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.