Savings Working Group Final Report

The Savings Working Group had made its final report. It is 163 pages long. The report is ultimately aimed at reducing the amount New Zealand borrows from overseas, which stands at 85% of GDP. Their recommendations include:

• a return to a fiscal surplus of not less than 2% of GDP earlier than the projected date of 2016, and maintain that level of surplus in the medium term
• that the government set a target for public sector productivity and performance improvements of the order of 2% a year for the next five years and 1% thereafter, with a clearly defined measurement basis and significant incentives/penalties relating to those targets
• that at a minimum, interest income and expenses be indexed at a notified standard rate for tax purposes that reflects the rate of inflation (e.g., 2% per annum)
• that the portfolio investment entity (PIE) tax rates should be changed to target a rate reduction for all investors closer to a benchmark of 5 to 10 percentage points below investors’ marginal tax rates
• permitting partial withdrawal earlier than NZ Superannuation eligibility age for people with shorter life expectancy, in order to increase KiwiSaver participation
• not allowing employers to give non-KiwiSaver employees pay increases to compensate for not receiving KiwiSaver contributions. In other words, do not allow a “total remuneration” approach
• reducing costs, fees and expenses – thus increasing returns, including by creating a single low-cost default scheme considering whether members of KiwiSaver should be required to take some portion of their withdrawal in the form of such an annuity/NZ Superannuation increase (rather than as a lump sum)
• Resume contributions to the NZ Super Fund, but do so by way of a dedicated social security tax (not a tax increase, but split off from current tax)
• Increase GST to 17.5%
• that the government consider charging a low rate of interest on student loans after a student has graduated

The further GST increase has been ruled out and interest won’t go back on student loans unless the Government makes it an election policy for the second term

The return is surplus and maintaing a surplus is vital.

Not taxing the inflation component of interest will cost the Government in revenue, but would encourage savings.

And not allowing KiwiSaver to be part of a total remuneration package (ie you don’t get paid more if you turn it down), will make it almost de facto compulsory.