Whats Happening with the new zealand economy
Money – a necessary good (economically and metaphorically speaking) and in some circles, a necessary evil. The stuff that makes the world go around. Some people understand this. Some people can even predict or at least give us a forecast, on how it’s going to behave. Some people listen. Some people ignore to their bank balances peril. For what it’s worth, here are my musings on the subject. They haven’t been checked over by an Economist. They are simply a collection of thoughts, in no particular order, often wandering off of a point. In many places as I try to piece together what I am thinking and why.
wheres employment going
We all know it’s been high. Last year around 6.8% of our population were unemployed. This year things have trimmed back somewhat, but the figure still hovers around the 6.6%. Next year and in the preceding few years however, unemployment is expected to pull back. Yep, our magic crystal ball says there’s going to be a shortage of good people around to employ. Forecasts show the unemployment rate will hover between 5% and 5.5% for 2012. What does this mean for those unemployed and those looking for employees?
Well those in particular industries, especially the construction game, shouldn’t find it as difficult as they have found in the past 3 or so years, to get work. Conversely, employers need to start thinking now about stocking their labour pool before it gets really hard to find good people. Employers might also start to think about raising labour costs they might incur. After all, when demand for a good (staff in this case) outweighs supply (available human beings to undertake a role), wages go in one direction. When this happens, I wonder what will happen to prices of goods and services?
wheres property going
No dinner party would be complete without a conversation about the property market, or at least that’s the case in Auckland. Read on and you’ll find out why.
Prior to the recession, lots of building was going on. That said we still had a shortage of supply of houses in relation to those people coming into New Zealand and looking for property.
During the recession, building stopped. This occurred for a variety of reasons, including the downfall and demise of finance companies, tightening of bank terms and the general unavailability of cash for our developer boys from other secondary sources such as finance companies. These factors served only to worsen the housing shortage as building all but stopped.
Coming out of the recession, we’ve seen positive migration from overseas as our wonderful country has attracted migrants. Additionally, Kiwis in overseas contracts have been made redundant and returned to NZ. There has also been a shift of population in New Zealand as a relocation of our citizens, attributable to different factors, including the Christchurch earthquakes, has occurred. Relocation in this respect has definitely lead many to the City of Sails.
All those living in the Land of the Long White Cloud, need a roof over their head and 4 walls to shelter them from the rain.
Remember we didn’t have enough houses before the recession, house weren’t built during the recession and data tells us that building consents whilst on the up aren’t anywhere near where they need to be to cope with the shortage of housing. It’s been forecasted we need around 25,000 houses to be built a year. Right now we’re only managing to erect 14,500 of them. See the problem?
That said, building consents are definitely expected to increase from the end of this year and early next year because Christchurch will need to be rebuilt and that will mean in part, building new houses.
Which is why I tend to think building costs, such as wages, are going to increase. Christchurch will clearly need labour to rebuild. At the same time, Auckland in an effort to cope with the housing shortage it is experiencing will need houses to be built. That is going to mean building labour will be required in Auckland as well as Christchurch – at the same time. All in all, there is only so much labour available, which of course means, in economic terms, demand outweighing supply. This has a consequential effect on pushing labour prices up. In this respect I’m not talking just about labour costs. What will happen to the prices of building products and materials? Will retail get her engines going as a knock on effect occurs because furnishing are snapped up for all the houses that are going to be built? Interesting thoughts which of course lead me to the existing residential property market.
What’s going to happen to prices of existing houses? Are they going to fall some more, remain static or climb? Before we look at these questions, let’s think about where we’ve come from.
Prior to the recession, credit was plentiful, tax benefits for owning residential investment property was in effect and New Zealanders loved the idea of being property owners and investors. These factors led to houses being snapped up either by those who wanted to live in a house rather than under the Auckland Grafton Bridge or by those who wanted to be property investors. This, amongst other factors, lead house prices going through the roof. A vendors market prevailed.
During the recession, things got tight. Migrants stopped coming to our shores. People were made redundant. Banks called in loans and tightened their credit terms. New Zealanders’ appetite for debt started to decrease. With all these factors came a fall in house prices. Yes, prices started to reduce and housing became more affordable. The market definitely turned and it went from being a vendors market to being a buyers arena as houses were put up for sale.
But note it was for a short time only. An impasse it seemed between vendors and buyers occurred. Those vendors who didn’t have to take decreased prices hung on and rejected buyers’ offers. Buyers conversely weren’t prepared, even if they could get it, to take on hefty loans and so refused to meet the prices vendors were demanding. The property market took on a somewhat static effect – but only for a time.
Coming out of the recession we saw a new Government take control, a Government who had new objectives. One particular goal they seemed intent on was to achieve what I call a re-direction of money capital into investments. There were other things to buy than housing according to those in the power seats. To achieve this aim, tax advantages such as the claiming of depreciation and the disbanding of the favoured loss attributing qualifying vehicle and the subsequent introduction of the look through company with its limitation of loss rules, have been introduced. This of course has, to a degree, had some effect on the residential property market. Many people have now sold their residential investment properties. Don’t be fooled however by thinking residential property investment is dead. Remember there are always money investment opportunities around. You just need to know where to look, what to look for and how to assess what you are looking at.
All things change of course and this truism applies equally to the property market as it does to other concepts. The changes that are being felt aren’t the same however the whole of New Zealand over.
In some places, there seems to be property to buy and prices have not increased that much at all as we’ve climbed out of the recession. There isn’t a flood of property on the market and prices are remaining firm but static.
In other parts of the country however, such as Auckland, a different story is being told. Listings are short, the number of days it takes to sell has decreased, rental prices have increased and sale prices are on the rise. Turnover of the property that is available is definitely improving. Banking and legal markets corresponding have improved as more property transactions means more work in these sectors.
The sensible question to ask now has to be why is Auckland leading the challenge in the property market stakes against other parts of New Zealand? Read on.
If you are looking for a job, you go to a city where there is employment. That means people coming into Auckland. Once you have a job, you have money. This means you can afford to buy a home or rent a home. Add to these factors an existing shortage of housing in Auckland and you see increased property prices and increased rental prices occurring. Of course people who have money in their pockets can afford to pay these prices. So a marriage of money, supply and demand forms. Supply is short, demand is high and a population with money and the ability to buy credit exists to meet increased pricing. Capital residential property prices and rental prices are able to increase because all the planets are lining up.
In other parts of New Zealand, employment opportunities may not abound. Accordingly, even if there is a shortage of property, prices simply cannot increase, or at least not increase as much as they otherwise would. Why? The population in these areas don’t have the moo la in their pockets to pay for the capital increases in property prices and rental prices which means a constraint on these prices occurs.
Looking forward, where are property prices going to go? With the credit reins loosening, money becoming available, building of property and infrastructure occurring, employment on the rise and pressure for demand for property to own or rent increasing, the answer is clear. Up. But a caveat comes with this statement. People have to have the money to pay for those increased property and rental prices, which means they need to be employed and receiving a wage. So in my view, a city where employment is available is going to be where we see property prices climbing. Likewise, places where infrastructure is going in will have a subsequent effect on property prices increasing.
whats happening with Interest rates
Interest rates - another subject the majority of kiwis what to know something about because we borrow money to purchase our homes and subsequently have interest to repay. If we haven’t borrowed money to purchase the roof over our head, we’ve often borrow money to fund our businesses or indeed our pleasures, such as credit card spending and the buying of nice cars.
So where are interest rates heading?
Prior to the recession, New Zealanders had a keen hunger to consumer and much consumption was permitted through the incurring of debt. We had a great enthusiasm for taking out bank loans and accepting credit card companies offers of finance.
And spend this money we did. We bought bigger homes, more investment properties, baches, boats, cars, large tv screens and home theatre systems that you had to have a degree in technology to be able to work. No wonder I never purchased one of those – I’m hopeless with technology.
But with the recession came a redefining of priorities. Spending was no longer cool. We worked out we didn’t need all the bells, whistles and gadgets that could perform a thousand functions at the touch of a button. Redundancies began. The banking and legal professions in London all but shut down overnight and there was a considerable reduction in work in these industries here in New Zealand. A reduction in our appetite for spending and debt incurring began. If we didn’t voluntarily decrease existing debt levels or our need to take on more debt, the need to curb our appetite was severely inhibited as bankers tightened their credit terms.
All up, we started to understand there was a difference between good and bad debt. We began the obvious realisation that whilst it was all well and good having capital appreciating assets on our balance sheets, at the end of the day, we had to have cash flow to make those monthly loan payments.
For some souls, this comprehension came too late. They would be severely hurt financially. For others, especially those who had lived through the latter part of the 1980’s, they’d seen it all before. The only difference was the product in question. In the 80’s it was shares. I recall documenting large numbers of script deals in legal offices. In the 90 and forward roll, the product had changed. Now people borrowed heavily to invest in property on the basis that it would always go up.
For a large number of New Zealanders, a new understanding about money began. For another group of citizens, the financial knowledge they had gained a couple of decades earlier, simply rose to the forefront of their minds. Overall, we began our journey of off loading assets, repaying debt and decreasing our eagerness to borrow.
At the same time of this increased awareness, some interesting money events were occurring around the world. I won’t go into them here because this scribble will become a novel if I did but suffice it to say, interest rates start to fall the world over.
Thankfully our new founded wisdom and sensibility over money seems to have stuck now that we have come through and out the other side of the recession.
Going back to our original question though, where are we heading with interest rates? To answer this, I think we need to digress just a little further and gain an understanding of where our money comes from in order to assess where interest rates might go.
In general terms, our Banks have to get money from two sources (a) us internally and (b) others externally. Lenders have to utilize both sources because we simply don’t have enough cash available in New Zealanders to satisfy all Borrowers including the Governments, requirements.
About 40% of the money that Banks lend to us, comes from people who place their funds on term deposit. The balance of funds, being roughly 60%, is what our Banks borrow from overseas.
Banks tend to lend money to borrowers on either floating or fixed terms.
The official cash rate is what the Reserve Governor sets. When Banks lend money to us on floating rates, they take into account the OCR. But Banks don’t lend at the OCR rate. Rather, they tend to lend out money at the 90 day bank bill rate, which in part, is influenced by the OCR.
The above is in stark contrast to what occurs when Banks lend money to us on fixed rates. When this occurs, Banks have to source their funds from overseas. They pay their Lender a particular percentage of interest and then add onto that percentage, a margin. This combined percentage is the percentage rate that Banks charge us, give`or take, when we borrow funds on fixed term.
So to answer the question where do we think interest rates are going to go in the next year or so, we need to establish if we are discussing floating or fixed rates.
With respect to floating rates, it seems unlikely the OCR is going to be raised in the short term by the Reserve Bank. Hence, floating rates may well remain constant.
If you’re looking at fixed rate however, you need to take into account what is happening internally as well as offshore. If for example, there is a large increase in job growth, a sharp decrease in unemployment, a jump in wages growth and non wage costs, heightened demand for housing and a continuing climbing dollar, this could all lead to a spike in inflation. The RB may then react and tighten monetary policy. This will force interest rates up of course.
Additionally if our Banks have to pay more for the money they are picking up offshore, they will pass that increased cost onto us. This of course will mean fixed interest rates will climb. Why would an overseas Lender put up their interest rates? Well if that overseas Lender was finding it hard to source cash, it might have to pay more for the money it picks up. Of course it would then pass that increased cost onto our New Zealand Banks and when our Bankers lend money to us, they in turn would charge us more for the privilege of borrowing those funds from them. Additionally, if it appears our country’s overseas credit rating is heading southward, New Zealand will seem a bit more risky to lend funds to. Accordingly, the Lenders will charge our New Zealand Banks a higher percentage of interest. Again, our Banks will pass this cost onto us when we borrow from them.
Given the above, where do we think fixed rates are going to? Only one way. Upwards. It was forecasted that this would not occur until towards the end of this year but with the earthquake that has just occurred in Christchurch, it may mean economic growth is delayed. Accordingly, rates may not move until early next year.
Things can however turn quickly in the money world. Hence I’d study the economic climate internally and I’d keep my ears open to mummers such as those coming out about Greece and my eyes on possible future overseas events.
whats happening with Deposit rates
For those souls who have funds on term deposit, I guess you wouldn’t want to be trapped into holding funds in a bank account at a rate that is lower than what you could otherwise get. In other words, I’m thinking that if interest rates increase, deposit rates might go the same way.
If deposit rates do rise, you would want some flexibility so perhaps you might consider keeping your funds on term deposit on a short day rate of say 90 to 120 days. If you do this and the rate moves upwards, you won’t loose too much in earned interest foregone and will be able to move to the higher rate quicker than if you’d locked your hard earned readies up for say 6 months or more.
Using a crystal ball and trying to join up the dots, if fixed interest rates increase toward the end of this year or the beginning of next year, you might expect deposit rates to pick up as well so I’d be keeping flexibility around the end of 2011 and 2012 years.
whats happening with Migration
Everyone is interested in this factor because it can have such an effect on our economy.
Prior to recessionary times migration was soaring. The rate of our dollar was relatively low. This made us an attractive place to live. Migrants coming into NZ could buy more for their dollar. Additionally let’s face it, really is a beautiful country. You can get good food here, reasonable accommodation and for the most part, NZ is not a country full of violence. Who wouldn’t want to live here! But I digress – back to economics 101. When migrants come to NZ we need to remember they have to either buy or rent a house, buy goods to put in those houses, buy or lease vehicles and generally spend cash in our society. A good thing of course because as people come through the New Zealand door, our population grows which in turn increases demand for goods and services. Businesses need to produce more to keep up. This means their demands for labour and other inputs, goes up. Accordingly businesses start to buy more inputs and hire more people. Unemployment goes down. More people in society have more cash to spend (those unemployed are now being paid a wage) and spend they do. So in effect, the economy starts humming along at a nice pace.
Conversely this supply and demand has a knock on effect. Prices increase. New Zealand starts to look like a good place to invest in. Outside interest picks up as people offshore buy up our currency. All well and good you say but here is the down side. Our dollar increases and inflation of course occurs. To gain some degree of control, the Reserve Bank takes action. They increase the rate . Suddenly people don’t want our currency anymore because they have to pay too much for it. Migrants don’t want to come here because they don’t get so much for the dollars they are bringing in. Things start to cool down. And so the whole cycle starts again.
The above was what occurred, give or take, during the recession. Our dollar dropped. Migration dwindled and then ceased. There was even a period of time when we had more people leaving the country than coming in to reside on our lands.
Now that the recession is over, where are we? Well après recession a new story has begun. We have been experiencing a mild increase in net migration, excluding March 2011 and forecasts are that this will continue. Hopefully this will lead once again to an increased demand for our goods and services as our poor retailers really need this shot in the arm.
what happening with Manufacturing and RETAILING
As I’ve said previously in these mussing, pre-recession we had a huge appetite for spending. New Zealanders didn’t just keep up with the Jones. They set the benchmark and the line to which the Jones had to step up to. We loved spending and retailers clearly enjoyed it as well as they moved their goods literally in the truck loads.
On a business front, we consumed as well. We borrowed to buy capital items and inputs and often a business’ inventories grew fat along with our staffing levels.
Like most things experienced in life however, there is a cycle and our cycle of feeding on debt ceased once the recession hit.
Private citizens reined in their belts. They stopped spending or at least didn’t spend nearly as much as they had done. Spending also changed. Discretionary items weren’t purchased so much and if spending did occur, it was usually on those goods that we call economic necessities such as washing machines.
Businesses during this time took stock. Frequently they were running mother ships and as a friend once told me, it can take several months to bring a mother ship to its right course. Meanwhile little income is coming in and costs are soaring. In an effort to turn their ships to the right course, businesses began to empty out their inventories and stopped placing orders for widgets. This of course affected manufacturing and retailing. As a knock on effect, manufacturing shut down the world over.
Coming out of the recession, the first country to fire its engines was China. Why that country you say? Because it was the largest manufacturing country in the world and that is where inventories are made. Other countries kicked in after that. Manufacturing to a large degree has picked up and is forecasted to improve as our world economies rise.
Retailing on the other hand hasn’t been treated as kindly. We’ve now had it drummed into us that debt reduction is a good thing and consequently, we haven’t picked up our bad old habits of spend, spend, spend. Naturally this has affected our retailers.
Is retailing going to dramatically increase? My personal view is no. Sure the ability to borrow funds might be a bit easier but I think New Zealanders have been listening and they just won’t spend as much or as freely as they previously did.
Accordingly, if I was a retailer, I’d definitely be keeping my eye on controlling the stock I was carrying and trying to create competitive advantages. Think Harvey Norman. I view this as a smart retailer who from the television ads, appears to read the markets and their expected effects, very, very well. Actually I wouldn’t mind meeting their marketing guru and having a chat. I’ve got a feeling that person might also have some economic nouse. Similarly for individuals, I expect they will continue to shop around for good deals and drive hard bargains.
The budget
Prior to the budget what was the state of play? Well one things for sure – we weren’t in a great place. But let’s take comfort in the fact the whole world wasn’t in such a great shape in the middle of the recession. Back home however we had high taxes, high unemployment, high migration off-shore and high investment in property to deal with. Key in an attempt to turn things around introduced some changes via the Budget he saw into play in 2009. His main objectives under this 2009 Budget was to get Kiwis saving and investing and to keep the engines ticking.
One smart move of Keys was to reduce marginal tax rates. The individuals highest tax rate under his hand was reduced down. Not only was this meant to put more money in peoples pockets but it was meant to make New Zealand more attractive as a place to live and work. It was hoped this move would stem the persistent drain of our citizens to bbq land - Australia.
To help companies out, Key reduced company tax rates to 28%. This was undoubtedly a smart move because it was aimed at freeing up money made by companies so they had funds to buy more inputs and capital items and most importantly, hire more labour. If that worked, greater productivity and a drop in the unemployment rate was to be had. As a bonus, it meant our companies were paying less tax than those in Australia. Ultimately, helping companies out in this way was meant to induce them to say onshore rather than moving offshore as so many had done before them.
Did the changes that Keys introduced in his 2009 help achieve his objectives? A little but not absolutely would be my answer. When the economy did finally kick start and the world began is slow climb out of recession, New Zealand didn’t get the upturn in economic growth that was expected. We were left in a place where the economic engine room had fired but not a lot of hiss and roar or output was happening. We just weren’t experiencing any real growth and we had a deficit that was intent for shooting for the moon.
Key of course reacted in an attempt to help matters along. His thinking was more money was needed for companies for investment purposes and so to free up more capital he decided a change in tax laws was necessary. Which leads us to around 2010 and 2011.
The thinking went that if companies had more accessibility to capital, they would use it in investment in their businesses. They would buy more capital inputs, they would hire more people, staff would have money in their pockets to spend in the economy – the same argument I’ve already written about.
So a tinkering with the tax system began. A strong effort, backed by legislation, was made to move Kiwis away from their love of property into other areas of investment. This was brought about in a large part by the removal of the ability to claim depreciation and of course the limiting of losses through the removal of the LAQC vehicle. Exit LAQC and enter LTC.
Did these changes have their desired effect? Maybe a bit early to tell but my personal view is they won’t deter Kiwis from investing in real estate. The property market therefore will not fall in. Think about it and in particular why we are applying our little grey cells, think about history. Right now Kiwis have a choice of where to put their money. New Zealanders have lived through the share-script days of the 80’s, they’ve done the currency-commodity times of the 90’s and they’ve had their fill of the finance companies in the recent decade. So my guess is New Zealanders are pretty smart now they’ve got a bit of history under their belt. They aren’t going to put their hard earned cash into shares, commodities or for that matter hand, it over to other companies to manage. Rather they will want to buy something they can touch and see and to a large degree, control.
Where can the average New Zealander then put their cash? Property of course. That is and will continue I believe to be the preferred investment vehicle for most Kiwis. Sure, you may not get so many people chasing the cash flow off of properties and people may well buy (mainly) for capital gains now and there may not be so many people wanting to own a second or third property. In other words, the investor as a type may have changed but that is where the change stops. It doesn’t mean more kiwis are going to start up businesses or hand over cash to existing businesses in an investment bid. At the most, I think all that will occur is those with spare cash who chose not to put it into property, will take the safe route and put it into term deposits. Ok I guess but not a long term smart money move. We all know over the long haul cash erodes in value. So, in summing up, we are left with one choice of investment being property and that is why I do not think Keys latest move in changing the tax laws will make that much of a difference.
Besides from trying to divert the flow of capital, Keys had of course to deal with the deficit heading for the moon. And deal with it he did, in his recent budget. They called it a “zero budget” and I think it was aptly named.
But before I examine what happened in the Budget, let’s just pause for a moment and think about what a Budget is.
Just like you and I have to balance our household private budget and cheque book at the end of the month, so does the Government. If we spend too much personally, we either have to dip into our savings to fund the spending we’ve just done or we have to borrow to cover it. The Government isn’t much different. It just has to undertake its balancing of the books on a much grander scale. To do this of course, just like us private individuals, it either has to live within its means or borrow to fund the deficit that is showing up.
Going into this Budget the Government was grappling with a major problem. The national deficit sat around $16.7 billion and the Government was borrowing around (on average) $300 million a week to fund this eye watering deficit. This didn’t look so hot for us with respect to overseas Lenders. Remember what I’ve previously said about borrowing money from overseas. It was recognised overseas that NZ was one of the most indebted country in the world. I saw a graph and it even put us in with the PIIGS – frightening. There was some concern that our country’s credit rating would fall. If this occurred, it was thought that the organisations that lent money to New Zealand to enable our deficit to be funded could get nervous. An effect of these jitters could mean those overseas lenders would increase the interest rate at which they lent money to our Government. Clearly if that occurred, our Government would end up paying more for the money it borrowed to fund the deficit. Subsequently, our deficit would grow. Something had to give. Enter the recent Budget.
Under the Budget just gone, the Governments main objective was to get our deficit down and live within our means. To achieve these objectives, the Government made changes to Student Loan Schemes, Work for Families welfare packages and Kiwisaver. Additionally, it advised it wanted to privatise some state owned assets and intended that Government departments cut their spending.
Spending was off the Budget menu. This is the reason they called it a ‘Zero Budget’ meaning zero additional spending was intended to occur in new areas and the spending that was going to happen, was going to have to come about by the Government making some cuts in the existing areas it was spending money in such as Kiwisaver. This of course brings me to make some points about Kiwisaver.
I’m probably not going to be the most popular girl in town for saying this but “has anyone seen the elephant in the middle of the room?” It just amazes me how many people want to ignore this question. I speak to thousands of people a year and when I bring this subject up, people get uncomfortable. You can see the horror on their faces. They don’t want to acknowledge the elephant which is this … WE ARE AN AGING POPULTION, THE GOVERNMENT WON’T BE ABLE TO PAY IN FULL FOR THE KIND OF RETIREMENT WE WANT, IT DOESN’T HAVE THE MONEY, YOU CANT GET BLOOD OUT OF A STONE.
The elephant has been standing in the room for the last few years for sure, which is why Kiwisaver was introduced in the first place.
It’s all very well saying I’ve paid my taxes and I’m entitled to my superannuation but if the coffers are dry, where exactly is the money going to come from? Far better in my view to get real. Let’s try and do something for ourselves. Kiwisaver might not be the total answer. Actually personally I don’t think it is, but it’s a damn good start.
Kiwisaver in its basic form is a type of compulsory behaviour – a behaviour we should cultivate – savings on a regular basis.
Most New Zealanders do not save each and every week a percentage of their pay packet. Actually I don’t really understand this behaviour. Even if it’s $1.00 a week I’d be saving it. I absolutely refuse to work all week and not pay me first so I’d be first in line to get my $1.00 in payment.
Through regular savings, balances add up. That’s what Kiwisaver is about – enforced regular savings. Enforced savings from you of 3% and from your employer of 3% will be introduced.
Additionally, it comes with a great bonus. The Government puts in $1000 as an initial kick start payment and then there are some tax credits you can collect along the way as well. I know the tax credits aren’t as much as were originally given out but there isn’t any point in our government borrowing money overseas to simply put it into our Kiwisaver accounts.
Looking at these incentives, can anyone tell me where you can get someone else (your employer and the government) to put money into your bank account each and every week?
Now at this point I can hear two particular chants. First people tell me “the Government has already changed the rules of the Kiwisaver game since I started in the fund, they will change those rules again”. To this I say of course the rules have been changed and you should expect them to change in the future. That is what running a country and a Budget is all about. It’s a moving target. This is why the rules have to change. A change in the rules however doesn’t mean a change occurs in the objective of the game. The objective of the game is at the end of a long successful life, you have some money available to fund your retirement. Secondly, people say ‘my money is tied up. It’s my money and I want to be able to get it when I want it”. To this I say you can get your money out if you want to buy your first home or you suffer financial hardship. But if you could just take it out whenever you felt like it, then it wouldn’t be a enforced savings plan would it? The whole point of Kiwisaver is to keep the fund there until your retirement. Dipping into it whenever you want would defeat the objective of the scheme.
Judging from the above you should get the idea I like Kiwisaver. But that is only part of the answer. I think we still need to take action and invest our money in other vehicles. Property for me of course is my preferred vehicle but it differs from person to person. I think cash, Kiwisaver and property will see me live at least a reasonable comfort level in my retirement.
Back to the Budget. As I’ve said, we are running at a huge deficit and the recent Budget was in part aimed at controlling and then slashing that deficit. Additionally the Government knew that in the next coming years it was going to have to deal with two drains on cash – rebuilding Christchurch and coping with population that was ageing that was going to cost heaps. Keys had these two issues in mind when he designed this Budget.
So with his objectives in mind, Keys looked about and decided he would get his savings from three particular sources. Decreases in the Government contribution to Kiwisaver ($2.6 billion), lower abatement thresholds and higher abatement rates in the Working for Families Scheme ($448 million) and a savings in running Government departments ($980 million) is where the Government intends to get its money. Changes are intended to be implemented after the 26 November 2011 election
Spending of course under the Budget was at ground zero. There is no new spending going on in this Budget. Rather, the Government is going to use the cash it would have spent in Kiwisaver, Working for Families and running it’s Departments towards other things, such as repaying the borrowings we have made overseas to fund our deficit and dealing with rebuilding Christchurch. If all goes to plan, it is forecasted we should be in the black around the 2014.
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SUMMARY
Take these comments for what they are worth – merely my musings. As I said, I had nothing to do one Sunday afternoon and wanted to write so thought I’d simply gather my thoughts together and scribble.
My musings come with a caveat…if all the forecasts that people have made were true, there would be a lot more millionaires out there. People when they make forecasts are merely taking the data at their disposal, having conversations with other people, putting things together and delivering their personal opinions as to future happenings. That’s all I’ve done.
That aside, I’ve always found information useful as it helps one play the money game. You can’t play the game if you don’t know the rules and you’re chances of winning the game are considerable curtailed if you don’t have the necessary information at your finger tips.
If you think you want to get your money game back on track, give me a call. I’m a Partner at Gilligan Rowe & Associates and money is our business. We know how to help our clients make it and keep it. We appreciate how the cycle of debt works. We understand how tax interacts with your personal and business affairs. Overall, we have the knowledge to get you from where you are now to where you would like to go when it comes down to your money journey. I guess you could say we know how to play the money game.
You can get me by emailing me on jx@gra.co.nz or picking up the phone and calling me on (09) 522 7955.
Until next time, spend short and invest long as the Russians Money Barons say.
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P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
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