Saving and Investing Hon Dr Michael Cullen Minister of Finance Saving and Investing.
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Transcript of Saving and Investing Hon Dr Michael Cullen Minister of Finance Saving and Investing.
Saving and Investing
Hon Dr Michael Cullen
Minister of Finance
Saving and Investing
Saving and Investing
Longest expansion in 30 years…
0
1
2
3
4
5
6
7
99 00 01 02 03 04 05 06 07
GDP growth%
Saving and Investing
Longest expansion in 30 years…
3
4
5
6
7
8
99 00 01 02 03 04 05 06 07
Unemployment
%
Saving and Investing
…but imbalances have built up
35
40
45
50
55
60
65
70
75
99 00 01 02 03 04 05 06 07
NZD / USD
Saving and Investing
…but imbalances have built up
-3
-2
-1
0
1
2
3
4
5
99 00 01 02 03 04 05 06 07
Tradeables inflation
Non-tradeables inflation%
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…
-0.1%-3.7%
6.6%4.2%
-11.0%
3.7%
1990 2005
AustraliaUnited KingdomNew Zealand
Household saving rate
Saving and Investing
Low saving has become critical…
-12
-10
-8
-6
-4
-2
0
99 00 01 02 03 04 05 06 07
Current Account
% of GDP
Saving and Investing
…so KiwiSaver is being enhanced
4% or 8%
$20 per week
$20 per week per employee
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
Meg and Jack earn $75,000 ($37,500 each) and contribute 4 per cent each
…so KiwiSaver is being enhanced
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
From Employee contribution
Tax credit*
Employer contribution
Total
1 April 2008 4% 2% 1% 7%
1 April 2009 4% 2% 2% 8%
1 April 2010 4% 2% 3% 9%
1 April 2011 4% 2% 4% 10%
e.g. an individual on $52k contributing 4%
* 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
0
20
40
60
80
100
120
140
160
08 12 16 20 24 28 32 36 40 44 48 52
$ billion
KiwiSaver funds under management
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 costPortion of
total wage bill
1 April 2008 $0 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 rate30%
• R&D tax credit15% volume-based
• International TaxActive 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
0 25 50 75 100 125 150
Czech RepublicPoland
Slovak RepublicTurkeyMexico
HungaryKorea
GreeceJapan
New ZealandItaly
PortugalUnited States
IcelandAustria
AustraliaSpain
GermanyFranceIreland
NorwayFinland
DenmarkLuxembourg
United KingdomSwedenCanada
NetherlandsSwitzerland
% of GDP
Saving and Investing
Building on previous tax relief
0
1
2
3
4
5
2007/08 2008/09 2009/2010 2010/11
$ billion
Working for Families(Budget 2004)
KiwiSaver(Budget 2005)
Business Tax Reform(Budget 2005)
Working for Families(Budget 2006)
KiwiSaver(Budget 2007)
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)
Supporting sustainability ($32 million) and energy efficiency ($72 million)
Improving tertiary skills ($170 million), industry training ($53 million), and lifting firms’ innovative capacity ($67 million)
Saving and Investing
Families – Young and Old
Raising New Zealand Superannuation to 66% of the average wage ($257 million)
Strengthening communities by removing the cap on charitable giving ($65 million)
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)
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
-4
-2
0
2
4
6
8
10
02 03 04 05 06 07 08 09 10 11
$ billion
OBEGAL (excl NZSF)
Residual cash
Saving and Investing
Meeting long term fiscal objectives…
-20
-10
0
10
20
30
40
97 99 01 03 05 07 09 11
% of GDP
Gross sovereign-issued debt
Net debt incl NZSF
Net debt
Saving and Investing
…and mindful of short term stimulus
-3
-2
-1
0
1
2
3
4
5
6
93 95 97 99 01 03 05 07 09 11
% of GDP
Fiscal balance
excl KiwiSaverFiscal impulse
Saving and Investing
Budget 2007
• Supports monetary policy
• Enhances productivity
• Addresses structural imbalances
• 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