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Govt wants Kiwis to increase savings with no incentives

Contributor:
Fuseworks Media
Fuseworks Media
Bill English. Pic: NZPA
Bill English. Pic: NZPA

By Kate Chapman of NZPA

Wellington, Aug 24 NZPA - The savings working group faces what appears to be an insurmountable challenge -- finding a way to convince cash-strapped New Zealanders to put more of their hard earned money into a bank account.

Finance Minister Bill English announced the terms of reference for the group today.

He said they were tasked with a wide brief to consider how to increase national savings, that includes government, business and private savings.

However, the New Zealand Superannuation and a capital gains or land tax were not up for discussion.

Mr English likened New Zealand's debt level, at 90 percent of gross domestic product (GDP), to Ireland, Greece, Spain and Hungary.

Net debt rose from $100 billion in 2000 to $180b currently and was forecast to reach $250b in 2014, he said.

Growing government debt levels meant any new savings incentive would need to be fiscally neutral -- not cost the Government more, Mr English said.

He also said a complete restructure of the tax, welfare and student loan systems would not occur. The group was being asked to find solutions within the current framework.

"We can't have the Government go further into debt. If we had the opportunities of multibillion dollar surpluses we'd be taking a more expansive view of this."

New Zealand had become vulnerable because of its level of overseas debt and changes must be made now, he said.

Mr English believed New Zealanders were now more receptive to increasing savings, reducing consumption and debt levels and breaking home ownership habits.

Increasing incomes would help people to save more, he said, and it was important to turn savings into investment to help grow the economy.

"It's also about people changing their basic habits between consumption and saving, in the short term that's not that helpful for the economy because they're not down Lambton Quay spending their money in the shops but in the longer term it's going to give us a stronger economic base."

Mr English said there were no easy or obvious options for increasing savings.

"There are no simple or obvious easy ways to lift national savings, if there were those moves would have already been made."

He said he was open to compulsory KiwiSaver membership and the fairness and effectiveness of the current KiwiSaver system would be considered.

Increasing minimum employer KiwiSaver contributions to 4 percent, after National decreased it to 2 percent, was another option.

The group would also consider a dual income tax system, with separate rates for labour and savings and investment income, and indexation so that real, rather than nominal, income from savings and investment was taxed.

"There's any number of rinky-dinky tax reductions you can build into a tax regime, we want to make sure that whatever policy decisions we make have the effect of increasing national savings, not just moving them around."

Any recommendations the working group makes would need to convince people to save more without new and expensive incentives.

Green Party Russel Norman said the Government, employers and employees all needed to contribute to increase national savings.

"It's in all of our interests to increase national savings so it's quite important that all sides contribute."

Labour leader Phil Goff said there would be compulsion but no real incentive for people to save.

Prime Minister John Key said compulsory superannuation savings would be one way to increase national savings but he would not rule anything in or out.

The savings group would provide ministers with a range of options by January 2011.

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