New Zealand’s Overseas Debt is Too High, Change Needed

February 4, 2011 New Zealand Finance

MoneyThe Savings Working Group has released its final report, outlining several measures to increase the country’s savings level.

On the February 1st the government appointed Savings Working Group (SWG) released its long awaited final report, with suggestions on reducing New Zealand’s overall reliance on overseas debt. According to research within the report, the country’s net foreign liability currently stands at 85 percent of the GDP. Comparatively, Australia is only at a level of 58 percent. The comparatively large liabilities level means that New Zealand is particularly vulnerable to large overseas financial movements. According to the SWG, urgent action is needed to address the situation.

The report recommends that the national savings level should increase to 3 percent of the GDP, amounting to approximately NZD 5 billion annually. The government should lead the way in these efforts, shifting to a fiscal surplus before the projected date of 2016. This level should also be maintained for the medium term.

The SWG suggested a series of changes to the Kiwisaver regime, which should encourage a greater number of people to voluntarily join the system, although the Group did not go far as to say that it should be mandatory. The report stated that it should not be allowed for employers to offer employees increased wages in return for not joining Kiwisaver. Additionally, rule changes should be carried out on the scheme to allow for partial early withdrawal from Kiwisaver for individuals with low-life expectancies.

Within the report it was claimed that the government should shift the national taxation focus away from income taxes and towards consumption taxes. This would have the double effect of increasing production and encouraging savings. The SWG claimed that the GST level should rise to 17.5 percent, with compensatory tax system changes for low-income earners. Prime Minister John Key has already replied, saying that the GST rate would not be increased.

It was suggested that interest rates be reinstated on student loans, on the condition that the charges are only applied upon commencement of employment. The Prime Minister has already stated that such changes would not be considered unless the National party was reelected for a second term.

Photo by tkw954

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