web analytics

$2.3 billion sting in the Budget’s tail

Written By: - Date published: 12:47 pm, May 30th, 2010 - 19 comments
Categories: budget 2010, Economy - Tags: ,

We had a guest post last week about the effect of the Budget on a retired couple’s savings. Bernard Hickey has hit the same topic in his latest post.

Most taxpayers will (just) have their higher GST bill covered by the income tax cut but there’s no compensation for the effect of all that inflation on savings.

Hickey says there is $153 billion in savings accounts, term deposits, and other cash savings. Inflation will be 5.9% thanks to the GST hike.

That means, the $153 billion would have get $9 billion of returns, increasing the total to $162 billion, just to match inflation – ie for savers to be no worse of next year savers need to get a 5.9% return.

But the Reserve Bank says the average  month term deposit rate at the moment is 4.4% per annum and it is not forecast to rise much. If the average return on that $153 billion is 4.4% then it will total $159.7 billion in a year’s time. Less than the minimum amount needed to cover inflation.’

Collectively, New Zealand’s savers will be $2.3 billion worse off in a year’s time than they are now, thanks to the Budget. That’s a huge destruction of wealth for only vague promises of economic gain.

Of course, the same thing happens to mortgages – the real (after inflation) value of mortgages will fall.

Borrowers will win and savers will lose. Kind of funny considering this Budget was meant to be all about encouraging savings.

19 comments on “$2.3 billion sting in the Budget’s tail ”

  1. It never was. Around the world the banks are destroying the middle class. No middle class, no democracy and back to a feudal system with them in charge.

  2. Draco T Bastard 2

    $2.3b is what, ~1.5% of GDP? And the Treasury thinks that we may, possibly, if we believe in the fairies at the bottom of the garden really hard, see 1% growth in the economy due to this budget in approximately 7 years?

    Kind of funny considering this Budget was meant to be all about encouraging savings.

    This budget was always all about making NZ and NZers worse off.

  3. Sanctuary 3

    Bill English is ex-treasury dry as dust new right ideologue. He thinks that as long as you keep delivering tax cuts today, tomorrow will never come.

    It is voodoo economics, and the head zombie is in charge of your country.

    • ianmac 3.1

      Experts say that they can see “Key’s hands all over the Budget.” The cold steel fist underneathe the velvet glove?

  4. Zaphod Beeblebrox 4

    A lot of the changes going on in the NZ economy (less manufacturing especially) will condemn the unskilled to very low wages and limited employment prospects. Thats not exactly English’s fault but you see very little planning of how our society is going to cope with an increasing underclass and a decreasing middle class. Social issues don’t really seem this government strong suit.

  5. marsman 5

    English’s own soundbites describe him very well, ‘inept’ and ‘mismanagement of the economy’.

  6. “Hickey says there is $153 billion in savings accounts, term deposits, and other cash savings. Inflation will be 5.9% thanks to the GST hike.”

    A simple point, the GST hike isn’t inflation. The GST increase will increase the price level but will do so instantaneously which, by definition, isn’t inflation.

    • Marty G 6.1

      Paul, CPI is the official measure of the price level. It is CPI that will go up by 5.9%. Technically you’re right but for all intents and purposes, CPI is inflation and the effect of the GST hike as felt by consumers will be inflation. The GST hike will mean the the purchasing power of savings falls.

      It’s pretty sad that the depth of your contribution is a pedantic point that is meaningless.

      • Paul Walker 6.1.1

        Actually CPI is just one many possible measures (approximations) of inflation, you could also use the GDP deflater or a producers index, for example. And depending on what you are trying to measure each has its advantages/disadvantages. Also its doesn’t matter which one you use, it is still true that inflation is not affected by jumps in the price level caused by one-off increases in things like GST. All the increases in measures like CPI due to the GST increase tell us it that such measures miss-measure true inflation.

        All very simple really.

        • Puddleglum 6.1.1.1

          Thanks for the technical clarification Paul. You’ve convinced me that the effect is actually worse than Bernard suspected. After all, inflation only slowly (rather than ‘instantaneously’) erodes savings and, being ‘patchy’, it’s possible to judiciously spend one’s savings to avoid the most rapidly inflating parts of the economy.

          What a GST hike does, as you point out, is provide an inescapable AND instantaneous devaluing of the exchange value of savings. So, in the short term, it’s worse than the equivalent level of inflation. It’s a bigger body blow to savers than we all thought – thanks for clearing that up.

        • Zetetic 6.1.1.2

          Will GST raise the price level? Yes.

          Will it lower the purchasing power of savings? Yes.

  7. sean14 7

    What monetary policy is Labour going to fight the next election on? Assuming anyone (including the Labour party) knows, what will its effect on inflation be?

    • Zaphod Beeblebrox 7.1

      Pretty sure it won’t involve extra borrowing to pay for tax cuts for the top wage earners- that might be a help!

  8. jcuknz 8

    Interesting use of tenses in your introductory box …. the future in the past? …. “National’s second budget has induced a lot of inflation 5.9% over the next year. ”

    The CPI is based on a given selection of items so the way to beat it or fall sucker to it is to choose what you buy … that assumes you are that worried about it.

  9. Zak Creedo 9

    Further to Paul Walker’s point — gee you can be pretty rude, marty! — the price increase to my reckoning amounts to some 6 cents on present GST-included pricing. You care to explain how the heck inflation runs at + 5.9 percent as a result of this..?

    • Puddleglum 9.1

      Zak, I genuinely can’t understand how hot under the collar you’re getting over use of the word ‘inflation’. (Heck, you’ve even used the word ‘heck’!). MartyG conceded that, technically, it isn’t inflation.

      Outside of ECON 101 classes ‘inflation’ just means price increases. Sad, but true – and that’s perfectly justified. Academic disciplines don’t have a ‘mortgage’ (sorry) on ordinary English language terms.

      Think of this: If a company advertised it’s price reductions (i.e, a sale) by saying ‘We’re deflating our prices by 10%!!!’ would you be inclined to take them to the Commerce Commission (or wherever such ‘breaches’ are taken) on the grounds of ‘misleading advertising’?

      I also distinctly remember (and I’m old enough to) Roger Douglas, on television sitting in front of a graph of quarterly, or whatever, inflation records some months after GST had been introduced and pointing out that the inflation from the GST was only a ‘blip’ and it had now passed through the system (to paraphrase in digestive terms). To his credit, he didn’t try to wiggle out of it by saying it wasn’t inflation (which, technically, it wasn’t), just that it was temporary.

      Of course, nothing is ever black and white. I suspect that the post-GST price then becomes the benchmark for some (unscrupulous) traders to have one over on their customers by putting their ‘inflation-adjusted’ prices up, yearly, on the post- rather than pre-GST component of the retail price (competition is never perfect, after all). If I’m correct, then wouldn’t GST actually contribute to ongoing inflation? But maybe I’m wrong.

  10. Zak Creedo 10

    Puddleglum,

    genu-wine question: are you using both oars up this creek of yours..?

    BTW: collar..? me..? why not start over.

    To the blighted souls herein this commentariat I was seeking actual use of the figures, not blind reassertion of others dictat… like what GST-included price would result in an increase of 6 cents on it at the new rate… answer: $100. Now proceed from this to tell me how a projected 5.9 percent overall price increase in our economy will result.. will it, for instance, arise solely from the gst hike..?

    If not, why not, so we can all get things straight.. and not find ourselves(the blogger above) a channel to \’toldya so\’ blah so obliging the price hikers now licking their lips at growth that likely fewer people will afford.

    • Puddleglum 10.1

      Aaah! Now I get it. You’re objecting to the comment that “Inflation will be 5.9% thanks to the GST hike.” in Marty’s post.

      You’re reading that as “Inflation will be 5.9% thanks [solely] to the GST hike.” I read it as “Inflation will be [as high as] 5.9% thanks to the GST hike.”

      I was assuming that other sources of inflation (other than GST, and notwithstanding Paul’s technical point about what part of price increases is or is not ‘inflation’) would be less than the 4.4% average return and so, while they would diminish the return on savings they would not wipe out that return and put it in the black.

      The GST hike, I think the argument goes, pushes that return into the red. So, thanks to the GST hike, we are projected by Treasury to have an ‘inflation’ rate – because of the budget – that will diminish the value of savings. If other sources of inflation amount to more than 4.4% then, of course, savings would have gone into the red without a GST hike – though any hike would have made that shift into the red worse.

Recent Comments

Recent Posts

  • Speech to AI Forum – Autonomous Weapons Systems
    AI Forum New Zealand, Auckland Good evening and thank you so much for joining me this evening. I’d like to start with a thank you to the AI Forum Executive for getting this event off the ground and for all their work and support to date. The prospect of autonomous ...
    BeehiveBy beehive.govt.nz
    10 hours ago
  • New Zealand boosts support to Fiji for COVID-19 impact
    Aotearoa New Zealand is providing additional support to Fiji to mitigate the effects of the current COVID-19 outbreak on vulnerable households, Foreign Minister Hon Nanaia Mahuta announced today. “Recognising the increasingly challenging situation in Fiji, Aotearoa will provide an additional package of assistance to support the Government of Fiji and ...
    BeehiveBy beehive.govt.nz
    17 hours ago
  • Round 2 of successful energy education fund now open
    $1.65 million available in Support for Energy Education in Communities funding round two Insights from SEEC to inform future energy hardship programmes Community organisations that can deliver energy education to households in need are being invited to apply for the second funding round of the Support for Energy Education in ...
    BeehiveBy beehive.govt.nz
    17 hours ago
  • New Ngarimu scholarships to target vocational training
    Associate Education Minister Kelvin Davis today announced three new scholarships for students in vocational education and training (VET) are to be added to the suite of prestigious Ngarimu scholarships. “VET learners have less access to study support than university students and this is a way to tautoko their learning dreams ...
    BeehiveBy beehive.govt.nz
    17 hours ago
  • Recognising the volunteers who support our health system
    Nominations have opened today for the 2021 Minister of Health Volunteer Awards, as part of National Volunteer Week. “We know that New Zealanders donate at least 159 million hours of volunteer labour every year,” Minister of Health Andrew Little said in launching this year’s awards in Wellington. “These people play ...
    BeehiveBy beehive.govt.nz
    22 hours ago
  • Drug Free Sport supported to deal with new doping challenges
    Drug Free Sport New Zealand will receive a funding boost to respond to some of the emerging doping challenges across international sport. The additional $4.3 million over three years comes from the Sport Recovery Fund announced last year. It will help DFSNZ improve athletes’ understanding of the risks of doping, ...
    BeehiveBy beehive.govt.nz
    22 hours ago
  • Government support for South Auckland community hit by tornado
    The Government is contributing $100,000 to a Mayoral Relief Fund to support Auckland communities impacted by the Papatoetoe tornado, Acting Minister for Emergency Management Kris Faafoi says. “My heart goes out to the family and friends who have lost a loved one, and to those who have been injured. I ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Celebrating World Refugee Day
    World Refugee Day today is an opportunity to celebrate the proud record New Zealanders have supporting and protecting refugees and acknowledge the contribution these new New Zealanders make to our country, the Minister of Immigration Kris Faafoi said. “World Refugee Day is also a chance to think about the journey ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Face to face meeting delivers significant progress on NZ-UK FTA
    New Zealand and the UK have committed to accelerating their free trade agreement negotiations with the aim of reaching an agreement in principle this August, Trade Minister Damien O’Connor announced. “We’ve held constructive and productive discussions towards the conclusion of a high-quality and comprehensive FTA that will support sustainable and inclusive trade, and ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Government taking action to protect albatross
    New population figures for the critically endangered Antipodean albatross showing a 5 percent decline per year highlights the importance of reducing all threats to these very special birds, Acting Minister of Conservation Dr Ayesha Verrall says. The latest population modelling, carried out by Dragonfly Data Science, shows the Antipodean albatross ...
    BeehiveBy beehive.govt.nz
    4 days ago
  • Adoption laws under review
    New Zealand’s 66-year-old adoption laws are being reviewed, with public engagement beginning today.  Justice Minister Kris Faafoi said the Government is seeking views on options for change to our adoption laws and system. “The Adoption Act has remained largely the same since 1955. We need our adoption laws to reflect ...
    BeehiveBy beehive.govt.nz
    4 days ago
  • Wider roll-out of cameras on boats to support sustainability and protect marine life
    Up to 300 inshore commercial fishing vessels will be fitted with on-board cameras by 2024 as part of the Government’s commitment to protect the natural marine environment for future generations.  Minister for Oceans and Fisheries David Parker today announced the funding is now in place for the wider roll out ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Plan for vaccine rollout for general population announced
    New Zealanders over 60 will be offered a vaccination from July 28 and those over 55 from August 11, Prime Minister Jacinda Ardern announced today. The rollout of the vaccine to the general population will be done in age groups as is the approach commonly used overseas, with those over ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • New Zealand introduces Belarus travel bans
    New Zealand has imposed travel bans on selected individuals associated with the Lukashenko regime, following ongoing concerns about election fraud and human rights abuses after the 2020 Belarus elections, Foreign Affairs Minister Nanaia Mahuta has announced. The ban covers more than fifty individuals, including the President and key members of ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • NZ economy grows driven by households, construction and business investment
    The Government’s efforts to secure the recovery have been reflected in the robust rebound of GDP figures released today which show the economy remains resilient despite the ongoing impact of the COVID-19 pandemic, Grant Robertson said. GDP increased 1.6 percent in the first three months of 2021. The Treasury had ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Milestone 250th tower continues to improve rural connectivity
    The Government has welcomed the completion of the 250th 4G mobile tower, as part of its push for better rural connectivity. Waikato’s Wiltsdown, which is roughly 80 kilometres south of Hamilton, is home to the new tower, deployed by the Rural Connectivity Group to enable improved service to 70 homes ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Quarantine Free Travel pause with Victoria to lift on Tuesday
    Following a further public health assessment of the COVID-19 outbreak in greater Melbourne, New Zealand’s Quarantine Free Travel pause with Victoria has been extended to 11.59pm on Tuesday 22 June, COVID-19 Response Minister Chris Hipkins says. It has been determined that the risk to public health in New Zealand continues ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Prime Minister mourns passing of Dr Sir Ian Hassall
    Prime Minister Jacinda Ardern is mourning the passing of Dr Sir Ian Hassall, New Zealand’s first Children’s Commissioner and lifelong champion for children and children’s health. As a paediatrician Sir Ian contributed to a major world-first cot death study that has been directly credited with reducing cot deaths in New ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • APEC structural reform meeting a success
    APEC ministers have agreed working together will be crucial to ensure economies recover from the impact of COVID-19. Minister of Commerce and Consumer Affairs David Clark, chaired the virtual APEC Structural Reform Ministerial Meeting today which revolved around the overarching theme of promoting balanced, inclusive, sustainable, innovative and secure growth ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Digital hub to boost investment in forestry
    A new website has been launched at Fieldays to support the forestry sector find the information it needs to plant, grow and manage trees, and to encourage investment across the wider industry. Forestry Minister Stuart Nash says the new Canopy website is tailored for farmers, iwi and other forestry interests, ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Government continues support for rangatahi to get into employment, education and training
    Over 230 rangatahi are set to benefit from further funding through four new He Poutama Rangatahi programmes, Minister for Social Development and Employment Carmel Sepuloni announced today. “We’re continuing to secure our economic recovery from COVID by investing in opportunities for rangatahi to get into meaningful employment, education or training ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • NCEA subjects up for consultation
    The education sector, students, their parents, whānau and communities are invited to share their thoughts on a list of proposed NCEA subjects released today, Education Minister Chris Hipkins says. This is a significant part of the Government’s NCEA Change Programme that commenced in 2020 and will be largely implemented by ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Major investment in plantain forage programme aims to improve freshwater quality
    The Government is backing a major programme investigating plantain’s potential to help farmers protect waterways and improve freshwater quality, Acting Agriculture Minister Meka Whaitiri announced at Fieldays today. The Sustainable Food and Fibre Futures (SFFF) fund is contributing $8.98 million to the $22.23 million seven-year programme, which aims to deliver ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • America’s Cup decision
    The Minister responsible for the America’s Cup has confirmed the joint Crown-Auckland Council offer to host the next regatta has been declined by the Board of Team New Zealand. “The exclusive period of negotiation between the Crown, Auckland Council, and Team New Zealand ends tomorrow, 17 June,” said Stuart Nash. ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Food and fibres sector making significant strides towards New Zealand’s economic recovery
    The Government is backing the food and fibres sector to lead New Zealand's economic recovery from COVID-19 with targeted investments as part of its Fit for a Better World roadmap, Forestry Minister Stuart Nash said. “To drive New Zealand’s recovery, we launched the Fit for a Better World – Accelerating ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Speech to He Whenua Taurikura – New Zealand’s annual hui on countering terrorism and violent...
    Check against delivery Can I begin by acknowledging the 51 shuhada, their families and the Muslim community. It is because of the atrocious violent act that was done to them which has led ultimately to this, the start of a dialogue and a conversation about how we as a nation ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Cost of Government Southern Response proactive package released
    The Government has announced the proactive package for some Southern Response policyholders could cost $313 million if all those eligible apply. In December, the Minister Responsible for the Earthquake Commission, David Clark announced a proactive package for SRES claimants who settled their claims before October 2014. It trailed the judgment ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • First period products delivered to schools
    The first period products funded as part of the Government’s nationwide rollout are being delivered to schools and kura this week, as part of wider efforts to combat child poverty, help increase school attendance, and make a positive impact on children’s wellbeing. “We know that nearly 95,000 9-to-18 year olds ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • New support to reduce emissions from public building and construction projects
    Government agencies are getting new support to reduce carbon emissions generated by construction of new buildings, with the release of practical guidance to shape decisions on public projects. The Ministers for Building and Construction and for Economic Development say a new Procurement Guide will help government agencies, private sector suppliers, ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • He Whenua Taurikura: New Zealand’s first Hui on Countering Terrorism and Violent Extremism
    The Prime Minister has opened New Zealand’s first hui on Countering Terrorism and Violent Extremism, which is being held in Christchurch over the next two days. The hui delivers on one of the recommendations from the report of the Royal Commission of Inquiry into the terrorist attack on Christchurch masjidain ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Speech to inaugural Countering Terrorism Hui
    E aku nui, e aku rahi, Te whaka-kanohi mai o rātou mā, Ru-ruku-tia i runga i te ngākau whakapono, Ru-ruku-tia i runga i te ngākau aroha, Waitaha, Ngāti Mamoe, Ngai Tahu, nāu rā te reo pohiri. Tena tātou katoa. Ki te kotahi te kakaho ka whati, ki te kapuia, e ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Campaign shines a light on elder abuse
    A new campaign is shining a spotlight on elder abuse, and urging people to protect older New Zealanders. Launched on World Elder Abuse Awareness Day, the Office for Seniors’ campaign encourages friends, whānau and neighbours to look for the signs of abuse, which is often hidden in plain sight. “Research suggests ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Farewelling sports administrator and philanthropist Sir Eion Edgar
    Sport and Recreation Minister Grant Robertson today expressed his sorrow at the passing of Sir Eion Edgar – a leading sports administrator and celebrated philanthropist who has made a significant impact both within and beyond the sport sector. “Sir Eion’s energy, drive and generosity has been truly immense. He leaves ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government to apologise for Dawn Raids
    The Government will make a formal apology for the wrongs committed during the Dawn Raids of the 1970’s. Between 1974 and 1976, a series of rigorous immigration enforcement policies were carried out that resulted in targeted raids on the homes of Pacific families. The raids to find, convict and deport overstayers ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Humanitarian support for Bangladesh and Myanmar
    Foreign Affairs Minister Nanaia Mahuta today announced that New Zealand is providing NZ $8.25 million in humanitarian assistance to support refugees and their host populations in Bangladesh and to support humanitarian need of internally displaced and conflict affected people in Myanmar.  “Nearly four years after 900,000 Rohingya crossed the border ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Poroporoaki: Dame Georgina Kamiria Kirby
    E Te Kōkō Tangiwai, Te Tuhi Mareikura, Te Kākākura Pokai kua riro i a matou. He toka tū moana ākinga ā tai, ākinga ā hau, ākinga ā ngaru tūātea.  Haere atu rā ki te mūrau a te tini, ki te wenerau a te mano.  E tae koe ki ngā rire ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Feedback sought on future of housing and urban development
    New Zealanders are encouraged to have their say on a long-term vision for housing and urban development to guide future work, the Housing Minister Megan Woods has announced. Consultation starts today on a Government Policy Statement on Housing and Urban Development (GPS-HUD), which will support the long-term direction of Aotearoa ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Clean car package to drive down emissions
    New rebates for electric and plug-in hybrid vehicles start July 1 with up to $8,625 for new vehicles and $3,450 for used. Electric vehicle chargers now available every 75km along most state highways to give Kiwis confidence. Low Emission Transport Fund will have nearly four times the funding by 2023 ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Progress towards simpler process for changing sex on birth certificates
    The Government is taking the next step to support transgender, non-binary and intersex New Zealanders, by progressing the Births, Deaths, Marriages and Relationships Registration Bill, Minister of Internal Affairs, Jan Tinetti announced today. “This Government understands that self-identification is a significant issue for transgender, non-binary and intersex New Zealanders, and ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Crown speeds up engagement with takutai moana applicants
    The Crown is taking a new approach to takutai moana applications to give all applicants an opportunity to engage with the Crown and better support the Māori-Crown relationship, Treaty of Waitangi Negotiations Minister Andrew Little says. Following discussions with applicant groups, the Crown has reviewed the existing takutai moana application ...
    BeehiveBy beehive.govt.nz
    1 week ago