The +0.8% advantage for being on this side of the ditch

We pay about 1% more than Aussies for our mortgages but get paid about 1.8% more than them for our term deposits

10th Apr 15, 12:47pm by David Chaston

The latest round of home loan rate cuts have just started with both BNZ and ASB making changes today.

But most readers will know that mortgage rates are lower in Australia.

Term deposit rates are also lower in Australia.

So how do New Zealand interest rates now compare, following the confirmation that the RBA did not reduce Aussie benchmarks on Tuesday?

New Zealanders are paying about 1% more than Australians for their fixed rate mortgages, and the same premium for floating rate mortgages.

Mortgage interest rates
April 10, 2015	Floating	1 year	2 years	3 years	4 years	5 years
New Zealand	%	%	%	%	%	%
ANZ	6.74	5.49	5.39	5.79	6.49	5.89
ASB	6.75	5.59	5.39	5.49	5.99	5.65
BNZ	6.74	5.49	5.15	5.55	5.65	5.75
Kiwibank	6.65	5.69	5.39	5.55	5.99	5.79
Westpac	6.59	5.99	5.39	5.59	6.49	5.75
NZ average	6.69	5.73	5.59	5.75	6.04	5.84
Swap rates	2.63*	3.54	3.51	3.52	3.54	3.58
margin to swap	4.06	2.19	2.08	2.23	2.50	2.26

Australia
ANZ	5.63	4.49	4.59	4.69	4.99	4.59
CBA	5.65	4.84	4.74	4.84	5.14	4.74
NAB	5.63	4.59	4.69	4.79	5.09	4.69
Suncorp	5.74	4.54	4.54	4.54		4.84
Westpac	5.70	4.89	4.79	4.89	4.89	4.79
AU average	5.67	4.67	4.67	4.75	5.03	4.73
Swap rates	2.26*	2.06	2.02	2.08	2.27	2.36
margin to swap	3.41	2.61	2.65	2.67	2.76	2.37
* 90 day bank bill rate

differential (NZ-AU)	+1.02	+1.06	+0.92	+1.00	+1.01	+1.11

These are the carded rate differentials - negotiation can lower your actual rates, and your effective costs will be affected by incentives and fees. (Home loan fees are more pervasive in Australia, so much so that they require banks to declare "comparison rates". The above table does not account for those costs.)

But New Zealanders are being paid about 1.8% more than Australians for their term deposits.

Term deposit interest rates
April 10, 2015	3 mths	1 year	2 years	3 years	4 years	5 years
New Zealand	%	%	%	%	%	%
ANZ	3.50	4.20	4.40	4.50	4.55	4.60
ASB	3.50	4.30	4.50	4.55	4.65	4.75
BNZ	3.50	4.30	4.50	4.55	4.65	4.75
Kiwibank	3.65	4.50	4.65	4.90	5.15	5.40
Westpac	3.50	4.20	4.40	4.50	4.60	4.75
NZ average	3.57	4.34	4.54	4.67	4.75	4.87
Swap rates	2.63*	3.54	3.51	3.52	3.54	3.58
margin from swap	(0.94)	(0.80)	(1.03)	(1.15)	(1.21)	(1.29)

Australia
ANZ	2.45	2.60	2.65	2.65	2.70	3.00
CBA	2.15	2.60	2.70	2.80	2.90	3.00
NAB	2.55	2.65	2.75	2.75	2.80	3.00
Suncorp	2.60	2.80	2.90	2.90	2.95	3.00
Westpac	2.25	2.70	2.75	2.75	2.80	3.20
AU average	2.40	2.67	2.75	2.77	2.82	3.04
Swap rates	2.26*	2.06	2.02	2.08	2.27	2.36
margin from swap	(0.14)	(0.61)	(0.73)	(0.69)	(0.55)	(0.68)

differential (NZ-AU)	+1.17	+1.67	+1.79	+1.90	+1.92	+1.83

Margins between term deposit rates and home loan rates are fatter in Australia than New Zealand, with Kiwis getting about an 0.8% advantage overall.

Better to be a Kiwi saver, especially now that inflation has all but disappeared here. It will probably come in at just +0.5% pa when the March data is released later this month. Similar Australian data will probably show +1.7% pa.

[This story was updated by adding current swap rates to the tables.]

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36 Comments

by fat pat | 10th Apr 15, 7:09pm 1428649771

We have a low wage economy and Australia doesnt. Just one example. Data analyst salary in New Zealand 53 to 62.5K NZD (median to 90th percentile). Same job in Austraila 62 to 86K AUD (median to 90th percentile). Here's the data.

by David Chaston | 10th Apr 15, 8:30pm 1428654659

Those are gross, before tax incomes. If we take the top of each range, the NZ one works out as

Gross = NZ$62,500

less income tax per IRD website = 11,770

equals take home pay of NZ$50,730

The same process for your Aussie rate ...

Gross = $86,000

less income tax per ATO website = 21,057

equals take home pay of AU$64,943

The difference between the gross levels is $23,500, but at the take-home pay level, the difference shrinks to $14,213 (when the exchange rate is NZ$1-to-AU$1).

Most costs of living are less expensive in New Zealand (as our weekly grocery cost monitoring proves) so it will be up to an individual circumstance as to whether NZ$50,730 buys more or less than AU$64,943.

by steven | 10th Apr 15, 8:44pm 1428655473

Indeed, many ppl ignoe the NET. When I left the UK my car insurance with 60% no claims was >$3000NZD equiv (1500sterling), here $30 a month. In the UK I didnt insure my flat contents the premium was more per year than I considered my contents was worth. So sure I came here to fresh air and less expenses.

by fat pat | 10th Apr 15, 10:44pm 1428662694

Its a good point. Lets make it realistic. What about the gross wage in each country required to service a garden variety 650K mortgage, and assume a 100 basis point differential in the 25 year mortgage rates between the 2 countries.

NZ 650K 25 year mortgage @ 6.6% -> 2078 per fortnight

thats $54,028 NZD per year NET cash required

Which requires a gross salary of $68,600NZD with PAYE and ACC deductions

Australian 650K 25 year mortgage @ 5.6% -> 1857 per fortnight

thts $48,305 AUD NET cash required per year

which requires a gross salary of ~$60,890AUD with medicare and income tax decuctions.

So even though the marginal tax rate is lower in New Zealand, you still need a higher gross salary to service the same size mortgage in New Zealand compared to Australia. However because the Gross salaries are actually lower in New Zealand then I'd argue that Kiwis are at a substantial disadvantage.

by steven | 11th Apr 15, 9:18am 1428700680

That isnt necesarily realistic, for instance as a starting point you want to compare a house in OZ with a similar one in NZ. So a 650K NZD house close to say the Wgtn CBD (15min drive say) would cost how much in say Sydney in OZ? Not sure that is fair but you get my drift.

Also I think the GST is higher in OZ? so the overall OZ tax burden is higher? What about overheads like power? rates? insurance?

As an example I left London and came to live here 20 years ago, my NZ salary was less but my overheads were way way less and I ended up with a smaller mortgage and outgoings here. Not to mention cleaner air, less crowding and a better life style. Not sure what I'd earn now in the UK in IT....might go look but at one stage the difference had narrowed considerably.

by fat pat | 11th Apr 15, 10:36am 1428705370

Yes I'm Auckland focused. I was more thinking along the lines of an 800K house purchased with a 150K deposit. I think that's pretty realistic for Auckland these days (and comparable Australian cities). Most DINKS with good jobs are looking to buy at those prices. Of course you'd have to rent the house out and maintain a very low cost of living yourself (by living in a shared flat) to make those numbers work. There's absolutely no redundancy in that financial plan, no room for kids, or job losses by either partner.

I went to ASB the other day and they approved me for borrowing 1 million dollars, no joke. A ridiculous sum which would probably bankrupt me but there you go. That's the reality of living in Auckland today.

by cowboy | 11th Apr 15, 9:38am 1428701913

You won't be able to get a house loan of 100% of your gross mortgage.

Plus you're going to need at least

food, power (Aus has solar subsidies), phone, likely cell, internet, normally a car, and petrol, and insurance. We'll leave off the price of a lawnmower or mowing services. Also you'll be wanting to cover your retirement funding from that gross salary too, 4%, with a taxed employer contribution for NZ.

start throwing those number into the mix - food for two out of each person is good rule of thumb.

by fat pat | 11th Apr 15, 10:56am 1428706596

yep agree, as above. I'm assuming double income, Renting the purchased house and living in shared accommodation.

by cowboy | 11th Apr 15, 10:17am 1428704239

David, could you email me your grocery list please?

I'd love to run it through a couple of our local stores, and also check to see if there's location based products that might make a difference for the provinces.

We might even get a couple of people in centers other than Pahiatua & Palmerston North to use their local. be interesting to see the item variety across the country.

by David Chaston | 11th Apr 15, 5:38pm 1428730680

It is linked to in this chart series:

http://www.interest.co.nz/charts/prices/grocery-prices

which clearly shows groceries are cheaper today than they were in July 2011.

and a direct link is here.

Our list has been consistently tracked weekly since 2011. And it also shows costs in NZ have come down while those in Australia haven't, except during a period when there was a price war between Woolworths and Coles.

by steven | 11th Apr 15, 8:59pm 1428742746

There are location based differences and also decile. I find Wgtn cheaper than Chch and Blenhiem. My eldest's bets mate works in a NewWorld and its more highly priced as the company has decided ppl at the location will pay more.

by Grant A | 10th Apr 15, 8:13pm 1428653615

Very true fat prat, but its also becoming one of Australia's great archilles heels, their cost base. Globalisation finds you out in the end and data analysts are a great example of something that's not exactly in short supply especially in countries like India that turns out a multitude of them each year. Its why incomes are not growing globally, and disinflation and deflation is the trend whilst this is worked out over time - probably a long time.

by fat pat | 11th Apr 15, 8:13am 1428696794

Oh yeah right, high wages are the problem. Nothing to do with golbalisation, and endless market deregulation.

by Grant A | 11th Apr 15, 8:22am 1428697378

Yup everything to do with globalisation and deregulation - it has amused me for much of the past 2-3 decades that many of the same do gooders, who claimed enough wasnt being done about poverty around that world, are the same ones crying wolff now about globalisation and free trade (that has done wonders for so many poor countries and their people), because that globalisation is now equalising the wages structures across most countries including their own.

by fat pat | 11th Apr 15, 9:14am 1428700444

Unfettered market deregulation is just as detrimental to NZ society as it is to the 3rd world, however you want to spin it.

by steven | 11th Apr 15, 9:29am 1428701340

Yes and no. Excessive regulation is detrimental, it protects some at the expense of others. As an example tariffs on shoes. Here in NZ 15~20 years ago triainers were an awful price, $180NZ for shoes (made in porirua? and not great quality) v 25sterling for Nike in the UK (=$50~$75NZD). So what were we protecting? a few hundred jobs at the expense of thousands of low income earners in NZ who had to pay a lot for a poory made shoe for their kids? I really cant see how that makes economic or even social sense.

Another, privitising the Post office, I was one of the first in NZ to get ADSL in 1997 (and then cable in 2000?) it cost me $69 a month initially but a mate in Hamilton was on 2 x 64k ISDN lines at $2k per month plus volume to run his business. Both were supplied by Telecom and the ISDN sales ppl in Telecom fought tooth and nail to stop ADSL and cable. It took Saturn/Clear to open the flood gates, now we all enjoy broadband at a fraction of the cost. If the Post office and privatisation had not come about how much would we have still been dis-advantaged?

by cowboy | 11th Apr 15, 9:57am 1428703027

I thought the first ADSL guy was down Paekakariki (sp?) way (between Levin and Porirua) and had some wealth through setting up telecommunications in a foreign country.... IIRC

by steven | 11th Apr 15, 9:06pm 1428743171

As far as I know my location (Khandallah) was the first ADSL trial area in 1997 (maybe 98), also then one of the first cable in 2000 or 2001 I think it was.

by Grant A | 11th Apr 15, 10:11pm 1428747077

Steven, I was living in Khandallah at that time and was one of that group as well, and it was my understanding from Telecom that we were the first - although I thought it might have been a touch more expensive than that, but whatever the cost I was going to have it

by Grant A | 11th Apr 15, 10:21am 1428704513

Thoroughly agree Steve, I well remmeber those days which the young will mostly be ignorant of. And I'm not saying if fat pat is one because I don't know, but equally alot of the complainers about wages and not enough regulation, are also those shopping online to overseas sites without a second thought, or care. Globalisation and deregulation (within reason) will be increasing with us now throughout the generations, barring periods of down cycles where popularist policiticans will sell the idea that less of it is a good thing, and then time will again make a mockery of that). We need to recognise that change, and adapt as others will be, not sit trying to play King Canute.

by fat pat | 11th Apr 15, 11:53am 1428710026

The post office and electricity companies were sold for practically nothing in a fire sale. You can bag Muldoon all you like but he would never have allowed that to happen. Of course in retrospect we see the benefits that you mention but the costs to society are real too.

Endless price escalations, leading to asset revaluations, leading to price escalation ad infinitum. All vastly in excess of CPI. I'm thinking of electricity there.

Yes I'm a big fat whiner. You boomers were the beneficiaries of that deregulation. You've been the beneficiaries of a vast increase in M3 money supply. Those are one time only events. You guys bought houses at low valuations (3x income for houses) when interest rates were high. Now the assets which have made you fantastically wealthy have "interest rate normalization" among other possibilities hanging over them like the sword of Damocles. Non tradable inflation is through the roof and we're expected to just suck it up and pay all those high prices, while not acquiring any real wealth (equity). If that wasn't bad enough foreigners with access to low interest rates are picking over the housing stock and buying up anything decent.

Its no wonder youn(ish) people like me are totally pissed off with what's happened and what's still happening.

by Grant A | 11th Apr 15, 12:42pm 1428712978

You are joking about Muldoon aren't you.? And yes I'm even one who will admit stupidly being taken in by him initally, and voting for him once, before I assisted in voting Labour in (only ever twice) when he had the IMF about to walk in, with the debt levels we had, and effectively take over the direction of this country (they would have made Roger Douglas look like a little puppy) - his problem was that he didn't accept change that was outside of his control, tried to regulate everything like King Canute, and took us seriously to the line - fortunately the majority of the public woke up, funny how crisises do that.

Electricity companies sold for a fire sale price, yep, and you know who to blame for that. The market would have found a fair price both both us tax payers who did buy them, and those taxpayers who didn't. Labour/Greens made it all one-way for the former and little has been said since despite some Labour party politicans now admitting what a dumb policy proposal it was. Money supply and asset price inflation ? every generation will have complaints about what the previous one left them with...so far at least, yours isn't a global war, but be sure, your kids will find one about your generation at some point when theyre old enough.

by steven | 11th Apr 15, 9:19pm 1428743957

Selling the PO off and the the break up of Telecom now sees us with a pretty modern and fairly cheap telecommunications industry that many small businesses benefit from.

Muldoon had it right on the Hydro I will give hme that but stifling businesses innovation with mass regulation was not the way.

by fat pat | 12th Apr 15, 10:07am 1428790078

agreed. However, Its quite possible that the changes you speak of would have occurred over the course of time anyway, without the costly privatization. Look at Kiwibank as a stunning example of how efficient, and profitable, and beneficial to the public, a government owned business can be.

The problem with complete privatization is it just leads to monopoly rent extraction. That's just as bad if not worse than a bunch of lazy unionized freezing workers holding the country to ransom during the killing season.

by Grant A | 12th Apr 15, 11:09am 1428793774

To be fair, the jury's well out on Kiwibank, its hardly been around long enough to have survived a 1987 type part of the economic cycle that effectively bankrupted the last NZ Govt bank BNZ, and which saw it sold off. Its early days yet, but it doesn't pay a dividend, its expenses to income is near double that of the other banks and rising, needs more capital from the taxpayer, and is going to have to start generating acceptable returns on that capital at some point soon to justify its existence. It has a major advantage over the Aussie banks, NZ parochialism, and if it can't acheive those goals without that advantage, sooner or later it won't get that capital support, and ultimately customer support either.

by fat pat | 12th Apr 15, 12:50pm 1428799852

Please try to recall all the punitive bank fees that disappeared when kiwibank arrived. How many 10's of millions has that saved Kiwi bank depositors. Kiwibank is a growing business and it's NET profit for the 12 months prior to 30 June 2014 was 100 million. Seems like a little gold mine for New Zealanders if you ask me.

by Grant A | 12th Apr 15, 12:51pm 1428799894

Bugger all fees have gone that wouldn't have anyway. The amount of profit is a poor measure of a business's performance - the Aussie banks make many billions in profits here, but are they a multiple times better performers ? of course not. But Kiwibank is getting its fees up, and its interest margins up that it charges its custoemrs, and could very soon look like an Aussie bank.

by fat pat | 12th Apr 15, 1:10pm 1428801045

I disagree with you on the fees but I don't have the numbers to back it up. In my personal experience (with Kiwibank ASB and ASB) Kiwibank is leagues ahead in terms of Internet banking, iphone apps, international transfers etc.

Regarding the profits, the only thing that matters is that Kiwibanks existence is reducing our current account deficit.

At a fundamental level though, the ability of commercial banks to create money through interest on loans is one of the most powerful and profitable enterprises in existence, eclipsed only by digging raw energy up out of the ground. I for one am glad that the NZ government has a piece of that.

by Grant A | 12th Apr 15, 1:23pm 1428801812

LOL ok fat pat - My own experience was that I moved to Kiwibank myself from an Aussie, then left after a year and went back to a different Aussie because I didn't think the experience was good enough. But we all have different requirements in our banking and overall we'll just have to see how they progress over the years. I don't have a problem with Kiwibank as such (although on the basis you describe we should alao have a Govt supermarket, petrol company, telco, and dare I say it, mining company etc etc etc but lets not go there). However, eventually Kiwibank has to earn an acceptable return for the taxpayer and be well enough run and capitalised to withstand a severe recession (without taxpayer bail-out) which will happen at some point in the cycle.

by fat pat | 12th Apr 15, 2:11pm 1428804681

Well, you're putting words in my mouth. I didn't say that, although having one or two select and profitable nationalized businesses to prevent corporations charging monopoly rents probably isn't a bad thing. If the TPPA goes through the government will get sued for even thinking about it. Regarding bail out's nope, next time it's OBR bail ins. Probably way banks are playing so fast and loose right now.

by steven | 11th Apr 15, 9:14pm 1428743665

You cant do a King Canute, North Korea is a great example of that, the world simply passes you by. NZ can I think provide great quality, unique/funky products on line that ppl will pay for, eg we have some great fashion designers and good software houses and being small we should be selling quality in small quantities at the bleeding edge, China etc cant do that.

by steven | 11th Apr 15, 9:20am 1428700809

Good point.

by Mike B | 12th Apr 15, 8:49am 1428785381

@ Grant A - If globalisation and these Free Trade deals were creating more jobs and increasing wealth then it would be reflected in a rising GDP.

I have never seen anyone showing us charts proving that globalisation and Free Trade has improved anything in Western countries.

Can you show me a chart of GDP and point out where it increased/increases due to a Free trade deal. Its all garbage.

Or are we saying that the world would have been in recession/depresion for the past few decades if it had not been for these Free trade deals. And where is the proof of that?

All the talk of jobs from Free Trade deals is just propaganda. I challange anyone to come up with the evidence proving otherwise.

Like i have said

The Media are embeded with the American Elite. Thats why we get all the crap and none of the facts on Free Trade.

by Grant A | 12th Apr 15, 9:01am 1428786065

Mike - how does someone prove that? - please prove to me that it doesn't. If fact prove to me that the masssive increase in NZ exports to China since the FTA was signed with them didn't greatly assist NZ getting through the GFC with considerably less damage than most others.Those that think that the Muldoon regime of fortress NZ was good for NZ, and the value of free trade to the world is American propaganda are the seriously misguided ones

by steven | 11th Apr 15, 9:45am 1428702330

High wages for the 1% are indeed part of the problem.

by steven | 11th Apr 15, 9:35am 1428701754

Or maybe because energy is to expensive. So before 2004 when energy was cheap, no dis-inflation issues, after 2004? oh dear.