Saving and Investing Hon Dr Michael Cullen Minister of Finance Saving and Investing.

Saving and Investing

Hon Dr Michael Cullen

Minister of Finance



Longest expansion in 30 years…

0

1

2

3

4

5

6

7

99 00 01 02 03 04 05 06 07

GDP growth%


Longest expansion in 30 years…

3

4

5

6

7

8

99 00 01 02 03 04 05 06 07

Unemployment

%


…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


…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%


Budget 2007 is supportive

• Leans against domestic demand

• Raises the speed limit

• Helps correct any structural imbalances


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


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


…so KiwiSaver is being enhanced

4% or 8%

$20 per week

$20 per week per employee

4% (phased in)



• 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


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 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.


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 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


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%


Business Tax Reform

• Corporate rate30%

• R&D tax credit15% volume-based

• International TaxActive income tax exempt


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


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)


Investing

World class infrastructure

• $600 million for Akld/Wgtn rail

• $50 million national rail track

• Regional fuel tax

• $145 million State Highways


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)


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)


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)


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


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


…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


Budget 2007

• Supports monetary policy

• Enhances productivity

• Addresses structural imbalances

• Promotes sustainability• Maintains strong social services• Supports our role in the world


Hon Dr Michael Cullen

Minister of Finance


Saving and Investing Hon Dr Michael Cullen Minister of Finance Saving and Investing.

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