Transcript Saving and Investing

Hon Dr Michael Cullen
Minister of Finance
Saving and Investing
Saving and Investing
Longest expansion in 30 years…
7 %
GDP growth
6
5
4
3
2
1
0
99
00
01
02
03
04
05
06
07
Saving and Investing
Longest expansion in 30 years…
8 %
7
Unemployment
6
5
4
3
99
00
01
02
03
04
05
06
07
Saving and Investing
…but imbalances have built up
75
70
65
60
55
50
45
40
35
NZD / USD
99
00
01
02
03
04
05
06
07
Saving and Investing
…but imbalances have built up
Non-tradeables inflation
5 %
4
3
2
1
0
Tradeables inflation
-1
-2
-3
99
00
01
02
03
04
05
06
07
Saving and Investing
Budget 2007 is supportive
• Leans against
domestic demand
• Raises the speed
limit
• Helps correct any
structural imbalances
Saving and Investing
Low saving has become critical…
1990
2005
Household saving rate
6.6%
4.2% 3.7%
-3.7% -0.1%
Australia
United Kingdom
New Zealand
-11.0%
Saving and Investing
Low saving has become critical…
99
00
01
02
03
04
05
06
07
0
-2
-4
-6
-8
Current Account
-10
-12 % of GDP
Saving and Investing
…so KiwiSaver is being enhanced
$20 per week
per employee
$20 per
week
4% or 8%
4% (phased in)
Saving and Investing
…so KiwiSaver is being enhanced
• Top up tax credit of up to $20 per week
for savers (including self-employed)
• Compulsory 4% employer contributions
phased in over four years
• Offsetting tax credit for employers up to
$20 per week per employee
• Applies to complying schemes as well
Saving and Investing
…so KiwiSaver is being enhanced
Meg and Jack earn $75,000 ($37,500
each) and contribute 4 per cent each
They have a first home deposit of
$35,500 after five years
At 65, they have savings of
$390,000, enough for an extra
annual income of $20,000
Saving and Investing
Saving is boosted by employer
contributions and tax credits
e.g. an individual on $52k contributing 4%
From
Employee
Tax
Employer
contribution credit* contribution
1 April 2008
4%
2%
1%
Total
7%
1 April 2009
4%
2%
2%
8%
1 April 2010
4%
2%
3%
9%
1 April 2011
4%
2%
4%
10%
* Note that the tax credit is a fixed
dollar value ($20 per week), which is
equivalent to 2% of a $52,000 income.
Saving and Investing
Funds build up
160
$ billion
140
KiwiSaver funds
under management
120
100
80
60
40
20
0
08
12
16
20
24
28
32
36
40
44
48
52
Saving and Investing
Saving yields wider economic benefits
• Stronger and deeper capital markets
– lower cost of capital over time
– easier to access capital
• Reduced pressure on
– inflation
– current account
Saving and Investing
Tax credits limit cost to employers
e.g. a company with 30 staff paid (15 at $35k, 5 at $45k, 5 at
$60k, 5 at $90k); 60% join KiwiSaver contributing at 4%
From
Net cost
1 April 2008
$0
Portion of
total wage bill
0%
1 April 2009
$2,760
0.2%
1 April 2010
$8,280
0.6%
1 April 2011
$17,280
1.2%
Saving and Investing
Business Tax Reform
• Corporate rate
30%
• R&D tax credit
15% volume-based
• International Tax
Active income tax exempt
Saving and Investing
Helping exporters expand offshore
• Current rules:
disadvantage
NZ companies
expanding
overseas
• New proposals:
makes overseas
active income
tax exempt
Outbound FDI
Switzerland
Netherlands
Canada
Sweden
United Kingdom
Luxembourg
Denmark
Finland
Norway
Ireland
France
Germany
Spain
Australia
Austria
Iceland
United States
Portugal
Italy
New Zealand
Japan
Greece
Korea
Hungary
Mexico
Turkey
Slovak Republic
Poland
Czech Republic
% of GDP
0
25
50
75
100
125
Saving and Investing
150
Building on previous tax relief
5
$ billion
4
3
2
1
0
2007/08
Working for Families
(Budget 2004)
Working for Families
(Budget 2006)
2008/09
KiwiSaver
(Budget 2005)
KiwiSaver
(Budget 2007)
2009/2010
2010/11
Business Tax Reform
(Budget 2005)
Business Tax Reform
(Budgets 2007 & 08)
Saving and Investing
Investing
World class infrastructure
• $600 million for Akld/Wgtn rail
• $50 million national rail track
• Regional fuel tax
• $145 million State Highways
Saving and Investing
Economic Transformation
Expanding export market development
assistance ($88 million)
Improving tertiary skills ($170 million),
industry training ($53 million), and lifting
firms’ innovative capacity ($67 million)
Supporting sustainability ($32 million) and
energy efficiency ($72 million)
Saving and Investing
Families – Young and Old
Improving access and quality of health
services ($3 billion)
Supporting education, including early childhood
education and reducing school class sizes with
extra teachers ($359 million)
Raising New Zealand Superannuation to 66%
of the average wage ($257 million)
Strengthening communities by removing the
cap on charitable giving ($65 million)
Saving and Investing
National Identity
Boosting annual Official Development
Assistance by $246 million by 2010/11, to
0.35% of Gross National Income
Implementing the Digital Content Strategy
($8.2 million)
Supporting Maori initiatives including
Maori Television Service and iwi radio
($35.6 million)
Saving and Investing
The fiscal position is strong
10
$ billion
8
OBEGAL (excl NZSF)
6
4
2
0
-2
Residual cash
-4
02
03
04
05
06
07
08
09
10
11
Saving and Investing
Meeting long term fiscal objectives…
40
% of GDP
Gross sovereign-issued debt
30
20
Net debt
10
0
Net debt incl NZSF
-10
-20
97
99
01
03
05
07
09
11
Saving and Investing
…and mindful of short term stimulus
6 % of GDP
5
Fiscal balance
4
3
2
1
0
-1
Fiscal impulse
-2
-3
93
95
97
99
01
03
excl KiwiSaver
05
07
09
11
Saving and Investing
Budget 2007
• Supports monetary policy
• Addresses structural imbalances
• Enhances productivity
• Promotes sustainability
• Maintains strong social services
• Supports our role in the world
Saving and Investing
Hon Dr Michael Cullen
Minister of Finance
Saving and Investing
Saving and Investing