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