In case you missed, Members last newsletter.
Next one due out June/July 2024
*Editor away for next month, enjoy below!
KASPANZ MEMBERS NEWSHEET 32: 2024
Kiwi saver |Annuity Superannuation | Protection Association of NZ Incorporated.
11 years established: the Consumer voice.
POST ELECTION ISSUE: Those that do not vote, strike at the very heart of our democracy!
Quote of the decade
Not everything that counts can be counted, and not everything that should count can be measured. Bruce Campbell .
Editor comment *Media need to remmber this!!!
Not far behind Peter Dunne (ex-MP talking about lobbyists)
“Most were professional whingers who ran with the hares and hunted with the hounds. They were very good at telling you what they did not like but woefully weak when asked to provide an alternative solution”
EDITORIAL
Post election result. The country has spoken and we welcome in the new Government. Luxon comes into office, after a very early comment that he favoured evidence-based policy, contrasted, by the opposite approach adopted on retirement income policy . Watch and wait is the best I can offer, lets see if our media platforms critique the efforts of the Luxon and Willis leadership, to a similar level applied to the previous Government?
Retirement income is a key community issue, intertwined into many policy platforms. This newsletter focuses on tax and where will the aged live? It concludes with an updated version of my paper New Zealand Superannuation’s is a National Treasure
The tax article is a mixture of notes and issues, written to help the layman understand some of the issues. The housing theme continues, as we continue to live in a country which continues to accept a broken home ownership mode, and home affordability camouflaged by self-interest parties .
Great comment
Tookery says it was relatively easy in 1975 to embark on a speculative building project, without requiring expensive consents, and that meant there was a steady supply of new housing. The impact of the 1991 Resource Management Act, plus successive central and local govt interventions has changed that he says. Building has become more time consuming and costly and that has had an impact on housing supply. Speculative building has died because no-one can afford to build a house that is not occupied right away
A change in house sizes, is notable too. Most houses built in the 1979”s were 2-3 bedroom and one bathroom. Now five -to six bedrooms and multiple bathrooms are common. The average size of a house has gone from 120-130 sq. metres to a couple of hundred sq. metres. They are more gizmos, more expensive materials, and bigger houses.
And people wonder why building affordability is more expensive!
NEW ZEALAND SUPERANNUATION
Jane Wrightson Retirement Commissioner right on the button re suggesting “So, why cannot we see some broad political agreement that NZ Super is a taonga, a key contributor to elder poverty prevention? Why cannot we see a shared vision for Kiwi Saver as the second, equally crucial plank for NZ retirement income?
Aligned political leadership from across the House would be so invaluable to agree on a set of simple retirement policy framework, pensions, savings, education that might stretch across a decade?
What common sense! NZ Super is great public policy, affirm it in the manner suggested by Jane.
TAX
THE NEW ZEALAND TAX SYSTEM-NEW ZEALAND TAXES IN COMPARATIVE PERSPECTIVE ROB SALMOND 2011 (128 PAGES)
Professor Rob Salmond is an ex-pat New Zealander, who works out of the University of Michigan, where he is Assistant Professor of Political Science.
“The book offers an excellent overview of recent tax debates in NZ, and how they have led to current Policy settings. The book also includes a comparative analysis of the NZ Tax system against those of Aussie, Canada, and the United Kingdom.”
The book draws several conclusions on tax in New Zealand including
- New Zealand is an unusually light taxer of both corporate dividends and capital gains
- Some have suggested that NZ top income tax rate was unusually and punishingly high under the Labour government. That is incorrect. It is the new top tax rate that is unusual for OECD countries. It is unusually low.
- If all the four countries tax systems compared, were to be examined as tax wedges rather than all in tax rates, New Zealand has the largest tax wedge of very low earners and the smallest for high earners.
- Most NZ taxes are paid by individuals in their role as earners (Income tax) or consumers (GST) those on average income rather than those on very low incomes, appear to pay the lowest overall tax.
- NZ tends to impose comparatively less tax burden on those in the highest income brackets and comparatively more tax burden on those in the lower brackets.
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The New Zealand Tax System: New Zealand Taxes in Comparative Perspective (Paperback) By Salmond, Rob 2011
*The best NZ guide to NZ Tax system!
Perhaps the most prominent political debate in New Zealand is about tax. The book above provides a new perspective on this critical subject, examining what we know about our tax system, and showing how that falls short of what we should know. It details how tax works in the countries New Zealanders normally look to for policy comparison. It shows New Zealand has a tax system of extremes. We charge less tax than almost any comparable country on high incomes, dividends, and capital gains.
Our GST however, is bigger than most, both as a proportion of taxes and as a proportion of the economy as a whole. And our goal of aligning top personal and company tax rates is not one that other rich democracy seem to share. They say that in order to change tomorrow, first you must understand today. This book helps everyone, tax experts and interested laypeople alike, understand our tax system today.
Rich and poor Gap widened last 3 decades-French economist Thomas Piketty describes the current wealth study on NZ richest as depressing reading. Lance the boil by inheritance and wealth tax.
Conclusion
In NZ different income sources are treated differently. Why?
Outlier issues. Tax collection. 800 million dollars not collected last yr. written off.
QUICK GUIDE TO TAX APPROACH
The primary determinant of how much tax revenue is collected is the requirement to fund government expenditure. The ratio of revenue to GDP has been relatively stable, increasing slightly in recent years, reflecting the New Zealand economy’s recovery since the global financial crisis.
New Zealand collects an amount of tax revenue, relative to GDP, that is close to the average of other OECD countries Tax is the foundation we build our country upon, our social support, schools, and hospitals. It funds infrastructure (big projects). It is how we collectively provide public services for 5 million people living in NZ.
New Zealand is unusual in taxing from the first dollar earned. Most OECD countries have a tax-free threshold, whereby no tax is paid until income exceeds a certain threshold. Instead, New Zealand targets low-income earners through the Working for Families package of tax credits. NZ system is supposed to be progressive, more you earn, more you are taxed. However not all income is taxed equally, and most capital gains are not taxed at all Fairness means different things, depending whether it is applied to us or to others NZ we comprehensively tax income, but we do not comprehensively tax wealth
ISSUE Tax Fairness. The problem is we often cannot agree on what fairness looks like. How do you construct a formula or fair tax structure
Tax everyone GST, Ability to pay. Tax income. NZ tax system has elements of both. Current ratesThere are five PAYE tax brackets for the 2021-2022 tax year: 10.50%, 17.50%, 30%, 33% and 39%. Your tax bracket depends on your total taxable income
New Zealand collects a large share of revenue from its three major tax bases: personal income, company income and GST.
51% of tax revenue in NZ is individual personal tax
Personal tax is different to Corporate and GST which have a flat rate. Personal tax payers pay more as they earn. Tax thresholds have not changed in past 12 years, apart from 39% tax rate. Inflation adding significantly to Govt tax take, people’s income increase, move into new tax bracket
Shares and investment property asset sales not taxed?
Perhaps the most prominent political debate in New Zealand is about tax. The book above provides a new perspective on this critical subject, examining what we know about our tax system, and showing how that falls short of what we should know. It details how tax works in the countries New Zealanders normally look to for policy comparison. It shows New Zealand has a tax system of extremes. We charge less tax than almost any comparable country on high incomes, dividends, and capital gains.
Our GST however, is bigger than most, both as a proportion of taxes and as a proportion of the economy as a whole. And our goal of aligning top personal and company tax rates is not one that other rich democracy seem to share. They say that in order to change tomorrow, first you must understand today. This book helps everyone, tax experts and interested laypeople alike, understand our tax system today.
Rich and poor Gap widened last 3 decades-French economist Thomas Piketty describes the current wealth study on NZ richest as depressing reading. Lance the boil by inheritance and wealth tax.
Conclusion
In NZ different income sources are treated differently. Why?
Outlier issues. Tax collection. 800 million dollars not collected last yr. written off.
WHERE WILL YOU LIVE WHEN YOU ARE OLD? Extract from a recent “North South Magazine article
Housing researcher Dr Bev James says there are indications that most people who rent in later life owned property at some point in their lives. She points to a 2020 study she co-authored for the Housing Studies journal, which found that 61 per cent of renters aged over 55 interviewed for the study were former home-owners.Why are they renting when they were home-owners at some stage?” James asks. “I can tell you; it is not about choice. It is because there are big shifts — often crises — in their lives, which mean that they can no longer sustain home-ownership. That has huge ramifications for their security in so many ways.”
Sixty per cent of single Superannuitants have little or no income other than their pension, which is currently $462.94 a week for someone living alone.
To be considered “affordable”, at 30 per cent of net income, rent for someone living alone on super should be no higher than $139 per week. As at December last year, the average rent nationally was $518, and has been increasing (steadily and then sharply) for years.
Stephanie Clare, the chief executive of Age Concern, says seniors on a fixed income will often forego many of life’s pleasures — and necessities — to make ends meet. “They stop eating, don’t have internet because it costs money, don’t have a device for connecting,” she says. “They lose the joy of life.” They also tend to have worse health outcomes, worse mental health, visit the GP and hospital more often, and have reduced life satisfaction compared to owner-occupiers, research shows. One reason for this may be the relatively poor state of the rental stock compared to owner-occupied properties, which can lead to health problems.
Claire Booth of Wesley Community Action says the situation seniors face now is the worst it has been in the seven years she has worked in the sector. “If you hit retirement age, and you don’t own your own home, you’re heading for trouble,” she says. “The ultimate consequence is that people move in with their adult children, or move into unsuitable flats or unaffordable private rentals, and then have not got enough money left over to eat. It is a really big and growing problem.”
NEW ZEALAND SUPERANNUATION: GENERATIONAL WELLBEING
Len Bayliss a well-respected New Zealand economist (1927-1918) said in 1996, ”Doomsday rhetoric characterizes NZ media handling of retirement income policy”. Twenty-five years later his comment still retains validity. I suggest some of the language about NZ Superannuation over the last two decades has moderated, and there is now a growing awareness that our superannuation scheme is excellent public policy, supported by the sound Kiwi Saver scheme. Q+A with Jack Tame, New Zealand Superannuation discussion (29th August2022 ), was an example of how commentator knowledge has improved over the last two decades.
Knee Jerk reactions do continue, pop up commentators with dubious credentials are everywhere. Talk back radio is one example; social media platforms another. Fascinated by their own one-line rhetoric, and often conservative political orientations, some talk back hosts run the risk of becoming on-air trolls .
No issue here with voicing opinions, just be more transparent about your leanings. Those with the strongest bias are often the most strident in disguising their rigidity of conviction. The media continues to do a poor job in the transparency stakes about the faces and voices engaged in 2021 communications, and the bias they bring to the microphone.
Long term projections often appear in the Retirement income discussions. Time-frames around 2050-2080 projections are useless and can be disregarded. Why disregard? History shows such assumptions are so wide of the mark they lack value, and the projections cannot factor in society changes over time. Inevitability, commentary over states the extent of existing knowledge and its degree of certainty.
Those who are prepared to research NZ Retirement income policy should start with Roger Hurnard, previously a consultant on NZ retirement issues), with his 2011 paper “Mixed messages :the future direction of NZ retirement income policy”[1]. Then read the 2019 Retirement Commissioners Review paper to government[2] It is a thoughtful and restrained discussion paper. Add in Michael Littlewood’s various superannuation papers published throughout the two decades 2000-2020. [3]
Commentary by commentators Martin Hawes, Mary Holm, Rob Stock and analysis work by Susan St John and Dr Claire Dale further add substance to readers’ knowledge . They all help provide the platform for useful contributions to the topic and the further development of sound public policy. The myth “burden of the ageing population” continues to be aired, rarely understanding the fact that superannuation policy is far more than a monetary formula. It is linked to issues of physical security, personal well-being, economic productivity, social health and the distribution of income and wealth.
New Zealand’s superannuation scheme is a recognised world leader, with a simple structure, low-cost administration, and with no exceptions. Be alert and wary to those suggesting means-testing or removing universality, as these are wonderful pub fare one liners, but are poison for the greater public good. Be sceptical of those saying “throwing younger generation under the bus”. Referencing such throw away lines usually means one is unable to sustain a coherent argument.
The dollar cost of NZ super as a proportion of GDP is also exaggerated. Unlike many other countries New Zealand does not pay a tax freeSuperannuation pension. That needs to be factored into the numbers. The current after-tax figure is 4.5% of GDP, a low figure, and
future projections within a reasonable time frame (2030) show around 6%, also a sustainable figure.
Many of today’s seniors are economically active, boosting the participation rate and paying tax. We should talk about “multipliers”. More people working means increased output, stimulating the economy, and increasing productivity. Conversely rampant discrimination and the fact many of the elder generation have many quality-of-life health issues, means the vision of working seniors does not apply. Research strongly suggests that usually it’s only the well-educated who can find regular income after 65 years of age. The next paragraph shows a paradigm shift in New Zealand’s economic landscape .
Voluntary and unpaid work needs to be factored into all economic costings, with seniors involved in less crime, road accidents etc. Seniors are the backbone of New Zealand family child care arrangements. Seniors are also assisting with many housing deposits, and early inheritance lump sums, frequently at their own savings disadvantage. The input of the older generation in providing a place of abode for those who often don’t leave their child hood home is now everyday living arrangements. Many children who have departed are also returning to their original ‘nesting place’ after the ravages of failed marriages and independent living arrangements All these issues are the new normal, and represent a significant community adjustment.
CONCLUSION
We are talking of a fundamental societal shift over recent years. Seniors are now the backbone of many of the family economic arrangements in New Zealand. New Zealand Superannuation has become a generational transfer entitlement wrapped around family, equity, and wellbeing principles.
MARCH 31, 2024
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DISCLAIMER
The information in this newsletter is of a general nature only, and is not professional advice. Kaspanz accepts no liability for its accuracy. The newsletter is principally the work of the current chairman of Kaspanz, and articles and views are not to be regarded as Kaspanz policy. The intent of the newsletter is to provide information only, to assist the reader in their own various view points, and is not paid content, it is compiled on a voluntary basis, to be helpful to readers in retirement income matters.
No liability is assumed by Kaspanz for losses suffered by any person or organisation relying directly or indirectly on information published on this site. Views expressed in any article are the views of the authors individually, and or the editor and do not necessarily reflect the view of Kaspanz .
Alec Waugh: Editor and Chair
[1] The assessment of retirement income system options A paper for the External Panel on the Treasury’s Long-Term Fiscal Statement October 2012 Roger Hurnard
[2] CFFFC Review of Retirement Income Policies 2019
[3] Michael Littlewood: Our pensions are affordable for future taxpayers 17 Aug, 2018