're dreaming of? Of course not, because there's still money to be made. Some investors might retreat (obviously yourself, unless you're just venting, which appears more than likely) and that would be a good thing due to the over-investment and lack of affordability in NZ property.
Come on buddy, take a breath and have a think before you post on this website.
Your comments are frankly nonsense .
Firstly , I dont own any residential properrty in NZ other than my home . I do have an interest in a small commerical property .
Secondly , if you think that Capital gains tax in the UK or Australia has in some way made houses in Sydney or London more affordable or cheaper , you are in for a big shock .
Capital gains tax is an insidious tax that ordinary people end up paying.
It actually widens the gap between rich and poor , because there is a simple way around it , by using the growth in the underlying asset to acquire more income generating assets .
You see there is no way to tax the gain , until the asset is sold , so good assets generating good money are not sold
Simply , the wealthy dont get affected because they dont realise the gains , they gear up the gains , and get wealthier by increasing their income .
People like you and get smacked when we sell an income generator , and then we give a slice away for nothing , often for a lifetime's work and saving
This whole thing is quite strange. When Federated farmers and Don Brash think a labour policy has merit Labour have to realise they have made a huge mistake when it comes to the best interests of their own voters. As Gareth Morgan noted, many of the lower paid get a substantial pay rise when they retire and go on to National Super. They would have to be nuts to give up any of their current incomes to set money aside for a time when they will be better off anyway.
A worker not currently in Kiwisaver could easily find themselves forgoing more than 10% of their current income if they have to join a scheme and the contribution rates are elevated to try and control inflation. If their income is say $40,000 pa they could be $80 per week worse off so farmers might get a bit more for their milk and people with big incomes and $750,000 mortages might get a half percent off their mortgage interest rate. If the Nats had come up with a scheme like that all the entities looking after the interests of the low paid ( such as Unions ) would be screaming blue murder. Their silence so far does them no credit.
If this is not the likely outcome for wage earners Parker really does need to explain exactly what he has calculated the impact will be. If he is saying the VSR is only a tiny part of their overall package and the contributions wont need to move much what exactly is the point. ?
If they can control inflation without moving interest rates and without shifting the VSR much they should just forget about involving Kiwisaver in monetary policy at all ( which is what will happen if they get elected as they know it wont work )
I am a fan of Kiwisaver.
And I get that a economy orientated to savings will have a better outcome than presently. But Kiwisaver is only part of any savings environment. A significant component would be a government running in surplus, and reducing debt.
I just don't get this Parker idea that the Kiwisaver dial can be twisted back and forth as conditions change. And that would have useful effects.
Our Govn used to run a surplus and had paid off the debt...unfortunately the GFC came along and it sems no one was prepare to prepare for it.
You may not get the idea on a variable kiwisaver, but I'd suggest its fairly obvious. take more out into the fund to cool and take less when its too cold, a very simple concept. It also means the effect is spread more evenly across earners so varying the changes may well be smaller for the same effect.
Of course I'd suspect that Pollies being Pollies will screw it up somehow.
regards
One of the early posters on this subject but an earlier thread said something like " Buy high, sell low , no thanks " which I did not immediately see as relevant, but it is. It also illustrates one of the problems with mixing up investments with monetary policy.
One of the powerful parts about regular saving into investment products is that when markets are down the same amount of money will buy more assets. When markets improve the saver gets a benefit from his cheaper assets now being worth a bit more. When markets are high that amount of money buys less assets so cushioning the fall a bit when it comes. It is called dollar cost averaging.
This proposal will mean savers are forced to put more money into inflated markets and less into cheaper markets. It is exactly the wrong thing for savers to do
Mr Cunliffe....I'm a NZ and can speak up for myself....so your following comment is nothing more than being pretentious.
Labour leader David Cunliffe added that it was that the combined effect which mattered to New Zealanders, saying they wanted policies that "would lead to lower home mortgage rates, lower rents and a lower cost of living and, of course, the fact that everyone would rather put their money into their own savings account than see it bleed off to a bank or a landlord."
Many NZ'ers may want lower home mortgage rates, lower rents and a lower cost of living, but; HOW the heck can that happen with what your proposing? It can't and won't deliver what you're promising.
The entire system needs to be restructured not played around the edges. The mentality in Wellington seems to that of beating the carpets with a broom and NZ'ers are paying for this mentality.
Is there any political party developing a taxation system that is fair, transparent and efficient on all parties?......I'm thinking a flat rate on gross income...no deductible expenses for off-setting with and eventually terminate GST.
The tax this, take that, fiddle with this, fiddle with that does not work.
I leave it to the other posters to contribute to what they feel is a fair, transparent and efficient system and look back in later.
"Is there any political party developing a taxation system that is fair, transparent and efficient on all parties?"
Yes I believe the Greens and Labour are heading in that direction.
"flat rate" no that isnt considered fair, and that was a plank of Act so we can see that isnt considered fair by 98.6% of NZers...oh and about 1000 Livertarians such as yourself.
regards
A flat tax rate fair is not entirely fair especially on those who earn more income. If your paying e.g. 10% on all earnings (or whatever the rate is set at) then the higher your earnings the more tax you will pay. But you weren't meaning that type of fair were you?
Instead of wasting time on personal attacks perhaps you could spend more time in making suitable, fair, transparent and efficient suggestions. By the way Labour and Greens are certainly not heading in that direction with their policies.
Yesterday I watched a minimum wage worker clean our urinal, I thought thank f*** that isnt me.
Get real.
As a society we have decided that a progressive tax system is the fair way. Yes those earning more pay more as a double whammy, but you know what they are still far better off.
I pay quite a bit on the top rate and I dont mind because having the ability to earn a good wage was luck (ie gifted a decent IQ and abilities), self determination and some good and lucky choices.
So fair is determined by what the vast majority in society decides is fair and not by what a handful of extremists such as yourself think is fair.
regards
I think notaneconomist is at least thinking of possible fixes outside of the norm. I agree that "income" tax should be on gross income for everyone including trusts, corporates and individuals and every form of income is included. This would allow for a massive reduction in in tax rates. Even if taxed at flat rates the low income worker is going to have much more in his/her pocket and those that used to have the right to deductions are going to be paying considerably more. This is not a single fix and there are many more factors that need to be looked at.
When you watched the minimum wage worker cleaning your urinal why did you not think "wow, he's performing an important job that contributes to the health and wellbeing of everyone here, one that I'm not willing to do, why is he not paid well for his worth as a human being instead of the job he is doing?"
If the vast majority in society are ignorant, greedy and selfish does that still make their determinations "fair"?
If a tiny minority are ignorant, greedy and selfish, yet try and claim what they want is fair, and on top of that that others are well basically stupid for not understanding their "odd" thought process that has no intelectual rigour, is it reasonable and fair?
Notaneconomist is thinking nothing new on a flat tax, just regurgitating the same old same old Act and right of Act mantra. Its not a fix for anything I can see either, except lining the higher incomes pockets even more.
I have some time for Gareth Morgan's Big K idea, now that is out of the box.
So I'd suggest not.
"minimum wage worker" yes that is exactly my thought when we look at say the denial of raising the minimum wage to a living wage.
I'll agree on every income, ie any profit should be taxed and equally to any other undertaking. Ergo profits on shares and property via the CGT should be in place Then yes over taxed / burdened areas like PAYE should be reduced. Im not so sure it would be massive btw, noticable, yes.
regards
Income and profit are two distinctly different definitions. I'm suggesting a single income tax, not a capital gains tax, on all income before deductions. This could enable the removal of so many different taxes and simplify the tax system immensely. At a rate of .01% or whatever it works out to be to ensure government revenue is enough to provide core services would see a huge difference to salary and wage earners.
A living wage although commendable is not enough by itself and ultimately depends on business as usual. What is the minimum standard of living everyone is entitled to? If a group of society continuely believes in wealth maximisation and accumulation and is still able to control/influence prices the living wage must continue to increase. This will not be sustainable given energy and resource constraints.
Hmm, Im not sure where we are going here. My problem with your defination is if you are making no profit on your income then you get taxed as heavily as if you were making a massive profit, which then would be mostly tax free? cant see how that makes sense.
So
a) That is in effect a regressive tax, it also could discourage startups and new businesses in favour of old established businesses making it impossible to inovate or update.
b) Real goods require a real turn over, where a financial product of mass destruction, could require very little and effectively be taxed lightly, and hence stupid destructive behaviour would be encouraged.
So for me "income" and "profit" are or should be considered the same thing for this context, ie taxing equally. I can accept that things like the say CGT may be hard to set correctly to give an equal impact to say PAYE but it needs to be done.
Im not sure where you get the 0.01% from but that seems highly, un-realistic.
Also "core services" frankly this sounds like we are drifting off into the Libertarian universe which 90+% of ppl would seem to have no interest to be or trust in.
"business as usual" well so does any tax system alternative we look at here when in fact Peak oil makes BAU a history thing. ie nature does not entitle anyone to a minimum std of living, at best a society of choice tries to.
PDK just pointed to Kunstler,
http://kunstler.com/clusterfuck-nation/piketty-dikitty-rikitty/
http://kunstler.com/clusterfuck-nation/lying-or-just-stupid/
Excellent reads IMHO.
So sure we could sit here discusing alternative ways to tax under BAU, when really they all ignore the mad elephant herd in the room about to trample everyone...
As K said,
"In any case, just because human affairs follow certain patterns these days, don’t assume that all these patterns will persist. I doubt that the Warren Buffets and Jamie Dimons of the world will see their wealth confiscated via some new policy of the Internal Revenue Service — e.g. the proposed “tax on wealth.” Rather, its more likely that they’ll be strung up on lampposts or dragged over three miles of pavement behind their own limousines. After all, the second leading delusion in our culture these days, after the wish for a something-for-nothing magic energy rescue remedy"
or,
"The United States of Gas, by Robert Hefner III . This idiotic article in the current issue hits on all the usual wishful thinking delusions du jour concerning this country’s energy prospects, namely: due to fracking in shale deposits we’ve entered an energy-and-manufacturing renaissance, we’re soon-to-be the premier energy exporter to the world, and US “consumers” (i.e. citizens) can be assured of driving to WalMart forever — in other words, all economic problems solved. "
So really, we are wasting our time.
regards
I've read Kunstler and more and totally agree that BAU is unsustainable. Unfortunately the vast majority of ignorant, greedy and selfish are just that, won't get it and don't want to get it. Given I have no faith in humanity to make the changes needed by choice I will offer suggestions on those topics that may be able to be changed. My suggestions won't be influenced/limited by a belief that existing practices are the only way things can be done. Who knows, if I can encourage critical thinking in smaller areas maybe there will be a ripple effect into wider areas.
If you're not making a profit then maybe the business shouldn't be running, why should you not pay your fair share of tax? Businessess making massive profits have been taxed at the source of income. Spending habits and beliefs will obviously have to adapt as well.
a) innovation and ideas will still happen. how many great innovations were not thought of or developed because of the tax system?
I'm not saying that CGT does not need to be done only that it's current label and perception as a seperate or another tax is part of the problem why there is so much resistance to it. Remove the distinction between revenue and capital in the tax system and an income tax becomes exactly that, a tax on income no matter what it's source.
The .01% was just a number as an example. Maybe this is where progressive tax rates can be utilised. Productive enterprises that contribute to the overall wellbeing (taking in a number of factors) of society have a lower tax rate than financial institutions and more destructive enterprises. Remember these are just ideas.
Libertarian? No, just common sense. Governments are no longer the institutions they were intended to be. A belief that we should be free to do as we choose so long as we are not harming others (that includes our natural environment) - if that makes me libertarian then guilty as charged.
I disagree that it is a minority who are greedy, selfish and claim what they want is fair.
I think a minority of people understand the problems of the current system. However we live in a democracy so majority rules and we keep the system that everyone complains about but then doesn't want to make changes too.......ah.....this is my definition of insanity.
Steven you didn't even understand what was required of a business in the collection and compliance for GST registered people and yet you have the audacity to describe other people as having "odd thought processes". I can still remember when you stated that GST was basically a point of sale....end of story scenario......it is people like yourself who have ensured the status quo remains despite being inefficient, unfair and not showing transparency.
To prove my point on transparency - you should have known that people registered for GST were responsible for the collection and compliance with the IRD......but you didn't......you had no idea how the money got to the end point.
It is hardly an efficient system of collecting revenue for the IRD but as your not self-employed you will not know about the inefficiencies as you haven't had to experience them.
In regards to that person cleaning the toilets - he might have been grateful he didn't have to wipe your rear-end or shake your bits for you.....he might have owned a cleaning company and been silently thinking there is work and money in the supplying the basic necessities.......good on him he has a job and is obviously not stuck-up about what that job is. In your state of being glad, that that was not you cleaning the toilets - did you actually stop and think about ways his income could be sustainably improved if the system was structured differently? No.....your answer would be to rob Peter to pay Paul.
Resentment tax! Ha, thanks man, I love hearing angry landlords spout that old chestnut - gets me every time.
With all due respect, it's quite evident you don't represent the ordinary tax payer. Everybody I've spoken to about this are very supportive. Obviously as they increase the savings rate people have less disposable income hence less money circulating in the economy, taking pressure off inflation and alleviating the need for an OCR increase, or at least not so many OCR increases. What don't you understand?
And what rubbish that investors will retreat with a CGT. We're the only country in the western world without one - does Australia or the UK have the problem you're dreaming of? Of course not, because there's still money to be made. Some investors might retreat (obviously yourself, unless you're just venting, which appears more than likely) and that would be a good thing due to the over-investment and lack of affordability in NZ property.
Come on buddy, take a breath and have a think before you post on this website.
Are we missing something ............If this VSR idea was even remotely possible to keep inflation in check dont you think it would have been done before ?
Frankly its stupid , makes no sense , and I am at loss to understand how we can somehow not pay lenders a fair price for their money.
If the price of money ( interest) is less than the inlfation rate , I will be a borrower for sure .
Labour is suggesting we can put the difference between what we are prepared to pay and the fair inflation adjusted price of capital , into our own private piggy bank .
WTF?
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