The Savings Working Group (SWG) has warned of dire consequences if New Zealand doesn't reduce its massive foreign liabilities, saying New Zealand has “maxed out” its credit.The government-appointed group chaired by Kerry McDonald is tasked wit
The Savings Working Group (SWG) has warned of dire consequences if New Zealand doesn’t reduce its massive foreign liabilities, saying New Zealand has “maxed out” its credit.
The government-appointed group chaired by Kerry McDonald is tasked with finding ways to improve New Zealand’s low savings rate.
Today it released an interim report indicating what issues it is looking at and what it thinks about some of the major ones.
“The bottom line is that New Zealanders collectively have been spending too much and saving too little, using large amounts borrowed offshore to fund new investment,” the report said.
“Its credit is about maxed out. It’s time to get real. We need less consumption by both government and households, more savings, better quality investment, more exports and increased import substitution.”
One of the ways to get savings up and get government debt down is to lift the growth rate of productivity in the public sector, according to the SWG.
“Doubling productivity growth, from its present low level would halve the level of government debt by 2050, while delivering the same volume of services.”
The group said it favours using something similar to the government’s recently released investment statement for local government, “which holds roughly the same value of assets as central government.”
It also supports at least some inflation-indexation of taxes on savings as well as an extension of tax rates applying to the current PIE regime.
However, it said it doesn’t support the adoption of a full ‘Nordic’ tax system.
Instead, the SWG said there should be further shifts over time towards GST and away from income tax.
The tax system has “many anomalies and distortions such as differences in effective marginal tax rates that “strongly favour owner-occupied housing and investment housing.”
Although it didn’t give an opinion one way or the other on compulsory superannuation, the SWG said evidence from Australia suggested it might raise national savings, “at least to some degree.”
It also said putting in thresholds, such as making it compulsory only for those above a certain income or age, could address some of the concerns about compulsion.
The group will make its final recommendations in January.
