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Dithering Nats

Written By: - Date published: 10:42 am, April 1st, 2013 - 49 comments
Categories: economy, kiwisaver, national, tax - Tags: , , , , ,

Various changes to tax and related rules come in to effect today, along with a derisory rise in the minimum wage the main effect is that of “Earners squeezed by tax changes“. What also strikes me about the changes is the amount of dithering involved. Here’s the government on KiwiSaver contributions in 2008:

Currently, the minimum employee contribution is 4% of gross salary. For many people, especially in tight economic times, saving 4% of gross salary is simply not possible and would put unwarranted strain on other parts of the family budget. These people are, therefore, effectively shut out of KiwiSaver. …

National will introduce a contribution rate that both employees and employers can realistically afford when economic times are bad as well as when they are good, and during periods of their lives when they earn more than other times.

From 1 April 2009, the minimum contribution rate for employees in KiwiSaver will be 2% of gross salary.

And here they are today:

From next Monday, the minimum employee contribution rate will rise from 2 per cent to 3 per cent. ….

“KiwiSaver continues to be a popular savings options for a growing number of New Zealanders,” he [Dunne] says. “It is part of the Government’s wider programme to encourage genuine savings and reduce the need for extra government borrowing and debt.

“We believe that most people will find 3 per cent contributions affordable, and the employer contributions will continue to offer an attractive rate of return for the money employees put in themselves.

I look forward to next budget when these geniuses will no doubt propose the brilliant plan of raising the minimum contribution to 4%. Similarly on student loans. The Nats had the bright idea of an early repayment bonus which they introduced in 2009…:

The Government is introducing a ten per cent bonus for people who make voluntary repayments on their Student Loan. The aim is to encourage borrowers to repay their loans sooner. Shorter repayment times mean young New Zealanders will be debt free earlier.

… and just axed again

Student loan tax loophole to close

Students eligible for a 10 per cent return on voluntary repayments on their student loans have only a couple of days to claim before the Government closes the loophole.

National can dither dither dither all they like with the small stuff. As long as their whole economic philosophy and major policies are wrong, they’ll continue to make a mess of the economy.

(For the record, I think the Nats were wrong to reduce Kiwisaver in the first place, so the increase is good, and they were right to introduce the student loan bonus, which they should have kept.)

49 comments on “Dithering Nats ”

  1. Bright Red 1

    Why is the voluntary repayment bonus (which I happen to think unfairly benefits ex-students with cash in the bank) described as a “loophole” by the Dom? It’s not a loophole when a government intentionally creates an incentive.

    • r0b 1.1

      Good question. Pieces on other sites did it too. (Welcome back by the way – long time no see – found some of your old guest posts while I was looking in to this one.)

    • Draco T Bastard 1.2

      I suspect there was some of those unintended consequences that righties are so enthusiastic about telling us lefties about.

      They’re calling it a tax loophole which would indicate that somehow someone has found a way to use the payback to lesson the tax that they’re paying.

      • burt 1.2.1

        It’s worse than that Draco. Think about this…

        On the 31st March you make a payment of $1,000 but you already had a repayment obligation of $700 – no bonus….

        Your repayment obligation is based on your earnings for the tax year … What would your repayment obligation be today ??? How would waiting 1 day effect your eligibility for a bonus …

    • burt 1.3

      The loophole relates to how the bonus could be manipulated. See the wording of the legislation was such that the eligibility for the bonus was dependent on the repayment obligation. Now the repayment obligation is based on assessed income. The timing of the assessment v the payment … There is the loophole. Trust me… The loophole was well pointed out while the policy was being implemented in code but the gummit wanted a popularity device/lever with students… Like the stuff article alludes to… Nobody thought it would be so convincingly gamed as it was… Like dim-bulb Cullen thinking students wouldn’t game interest free money…

      The price we (the tax payers) pay for government’s who want to be popular rather than prudent.

      • Draco T Bastard 1.3.1

        The price we (the tax payers) pay for government’s who want to be popular rather than prudent.

        And the ever increasing poverty that we’re seeing is the price we pay for governments that have NFI what is good economics.

    • Lanthanide 1.4

      I’m surprised that no one in the replies has pointed out what the loophole is, since the dom post article itself explains what the loophole is.

      But it backfired when it became evident that students were “gaming the system” by claiming the bonus while they were still studying.

      Rather than changing the rules so current students could not receive the bonus, the Government has opted to axe it and tighten the scheme’s criteria.

      They didn’t fully elaborate it, but basically it works like this:
      1. If you have enough money in the bank, so that you don’t need a student loan to pay university fees, take out a student loan anyway.
      2. In the same tax year in which you took out the student loan, repay the entire loan back minus the 10% bonus.

      Eg, take out a loan for $5,000, but you only have to pay back $4545.45 to clear it, because the 10% repayment takes it up to $5,000 for you.

      Basically it acted as a way to get the government/taxpayer to pay 10% of your university fees, every year. Since it applied to the entire student loan, which covers “course related costs” as well as living costs, it could work out to quite a tidy sum of money from the government.

  2. Draco T Bastard 2

    As long as their whole economic philosophy and major policies are wrong, they’ll continue to make a mess of the economy.

    It’s the same economic philosophy followed by Labour.

    and they were right to introduce the student loan bonus, which they should have kept.

    No they weren’t and no they shouldn’t have. What should be done is that the student loans should be written off and education become free – just like it was.

    • Colonial Viper 2.1

      But the thing about the Nats that you have to be proud of: they never make any excuses for, or are shy about, pushing through major policies benefitting their core wealthy constituencies.

      • TightyRighty 2.1.1

        Just righting the wrongs for when the wealthy were unfairly penalised for working hard and achieving wealth

        • millsy 2.1.1.1

          How many hospitals were closed by National between 1990-99, and how many between 1999-08?

          Gotta pay for health services some how, dont really want an American style system here.

          • burt 2.1.1.1.1

            Speaking of hospital closures … Do your homework on when Helen Cark was minister of Health… Hang your head in shame for being so partisan in observing the shitty deeds of self serving politicians ….

            • millsy 2.1.1.1.1.1

              Not keen on Helen Clark either, but Bill English cut his teeth on closing them down too.

        • One Tāne Huna 2.1.1.2

          “…unfairly penalised …”

          Fucking cry-baby.

          Remind me how you refused free education, cry-baby, and remind me how you built the roads that allowed your baby-food to be delivered.

          Then stop being such a whinging selfish little twat.

          • McFlock 2.1.1.2.1

            Lol
            Like what Elizabeth Warren said, but with more suitable invective 🙂

          • Ugly Truth 2.1.1.2.2

            Remind me how they said that school was compulsory.
            Remind me how ordinary use of a public road is a common law right.

            And stop being such a fucking leech.

        • Tim 2.1.1.3

          What’s your definition of “working hard” TR?. It’s a bit of spin that’s being introduced into the political discourse in both OZ and Nu Zull.
          Somehow the wealthier you are – the harder working you are? Is that the basis of the phrase?

        • Draco T Bastard 2.1.1.4

          That never happened. What happens in all capitalist systems is that the poor pay for the rich to be rich.

          It is always the poor that are unfairly penalised.

        • Colonial Viper 2.1.1.5

          Just righting the wrongs for when the wealthy were unfairly penalised for working hard and achieving wealth

          So you’re ok with heavy taxation on unearned wealth and capital?

    • aerobubble 2.2

      Fonterra is a collective. Meat and wool farmers have realized that their undercutting of their neighbor farmers is counter to their interest, and so realize that collectivization has a social and economic good. So much for the rancid way Key beat up on the Hobbit workers union rights. Key thought it would play to his base if he undermined the value of the Hobbit movie (as many unionists have children globally) by attacking union rights, he was going to gift the subsidy anyway, Clark didn’t need to beatup on unions to give taxpayers incentives to movie companies!

      So what a shock, students are waking up to the fact that just because US student have to take on debt (the neighbors are under cutting them argument from govt) that in fact it undermines the whole economy and democratic foundation of western economies. It was of course Thatcher who brought in the policy, its neo-liberalism spiking their nose to save their face. Having hordes of indebted middle class young workers makes them less innovative, less inclined to take risks, less able to take risks.

      And you wonder why the west is failing to keep up with China, the west has hollowed out its democracy for profits on the books of sharemarket companies. It was a rubbish policy to weaken the core strength of a democracy, its young highly educated people.

  3. Descendant Of Sssmith 3

    Remember the rich gloated how they could invest the money they would have spent on their education and got a student loan at a lower interest rate than investing the money – thereby making a profit off government funds.

    The early repayment means that they have now got another little bonus to compensate for the interest that they would have lost from investing this money.

    They’ve repaid their loans now so presumably don’t need the little bonus they were given anymore.

    • burt 3.1

      It wasn’t the rich who gloated… It was anyone who understands the price of money… Cast it as the rich if that suits your ideology … I prefer to categorise it as fiscally aware v not. I don’t think that’s a rich v poor thing – but it’s easy to see how calling it that way suits a simplistic partisan world view.

      • Draco T Bastard 3.1.1

        It was anyone who understands the price of money…

        Money doesn’t have a price. Even the delusional free-market theory proves that – under infinite competition interest rates are zero.

        • burt 3.1.1.1

          Great, next time we actually have infinite competition and don’t have zero interest rates ill remember that theoretical free money possibility… But back in the real world, I’m struggling to find many options for financing considerable sums of money without a lending cost.

          Perhaps if I had said ‘cost of money’ we might have had a different reaction from you..

          • Colonial Viper 3.1.1.1.1

            But back in the real world, I’m struggling to find many options for financing considerable sums of money without a lending cost.

            That’s because you’re not in the inner circle of capitalist organisations (e.g. the primary dealers), hence don’t qualify for ZIRP LTRO (ECB), the Fed’s asset purchase program, etc.

            Basically you’re just another chump in the capitalist work house.

          • Draco T Bastard 3.1.1.1.2

            That’s just it – the economic theory this government uses isn’t real. And the one you think works isn’t real either. Money really doesn’t cost anything.

            Even in the real world money doesn’t cost a damn thing. The government should be printing the money and then spending it and loaning it out at 0%. The private banks should not be printing it and loaning it out with interest as that just results in over accumulation of wealth in the hands of the few and the eventual collapse of society.

        • aerobubble 3.1.1.2

          The banking system will always collapse when the amount of money (bank created) exceeds all the future value capable of being created. Neo-liberals ignore the environmental cost, hell, they ignore even the cost of leaving child in poverty. Education is just another means of extorting money from society, at the expense of children, and the future economic resilience of a higher educated workforce.

          So here we have it, a aging population, a skilled exodus, a increasing cost of education, a unsustainable housing bubble, climate change making diary farming growth disappear.

      • Descendant Of Sssmith 3.1.2

        I prefer to class it as theft.

        Just because you can doesn’t mean you should.

        No different from those who sign their young kids to Kiwisaver in order to garner money from the state.

        The scheme was set up for workers – not for those with money to steal from the state.

        Fiscally aware in both those cases equal thieves.

        And yeah it was the rich that gloated about the student loan rorts.

        That doesn’t mean that they were the only ones who did it or pointed it out. It was an observation on who made the biggest noise about both being able to do it and about actually doing it.

        In some cases the same people who own several businesses and gloat about having a community services card and those who can build a million dollar house but pay $12-50 per week child support.

        There’s those of us that could if we wished take advantage of those sorts of loopholes but choose not to.

        If it’s an ideology it’s one called integrity.

        • Lanthanide 3.1.2.1

          “No different from those who sign their young kids to Kiwisaver in order to garner money from the state.”

          ???

          The government clearly enabled children to be signed up, so it’s hardly stealing if you do so. The only thing they get from signing up however is the $1,000 bonus. The “tax credit” only applies to those 18 or older.

        • burt 3.1.2.2

          d of s
          That’s a good position you have there, I do actually share it. Integrity is clearly a challenging thing in a convoluted progressive tax system aimed at extracting as much revenue as possible rather than simply raising enough revenue as equitably as possible. Dr Cullen had a great saying… It’s about plucking the goose with the least amount of hissing… Dig deep for some integrity in that!!!!

          However on the subject of theft. Where I may differ with you is that i consider exploiting an unintended consequence of the implementation differently (as theft) where exploiting an unintended consequence of the legislation… That’s a bit different. We are bound by legislation be it good or bad…. Arguably it’s our duty to highlight the bad legislation quickly and promptly any way that is available to us.

          Implementation loopholes… It’s our duty to stay quiet about them for its encouraging theft to advertise their presence.

    • burt 3.2

      Oh, and don’t forget that rich guy Cullen who couldn’t believe people would game interest free money… Perhaps he wasn’t as fiscally aware and prudent as his self serving popularist marketing (using money extracted from low paid works via unions) would have had us believe.

  4. IrishBill 4

    I think the Nats thought that their bonus scheme would significantly change the behaviour of student loan holders toward paying their loans back (slightly) faster. Having seen their meager financial carrot fail they’ve moved to compulsion.

    I can imagine that they would have thought people would repay at quicker rate and probably thought that rate would be a couple of percent (around ten dollars extra a week on the average wage). However the opportunity cost of that $20 appears to have outweighed the small gain of paying a loan off marginally early because of the small bonus. Or perhaps the effort involved to achieve that bonus was just too much for most loan holders.

    • Lanthanide 4.1

      The fact is, 10% bonus for voluntary payments over $500 worked out to be only be preferable if you could pay off the entirety of your student loan with money you had on-hand and if otherwise your current salary would pay it off within 3 years. You can do all the maths for bank deposits etc and work this out. Basically if your current minimum contribution rate means that it’ll take 3+ years to pay back the loan, then even if you have the money in the bank to pay it off right now, you shouldn’t. The 10% ‘instant’ interest on the money lost out compared to ~3% interest compounding annually for 3+ years.

      When they introduced the extra $50 annual account fee to try and get more money out of the student loan scheme, I emailed Steven Joyce and suggested they raise the fee to $100 a year, and then tie the fee to the voluntary repayment bonus: if you paid $500, you’d get the 10% bonus as well as the $100 fee waived. That would definitely encourage people to repay at least $500 a year extra, as it would now be 30% effective ‘instant interest’ when voluntarily repaying $500. He emailed back a wishy-washy response that basically said “no, we aren’t doing that”. I guess the real point of the $50 annual fee is that it increases your borrowings and these borrowings act as an asset for the government (just as loan books at banks act as assets), so my suggestion would have stopped the asset base from growing as fast, although it also would have encouraged conversion from ‘future cash’ into ‘cash in the hand now’.

      I realise this comment is rather poorly explained, blah.

      • burt 4.1.1

        It’s hard to imagine that there is a desire to increase the loan book when it’s interest free, but otherwise you seem to have the $500/10% bonus well understood.

        The problem with the $500 bonus was always that it rewarded people for paying above their legislative requirement. IE it provided an incentive for people to clear away an interest free debt, which was valid in its principle but easily misconstrued as giving to the rich. See the reality is you were not disadvantaged by not having access to it because you couldn’t afford the above obligation payment… Because the money is interest free.

        The fiscal reality you note in the 3 year scenario is probably something we were not supposed to understand as we paid extra every year releasing the government from needing to put the repayment rate up which would be ‘unpopular’

        • Lanthanide 4.1.1.1

          “It’s hard to imagine that there is a desire to increase the loan book when it’s interest free”

          But the $50 isn’t “increasing the loan book”, it’s just a way for the government to charge more. They didn’t actually give $50 to the borrower and ask for it back, they just asked for an extra $50. Really you can consider it to be charging interest in a way that doesn’t break their “student loans will stay interest-free” promise.

          Apparently the “recovery rate” is something like 50-60% of all borrowing, that is, by the time the loans are paid back, inflation has eaten away a lot of the value. The $50 was an acknowledged step towards clawing more money back, just as the 12% repayment rate that has just been implemented is another, much more significant, step.

          That’s why I think my $100 fee the was waived with a $500 repayment was a good move: it would encourage everyone to repay $500 extra each year, which would improve the recovery rate, and for those that didn’t/couldn’t it would net the government more money in the long-run than the proposed $50 fee. It seems like a nice balance between carrot and stick.

  5. Tim 5

    What can ya say? ……… the headless chook pretty much says it all.

    IF there is a change at next election time takes place, anyone or anything that replaces it couldn’t lose if they simply reversed all and everything this band of fuckwits has implemented – whether is encompasses social or economic issues.

    IF Labour ever gets re-invented, perhaps they could re-emerge as the UN-Neshnool Pardy of NuZull. It’d stand a better chance of winning an election than a Labour government that includes a Sheep Shearer and a Mallard.

  6. Matthew 6

    So now ‘loophole’ means ‘poorly written policy’.

    • Draco T Bastard 6.1

      😆

      Thing is, that’s what it’s always meant.

    • burt 6.2

      Exactly the point Matthew. Lets see, anyone out there willing to make good policy out of paying people a bonus for unnecessarily repaying interest free money … Anyone ?

      The elephant in the room here is interest free student loans… As long as popularity holds that on the table then expect more nonsense policy screens from all parties.

      • Draco T Bastard 6.2.1

        No, the elephant in that room is that we require our young to take out student loans. The whole of society benefits massively from having them educated and staying here. The student loan system gets them educated and then gives them an incentive to leave.

        Stop charging fees to go and get educated and we’ll both have more people getting educated and more of those educated people staying in NZ where we get the benefits.

  7. Enough is Enough 7

    A third term National Government will reintroduce interest on Student Loans.

    Expect to be paying interest from the day you pay your fees in first year.

    They swallowed their rats in term1

    They sold our assets in term2

    they will unleash hell in term 3 if we let them.

    • Lanthanide 7.1

      “Expect to be paying interest from the day you pay your fees in first year.”

      Doubt it.

      I wouldn’t be surprised if they introduced some sort of inflation-indexing though.

  8. Lloyd 8

    Why was the US the economic powerhouse of the world in the 1950’s and 1960’s?

    Two reasons seem apparent.

    The GI Bill educated a large number of US citizens at the degree level for free.

    The federal government taxed the rich.

    Anyone capable of expanding this (or disputing it).

    It would seem that the formula for economic success would include:
    1. free education to the maximum anyone in society desired, and
    2. a tax system based on ensuring the richest in society pay enough taxes to ensure their income is reasonably relative to the income of the poorest in society. The principle should not be in doubt, only the relativity ratio should be up for negotiation.

  9. Colonial Viper 9

    – in those decades American corporates believed in making profits by making new technologies and manufactured products, not financial engineering.
    – fear of the Soviet Union spurred massive investments in science, engineering and technology
    – the momentum of economic investments from the New Deal continued forwards (Hoover dam, state highway system, etc)
    – cheap light crude was still being found by the billions of barrels.
    – the US filled an economic and political vacuum that the old powers of war torn Europe could not hold on to.

    Your suggestions are good (and required) but in this century insufficient: environmental degradation, population overshoot, climate change, citizen non-participation and energy depletion were non-issues back then. Today, they are potential civilisation killers.

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