Tax Changes – boring but important.
Filed under: Cost of living, Economics, General Budgeting, Property Investing
In fact so boring and dull, I’ve been putting off writing about it for weeks. But I figured I really ought to get it done, because it could make quite a difference to whether emigrating here is affordable for you or not.
Kiwi’s generally think they have really high tax levels. Coming from the UK, I have always thought they are wonderfully cheap, and its one of the reasons I have always thought you could do financially well here.
So, I’ve already written about the taxes that should be going down – basically the top income tax rate. The finance minister has now “suggested” that the top tax rate will drop from 38% to 33%. That in itself will make a huge difference for many skilled migrants, even if it isn’t going down to the 30% that the Tax Working Group wanted. Company tax looks likely to go down from 33% to 30% – good if you are thinking of running a business, but won’t do anything to fix the fact that people supposedly use companies to hide income for tax purposes.
So the question remains – what’s going up?
Because make no mistake – these are not tax cuts. These are tax cuts equalled by tax increases. For every 1% drop in Income Tax, there has to be a 1% increase elsewhere. Whether people think its fair tends to depend entirely on whether they are paying or saving.
GST
The main increase is likely to be GST – up from 12.5% to 15%. Which basically means you get to keep more of what you earn, but pay more of it out when you spend. So depending on your spending habits, and ability to save money, you may in the end come out better off. At least this is a tax you have some control of. While your fixed expenses are – well – fixed, and they will go up – you can determine how much tax you pay on your non.-essentials by budgeting and shopping around.
Closing a Working For Families Loophole
There’s also talk of making sure that property investors can’t use their tax losses to lower their income and get access to Working For Families benefits. I’m personally a fan of that. Although we lower our income by claiming tax losses, as far as we are concerned we still earn $150,000 – we just plough a lot of it into our investments. So it actually wouldn’t occur to us that we were eligible for WFF (if we had kids).
Property Investor Taxes
Most of the tax hit that Property Investors were going to get look like they have gone. We are still going to take a hit somewhere – but not as much as the people in the Tax Working group (all of whom work in the Share Investment field) would have liked. Which means that a lot less people are about to be bankrupted. It looks like the main rise will be that you wont be able to claim depreciation on the building. It could make investing a property harder for lower earners, but we wont know for definite.
And so far – that’s about it.
Like most things – a report from a bunch of academics and vested interests comes out (at huge cost to taxpayers) which says a load of “academically sophisticated” ideas about reducing tax (I hope they took their own sandwiches to their meetings!). But when you boil it down to what might actually work – you aren’t really left with a whole lot.
We won’t know for definite until the budget in May, at which time everyone can work out whether they win or lose.
For us, while we are highly likely to lose a fair amount in any property tax changes – we also make a fair amount by our income tax going down. The GST will cost quite a bit on our fixed expenses – which is a pain because I’ve just reduced our fixed outgoings by a huge amount lately – and it will make me feel a bit deflated for a while.
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Seriously- pay off your credits cards!
Filed under: Avalon's Money Thread, Banks, Cost of living, Economics, General Budgeting, interest rates
From Credit Cards on Cracked.com
You will find a very good explanation of who this works on the website. Although this refers to the US, its a cautionary take in any country. I believe in the UK the minimum payment has to cover the interest and charges, and your statement should now tell you how long it will take to clear the card if you just make minimum payments, but that does assume that stop spending. And not many people do that!
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Kiwisaver Problems: keep your eye on your provider.
Filed under: Avalon's Money Thread, Cost of living, Future Finances, General Budgeting, Investing in general, Kiwisaver
I always thought putting the Inland Revenue in charge of Kiwisaver was a daft idea. Seems I may have had a point. The IRD passes on your information to one of the default providers, and then thats the end of what they care about. It seems that a lot of the default Kiwisaver providers (these are the ones you are automatically enrolled with if you don’t make your own choice), have got the wrong information, and cant get in contact with the people whose funds they are running.
It worries me that there appears to be an awful lot of people who are completely unaware that they have a Kiwisaver fund. There are 200,000 people who cannot be contacted by their fund managers.
The problem means people may not receive the letter telling them who their KiwiSaver provider is or the annual statement on their Kiwisaver balance and annual report explaining the returns of their fund.
McAllister [from ASB Group Investments - the larges Default provider] said some people could be in KiwiSaver for more than a year and still not know because it was new and they did not know what to expect from their provider or Inland Revenue.
“It appears it’s an IRD problem. It raises questions about how accurate IRD’s information is.
You need to be aware about Kiwisaver. You are automatically enrolled into a fund, whether you like it or not, and have to opt out if like us you think Kiwisaver is crap.
Make sure you understand what is at stake here – as immigrants you will face this the minute you start a job,a dn you have 2 weeks to make up your mind about staying in Kiwisaver forever or opting out. Do your homework.
More information on Kiwisaver can be found in Avalon’s Guide: 13 things you need to know, and 17 things you really need to know!
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Tax Changes in New Zealand: What’s Going Down.
Filed under: Cost of living, Economics, General Budgeting, Jobs & Work
I thought I would start this with the (possibly) good news.
In fact this bit is really good – if the new Zealand government were do it, it could make life very cosy indeed for Skilled Migrants who can earn relatively high salaries. (Right up until New Zealand companies screw you over by saying that you don’t need to earn as much now anyway).
Top Income tax Rate could go to down to 30%.
At the moment if you earn over $70,000 (by no means what should be considered a high salary) you pay 38% tax on every dollar over that level. Now this is being touted as saving someone about $20 a week – which really isn’t a whole lot.
But what happens if you earn $100k a year?
I’ve worked out that if just the top tax bracket comes down from the current 38% to 30% then you end up paying $406 a month less in tax. So instead of your take home pay being about $5,831 it would now be $6,237.
That’s an extra 116 coffees a month!
(Rough calculations only – this does not include ACC or Kiwisaver deductions.)
Also, trust and company tax rates may be going down – but it’s a bit unclear. The Tax Working group says it wants to make personal, trust and company tax rates all the same to avoid people being able to siphon off income into lower tax bands. So dropping the personal tax rate to 30% and then dropping the company tax rate below its current 30% doesn’t actually make that happen.
Why is this happening?
Because looking at this graph below shows that until you earn over $240,000 a year in New Zealand, you are better off from an Income Tax point of view moving to Australia because their income tax rates are cheaper. This of course completely ignores whether the cost of living is higher in Australia – but its something that is causing a lot of Kiwi’s to move.
In fact – this whole tax report seems to start with the theory that personal income tax rates must come down. That takes up roughly 5 pages of the report. The other 74 pages are all about the taxes that need to go up in order to pay for it.
There’s a surprise.
We will apparently know exactly what the income tax rates will be in May this year – at the budget. When we will also get the bad news about who amongst us has to pay for it all.
I don’t think that’s going to be a good day for me.
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The UK State Pension – what happens to it when you emigrate.
Filed under: Avalon's Money Thread, Cost of living, Future Finances, The Book
This is something that I’ve actually had a lot of emails about recently, so I thought I would write a little about it and there seems to be some really whopping great misconceptions out there.
The main thing you need to understand is that you cannot double dip on your state pensions. You do not have the right to take a UK state pension and add it to any New Zealand superannuation you may be entitled to.
You just can’t.
If you choose to take the UK pension you are entitled to – it gets taken straight off any Superannuation you would get. There is a chapter in Avalon’s Guide explaining the nuts and bolts – but this is the bit you need to understand.
- If you are currently receiving the UK State Pension, the amount of pension you will get is frozen at the level it is when you become a resident of New Zealand.
- If you emigrate, and then later become eligible for the UK State Pension, the amount is frozen at the level it was when you left the UK.
- Any UK State Pension that you do get will be taken off any New Zealand state Superannuation you may be entitled to.
- This means that you cannot claim the UK state pension and add it to the New Zealand Superannuation.
- You can continue to contribute to the UK State Pension while you are resident in New Zealand if you wish.
- Any contributions that you make will increase your UK State Pension.
- Remember though that any increase you do gain will simply decrease the amount of New Zealand Superannuation you are entitled to.
As far as I’m personally concerned, I have not been expecting a state pension for the UK government since I was about 20 years old. The pensions system in most western countries is bankrupt, and there just isn’t the money to keep paying it.
You should also be aware that the National Insurance you pay in the UK is not being used to fund your retirement. It’s paying for the pensions of the people currently receiving a state pension. Your pension needs to be paid by future taxpayers. Thus the problem – there aren’t anywhere near enough people to pay it. The number of pensioners is growing, and the number of taxpayers isn’t growing anywhere near as fast.
And it’s no better here in New Zealand. As Gareth Morgan (an investment provider and somewhat annoying “guru” and “commentator”) says in his book Pension Panic:
If you think the government is going to keep you in the style to which you have become accustomed once you’ve retired, think again – unless you’re on the breadline now.
I just wanted people to be aware that this information is out there, and while I probably wasn’t able to think of everything that should go in a book about finances and emigrating to New Zealand, I really did think of most things. If you want to be prepared and not face these shocks, then read it. It may not always be fluffy – but it will mean you are prepared.
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Holiday in NZ vs. Here for good
Filed under: Cost of living, Getting to New Zealand, Hubby's Views, Life in New Zealand
A friend from the UK came to visit yesterday. He’s been holidaying in NZ on an almost annual basis for the past two decades. Before we emigrated out here, he was one of the few people I knew who had really spent any significant time in NZ – so he was a great source of information, places to go, what NZ was really like etc.
This time, he is in NZ for six months after he left his former employer with enough cash in hand to tide him over for a year or so. {nope, he’s not one of the Westpac fugitives}.
So as you do when you’re young(ish) and single, he’s spending six months travelling around NZ, staying with various friends, and enjoying being away from the UK winter. And UK politics (until today – sorry D!)
He’s found this trip quite a revelation. Where as on previous holidays he’s been ‘right which restaurant shall we head to this evening?”, ‘cos you do when you’re on holiday and NZ restaurants are (relatively) inexpensive. Only this time, with no job and much longer here, he’s been to the supermarkets – and looked at the actual cost of living here.
So I asked him, what did he find as the major differences on the extended trip? In order of immediate response he said;
Bloody hell, the cost of [supermarket] food is high
I can’t believe the [high] cost of electricity
OMG, Kiwi’s don’t know how to drive, they’re lethal on the roads
Enough said.
Now it sounds (to us) like he’s living it up here, some motorcycling, off to get his glider pilots license, more biking, horse riding, more motorcycling and the odd biking race, plenty of outdoorsy stuff that is what NZ does best. The joys of free time and no domestic obligations, but he’s shocked at the cost of living.
For example, his UK electricity costs for three months equate to different friends average NZ monthly electricity costs.
For all that he’s spent plenty of time riding the roads of NZ previously, it’s only now that he’s absorbing how poorly some Kiwi’s drive. We’re all still undecided whether this is because;
- People are (relatively) inexperienced, compared to driving in and around London on a weekly basis. Or long stretches of packed motorways for hours on end. Or stuck in half hour traffic jams during a morning rush hour to get into some middle market town for work/shopping/whatever
Or
- With the slower speeds and lower levels of traffic, people are more relaxed, and there really is time to pull out right in front of other cars because they’re only traveling at 50 kph. And besides, the other guy can always stop if he gets too close or almost hits me.
Not that any of this seriously colours his perspective on Quality of Life vs Standard of Living. The Standard of Living may be higher in the UK, but you have to work harder or longer to achieve that, and then work even more to maintain it. The cost of servicing a BMW M3 can be a bugger.
He still see’s that NZ has a better Quality of Life, even if traffic has grown a lot in 20 years. Now he (had) a really good job, with high pay, good bonuses and plenty of perks. So he’s used to spending plenty of money on things as required. The cost of living is still a shock, which is at least reassuring for us that we’ve not got a uniquely daft perspective.
It’s interesting to hear from someone with a long term love affair with NZ, that he see’s the same stuff we did five years ago when we arrived.
And that it’s still worth being here.
How shall we pay it back? By having a plan!
Filed under: Cost of living, Economics, For the numpties amongst us, Future Finances, General Budgeting, Hubby's Views
I was working on an event about CFO’s the other month, and needed some humour to illustrate advice you don’t want from current or former Financial Chiefs. With much joy, I found this;
And the following interview conducted by the BBC, of a UK Govt minister talking about how the UK Govt. is going to pay back the 606Bn UKP debt it’s due to rack up in the next couple of years. As I can’t find the link anymore you’re have to forgive the slight paraphrasing. The interview really did go something like this;
BBC Interviewer -- How will you pay it back?
MP -- by having a plan!
BBC -- and what’s the plan?
MP -- The plan is to pay it back!
BBC- Yes, and what is the plan?
MP -- The plan involves passing legislation saying that we’re going to do this, it’ll have targets!
BBC -- Yes, and we have targets for everything including NHS waiting lists, University education etc. and none of them have been met.
MP -- No they haven’t, and that’s because of the 18 years of Conservative Govt ruining the economy, but this is different.
BBC -- How?
MP -- Because we’re the Govt, we say we’re going to do it and we have a plan.
BBC -- Yes, with respect minister, having a piece of legislation doesn’t tell any of us how you are going to find 606Bn pounds over the next four years (assuming you win the election), to pay back this debt. How can you possibly pay back this much money without making savage cuts to public spending?
MP -- Well, it’s quite simple -- we have a plan. To pass legislation. Which will have targets. And we wont need to cut any public spending, because public spending is what will drive the economic growth to bring us out of recession.
BBC -- So lets be clear, you’re not going to cut spending, you’re not going to raise taxes significantly, where is the money going to come from?
MP -- As I said, it’s really quite simple, we’re going to have a plan.
BBC -- And the plan.. -- oh forget it.
So how did Christmas go?
Well, it seems we still failed utterly to do the “kiwi thing” and spend up large in an orgy of last minute consumerism and boxing day sales. Instead we chilled out at home, sat on the deck, swam in the pool, ate good food and watched a few movies. We would have gone to the beach except that since yesterday the weather took a turn for the worse and its rather crap.
Apparently. Despite everyone having no money, and there being a recession on and all– Kiwi’s spent a record amount this year in the shops – a whopping $10,000,000 more than last year. And then topped it off with another record spend up of over $100,000,000 on boxing day.
We on the other hand seem to have spent a record low .
I have worked out though – its not the summer Christmas itself I can’t cope with – it’s actually rather nice to be able to have a swim in the pool before dinner (after getting all the food ready), to be able to sit out in the sun and be warm. And its lovely to head to the beach in the days after Christmas – which has to be more fun than queuing up to spend money in the Warehouse surely? It really is just the run up to the day that I can’t get the hang of. Once we get to Christmas Eve – and I’m making chocolates, making trifle and getting the stuffing ready – I’m fully on board and in the mood for Christmas. And as soon as the wine starts mulling (can do without it – but in deference to summer we drink it chilled) – then I’m away!
One of the really cool things about Christmas here as an expat is that you do have this wonderful opportunity to make new family traditions. While many of us do keep a lot of our old traditions – I just have to have turkey for dinner – we get to make up new ones (pre-dinner swim, boxing day at the beach, hand making chocolates).
It may not be Christmas the same way it used to be, but there’s still family involved, and that’s all that matters for us.
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Sales? What Sales???
Filed under: Cost of living, Economics, General Budgeting
It said on the news yesterday (so it must be true) that shops were offering pre-christmas discounts to get us all spending money in a recession. And today – we had to pop briefly into the Westfield Queensgate shopping center in Lower Hutt, to have a look at cameras. You see ours packed up, and I’m bored of using Hubby’s iPhone as a camera with its complete lack of zoom and flash.
So we figured we would make the most of the “bargains”.
Well for a start – if theres still a recession on in New Zealand (and if there’s an ounce of fact in the whole “Kiwi’s are not consumerist” ) – you couldn’t tell today from the masses of bags that people were carrying and the sheer number of people in the centre. We looked quite out of place with no logo-emblazened shopping bags full of presents.
And if Dick Smiths has a sale on – it sure as hell wasn’t on cameras. At least – if they were discounting with the few “Hot Deals” we saw – they werent telling you what the normal retail price was. Not that I trust stores to tell the truth on this issue – Briscoes being teh worst crooks for blatantly marking up the retail price to show a “Sale Price”.
So we took some notes on the cameras we liked – and have to now go check on the internet to find the best price. I do hate not being able to trust stores about thier pricing. Oddly enough – the Canon website doesnt list any recommended retail prices – which is less than helpful. A quick scan of the Noel Leeming website site shows once of the cameras at $100 less (on a $350 camera). I guess the bargains are out there is you have the energy to look.
It’s at this point that I remain forever grateful that my entire family is obsessed with reading, and we can generally sit back – ignore the shops and the rush, and order online.
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How much to spend at Christmas?
You can tell its Christmas here, not by the snow, of which there is a distinct lack, or the cold, of which there is no lack. No – the sign that Christmas is only a few days away is the number of news reports about how much we are spending, (or not) and how fast we are spending it.
It seems that “average” kiwi is spending about $500 on Christmas this year. Of course – there’s absolutely no information on how they averaged it – but $500 doesn’t sound like a lot.
Worryingly – we are having a rather “frugal” Christmas this year – basically because we are saving up to get the area around our swimming pool extended, and we didn’t have quite enough to do it this year. And yet we have still spent just over $500 each, and that doesn’t include about $150 on extra Alcohol and food. And of course – the amount is low because we made the most of the awful exchange rate, and bought the books at Amazon.co.uk – which saved a few hundred dollars.
Mind you – we have spent considerably less than usual, and mostly of that’s down to the fact that we really don’t “Go Christmas Shopping” anymore. None of us are what you could call Shopaholics, and the mere thought of having to shop along with hoards of others just tends to turn us all a bit queasy.
The biggest thing though is our recent aversion to “stuff”. Having got rid of so much of it before emigrating – we all just have a hard time accumulating more of it. Instead, we use Christmas as an excuse to spoil each other with books – something that we don’t buy anywhere nears as many of during year now that live in a world without “3 for 2″ offers, and discount books.
So on the upside, I still have about $1000 left of my Christmas savings (I save $200 a month towards it) – which will mean I should be able to afford the concreting in time for next summer. In the meantime, I have a few days of cooking scrummy treats for the family, and not panicking about where to park.
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