What’s happening with NZ interest rates?
Filed under: Banks, Cost of living, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
Well, the short version is: they are going up!
The longer version is that it looks like we are the only sodding country whose central bank seems to want to increase base interest rates!
If you pop onto the HiFX website, they keep a running sidebar of Base interest rate announcements around the world. Not only do we still seem to have nearly the highest rates (other than Australia lol) but ours is going up when the others are holding.
Incidentally, thats also the page that tells you how bad the exchange rate is right now. Sorry.
There is some sort of good news in the papers today, it seems that Bollard – the governor of the Reserve Bank, may actually be stopping with these silly rises, because – guess what – the economy isn’t actually picking up as well as it needs to (well Helloooo! My Mortgage is getting more expensive – where the hell do you think Ive got any money to go out and buy stuff with!). And apparently – the employment figures here were supposed to improve , and they actually worsened. Now, Mr Bollard hasn’t actually said himself that he wont be raising interest rates – the “economists” have said that they think the chance is now 25% instead of 75% that he will raise them. But that’s the way it works – economists blather on for weeks before an announcement is due, telling us what the Governor is going to say, which always makes me wonder why the governor bothers with the announcements in the first place.
Theres a wonderfully obtuse piece of prose in the article which I just had to share:
“If the economy pushes along at near-potential rates of growth, the cash rate must head back towards neutral. Neutral is not 3 per cent,” said BNZ head of research Stephen Topliss.
I have absolutely no idea what the hell that means lol. What on earth is a “near-potential rate of growth”?
So what’s the bottom line?
Well, mortgages are more expensive. Floating rates are around the 6.15% – 6.75% range, up from about 5.5%. 2 years rates are around 6.75% and 5 year rates are around 7.75% for standard mortgages. The 5 year rates seem to be fairly steady at the moment, but the floating and 2 year rates have increased with the 2 rate rises.
Even if Mr Bollard doesn’t increase the OCR on the 16th September – I would be looking at factoring in some more rises if you are looking at needing to buy a home in New Zealand in the near future. He still seems intent of costing us a small fortune in interest and refusing to let us get ahead financially.
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Should you be forced to save?
Filed under: Banks, Cost of living, Economics, Property & General Investing, Retirement, Pensions and Kiwisaver
Forced savings – in the form of compulsory superannuation (or – shudders – compulsory Kiwisaver) is back on the agenda in new Zealand. Because apparently, not enough of us are doing as we are told and opening up Kiwisaver accounts. So we need to be made to do it.
This comes out of the Tax Working Group, now we have to pay some more academics to sit around and tell us how we need to save for retirement and how we need to do it. I hope they get different people from the ones that just beat the living crap out of any Kiwi that was using Property to try and fund their retirement. Apparently that doesn’t count as retirement planning, cos it’s not shares or managed funds.
So when they talk about “Forced Savings” just be aware that what they really mean is “Forced Stock Market Investments”.
I’m not impressed – if you couldn’t tell. 
I personally believe that forcing people in a low wage economy like this to give up at least 2% of their after tax salary is just not on. The “theory” is that if we all do this – then it will cause investment in businesses (through the sale of shares) to increase, and those businesses will then be able to pay the staff more.
Anyone actually think your wages are gonna go up?
Because heres the thing (speaking as a complete non-economist here of course):
Buying shares on the stock market does not actually put money into the business. It puts money into the pocket of the guy selling those shares. If that just happens to be the company floating shares – then yeah – you just invested money in that company. Otherwise, some guy on the street sold some shares and you bought them.
BTW, we recently found out that if you work for one of the banks, which just happens to be a “Default Provider” of Kiwisaver (where you money sits if you don’t bother to actively choose a fund), they take their “Employer contributions” out of you salary. So basically, they don’t actually contribute to their own staff’s Kiwisaver fund.
Why is this not illegal, and why is it still being allowed? And how the hell does such a company get to run a default fund???
So regretfully – still not a fan of Kiwisaver, and would still like the government to keep its grubby little paws of my money thank you very much!
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What if economists ran the world?
With all this talk of politicians fiddling their expenses and paying for all sorts of entertainment with taxpayer funded credit cards, there’s some question about whether other people could run the place better.
I was listening to a Freakeconomics radio podcast (From the 24th March, you’ll find it on iTunes) the other day about how great the world would be if we ditched politicians and let economists run the world.
humpfh
Anyway, it went something along these lines;
Economists, mostly ignored.
[A small affectation normally reserved for great things like The Hitch Hikers Guide to the Galaxy.]
Milton Freedman – a great man, with high intellect and amazing theories about how to run the optimum capitalist economy.
Which the then new president of Estonia adopted whole heartedly.
And then discovered that Freedman never had any experience of putting any of these economic ideas into practice.
So undeterred by this lack of practical experience to look at, those young crazy Estonians went ahead with the reforms.
Like privitisation, abolition of import duties/taxes, and a flat tax rate for all sources of income.
Sound familiar? Like NZ’s free trade deal with China, negotiations for similar with India, and the fervent dream of a free trade deal with the USA.
And Nationals’ changes to taxation which are bringing company, trust & personal tax rates into alignment. So perhaps we’re already living in an economists dream society?
Moving on. What would an exhaulted US economist do if he got the keys to the White House?
Abolish the Education department
Abolish the minimum wage
Legalise all drugs
ohhh interesting – now you might think this is a cunning plan to then tax the sale of drugs – just like cigarettes & alcohol. But no, alas it’s only on the theory that the Govt. spends a lot of money trying to control illegal drugs, so lets legalise them and we can stop spending all that money. So scrap the DEA also.
At least we could sell tickets to wrestling matches of Economists vs Teachers.
& legalisation of prostitution
Hmm – taxation here too perhaps?
Nope – apparently it’s all about supply & demand.
Prostitutes cost a lot of money, well apparently the one’s economists visit do anyway, so if you legalise prostitution (removing the barriers to trade!) then more ‘girls’ will enter the industry, there by bringing prices down.
Next.
Change the Federal Reserve, so it only has one thing to look after. Inflation.
No dabbling in Wall St, and all the other stuff they interfere in.
Although really you don’t need the Fed to do anything, just let the free markets run things.
[that'll be the free markets that have screwed the world economy so badly in the last few years then?]
Okay, so what does Milton Freedman’s grandson think?
Well, he is off setting up island nations so that people have a free choice about which nation they want to live in. These nations would be run by business people who would hire economists [really?!], to help them setup societies that are attractive for people to live. Unlike the countries run by our current world Govts.
Hiring economists with big brains and lots of great ideas – is that really a good plan?
Well, the interview continues with this economist who decided to take charge of toilet training their young child. Applying economic theory of effort & reward, every time the child went to the toilet, they got some M&M’s.
It worked. For two days.
This 3 year old child had rapidly figured out how to get the maximum quantity of M&M’s for minimum effort.
hmm – perhaps we need three year olds running the country so they can figure out how to work all the systems we have in place to optimum effect? You sure don’t want a brainy economist in charge who can be outwitted by a three year old.
So what would happen to the world if economists were in charge?
The worlds supply of chocolate would rapidly end up in the hands of children, while the adults sat there befuddled wondering what the heck had happened.
And interest rates went up.
Filed under: Banks, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
Mr Bollard did as he was told by almost everyone that he would do and put the base rate in New Zealand up to 2.75%
I wait with baited breath to see what the banks do and how much is going to cost us all. Honestly – I do!
I thought it was worth sharing some gems from the article on stuff though – because its the kind of thing that is said so often, makes no sense, and doesn’t get challenged:
“With the domestic recovery on track, we expect the RBNZ will continue to hike the OCR steadily in 25 basis point moves at each meeting, barring a substantial deterioration in New Zealand funding costs as a result of the European soverign (sic) debt crisis.”
Um Ok, my mortgage has to go up becuase of something of that happened in Greece? I don’t live in Greece – I live in New Zealand! What next – a butterfly flaps its wings in Mexico and Im declared bankrupt???
Cameron Bagrie, chief economist at ANZ New Zealand, also expects the OCR to hit 5 percent over time.
I predict that one day I will die. I wonder if I can find someone to pay me to state the blindingly obvious. Rates go up, rates go down. At some point it will hit any number of numbers. Pick one – you too can be an economist!
“Along with ongoing growth in Australia and recovery in the United States, this has so far offset weak growth in some other export markets. Against this backdrop, New Zealand’s export commodity prices have increased sharply over the past few months, boosting export incomes.”
Sorry – even I cant turn that into plain English!
But basically – the banks will probably increase the amount of money they now want off you – cos NZ money just got more expensive. The reason they didn’t drop the rates when the OCR dropped was because Overseas money was too expensive. Either way – we get screwed.
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Why exactly should interest rates in New Zealand go up?
Filed under: Banks, Cost of living, Economics, Interest Rates, Credit Cards & Mortgages in NZ
The reserve bank meets tomorrow to tell us all whether our interest rates are going up. I’m not really sure why they need to bother because as usual the papers and so called “experts” have already told us they will be going up.
But why?
Well basically Reading through an awful lot of very boring guff, it’s because things are getting better financially for New Zealand. And what better way to celebrate than for some arse to tell us our mortgages have to get more expensive. I mean- it wouldn’t do for us to go out and try and spend some of the extra money we all apparently have burning a hole in our pockets!
I know life isn’t meant to be fair, but come on Mr Bollard. This year we are already getting an increase in GST, and due to the new emissions trading scheme the power companies are going to increase our power bills and petrol is going to have more tax on it, even Air New Zealand is upping the cost of flights to cover it. And it’s not as if the banks are charging fair mortgage rates in line with the the reserve bank anyway. The bank fixed rates are the same as when the OCR was twice what it is now. And yet it almost worth betting real money that an increase on Thursday will be a perfect excuse for the banks to charge even more.
I just don’t get it.
They giveth with one hand and they nick it straight back with the other!
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Will KiwiBank become an AussieBank.
Filed under: Banks, Property & General Investing, Retirement, Pensions and Kiwisaver
There are rumours that the NZ (National) government are thinking of selling some State Assets. Which for many people is the worst thing a government can do and brings out all sorts of diatribes. I’m in two minds about it myself – I think it’s good to have assets – even if you are country, but also you have to be prepared to sell them if they are basically not working for you, or you are in financial trouble. There’s just no point having a boat load of shares looking pretty if you cant afford your mortgage this month.
But when it comes to government assets – a whole load of issues come up. Which as far a my admittedly not-politically-astute mind can grasp comes down to Labour wont sell them – National will. In fact just prior to the financial world crash – the NZ government at the time (Labour) went so far as to buy back KiwiRail which had previously been privatised and was failing, at a massively over inflated price of $690m when it was worth about $369m.
So the first head on the chopping block this time round looks to be KiwiBank.
Now I’m not sure of all the pros and cons of the case – but what I can tell you is I’m pretty bloody disgusted at the sheer amount of bunkum being spouted about the effect this would have on new Zealand if it was sold. It’s a bit like the plonker who said that if we used credit cards we would lose our sovereignty to Australia. The way the opposition is talking it up – a float of KiwiBank and sales of shares to New Zealanders will ensure that KiwiBank is owned by the Aussies. Or even worse – in the hands of greedy “foreigners”.
And thus – ordinary Kiwis will lose out on something that they own.
But here’s the thing:
Firstly – if the Shares in KiwiBank are sold to Kiws – then it will only end up in the hands of “greedy foreigners” if the Kiwis sell the shares to make a fast buck. So who would really be the greedy ones?
Secondly – do Kiwi’s really “own” Kiwibank? If we do – where the hell are the profits we should be sharing in? The government gets a cut – which technically I guess Kiwis get back in the form of government spending – but c’mon! That hardly the same as being a shareholder and having a stake in the company – or getting dividends.
Thirdly, we also “own” most the electricity companies in New Zealand, or rather as with KiwiBank the government owns them. And how are rewarded? With ridiculously high electricity prices which just go up and up and up while the companies we “own” make more and more profit. Its estimated that we have been overcharged by the electricity companies we “own” to the tune of $4.3 Billion in the past 5 years. Hmm – yes – ownership of companies via the government is really working for us.
So all in all – when you hear about the horror of selling national assets – don’t necessarily believe what the papers are telling you. If you disagree with privatisation – fair enough. But just take a moment to wonder if you are being fed a line that is somewhat an exaggeration. That’s not to say that selling KiwiBank (or anything else) is a good idea. Just that it wont cause the destruction of life as we know it.
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Some useful new Tax Calculators and graphs
Filed under: Cost of living, General Budgeting, Jobs & Work, Property & General Investing
Just to help you understand how things will be changing for you personally, here area few calculators that combine both the tax cuts and the GST increase. As well as the standard one on the IRD website – which does not have the new rates uploaded yet (!)– the Govt Has helpfully provided a calculator to tell you how much better you will be:
This does assume that you spend every penny your earn on GST paid items. So it asks how much your rent /mortgage (no GST to pay on that), and then looks at the increase you pay if you spend everything else.
However Deloittes have a calculator that allows you to specify roughly how much you spend, but doesn’t seem to allow you to specify how much you pay in Mortgage or rent.
Also – for reference – the following blogs on KiwiBlog have some fascinating graphs about taxes paid in New Zealand.
Working For Families and Effective tax rates
One loophole that has thankfully been closed is that people with rentals can no longer use their tax losses to claim Working For Families. This was occurring particularly with some people who held rental properties in their own names (rather than an LAQC which you weren’t allowed to do this with anyway). Because you can get your “taxable” income down – some people were then getting income low enough to claim Benefits on top of claiming tax losses. Like many things it really will depend on your personal views of taxation, but I feel that people earning our level income shouldn’t be claiming benefits – even if on paper they can get their taxable income down to a level that means theoretically they could claim it.
Graph of Tax Rates from 2008 to 2010
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The NZ budget what does it mean for you
Filed under: Cost of living, Economics, General Budgeting, Property & General Investing
Well honestly – pretty good things for anyone thinking of emigrating. Because no matter what else changed income tax rates went down which means you get to keep more of the money you worked your butt off to earn. And whether people agree or not- I personally believe that that should be the case.
So lets the good bit out the way now – what are the new Income Tax Rates:
Now that has to be good news for earners.
As for us personally – well using the calculators shows that if we were just earning the same 152k that hubby earned we would be doing quite well out of the new rates.
On current rates – Hubby earns $12,666 a month before tax and loses $4093 in tax. On the new rates he loses $3423 in tax, leaving us a respectable $670 a month better off.
There are some downsides. For one GST is going up in October from 12.5% to 15%. But while that’s not brilliant news for a lot of people for many people this is a tax that you have some control over paying. If you don’t spend you don’t pay it. So for the people who want a less consumerist lifestyle when they come to NZ, and are prepared to send less than they earn this works out really well.
There’s a bit if a hit for us property investors in that we can no longer claim depreciation on the building we are renting out. So this will reduce our tax losses and therefore our tax refund. However this is likely to be outweighed by the fact that we will have less tax screwed out of us in the first place.
I still firmly believe that we would have to pay a huge amount less in tax if governments in general would stop spending like there’s no tomorrow because they see us as a constant source of ready funds.
All in all though- this budget basically seems to me to be a really good thing for almost everyone. I have always believed that NZ was a great place to come if you wanted to get ahead financially. Most kiwis look askance at such a suggestion because they think the taxes are astronomically high here. I guess when you come from the UK 40% plus 11% NI plus the gob smacking plethora of hidden taxes- it seems like a breeze here. But then kiwis think 6% mortgages are cheap!
Perception really does depend on where you are looking from.
Your downside is still going to be the pathetically low wages, but I’ve discussed several times that you can do something about that.
It’s more complicated for us because of our rentals, but that requires a sit down with some coloured pens, a calculator, our last few years accounts and lots of coffee. Basically – we are saving a whopping $8,036 a year in tax on the new rates. But right at this moment I don’t actually know how much extra we will have to find to keep hold of the rentals with depreciation on the building gone. I don’t think its going to be as much as we are saving but I’ll let you know what I find.
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So how do you pay off a £950bn debt?
Thats the current government debt in the UK. Give or take a few million. Scary Huh? Compared to New Zealand which has a current debt of $25.6bn. or about £13bn at current exchange rates. But remember – New Zealand is a tiny country. So how much is that per person?
In New Zealand that’s about £3250 per person (keeping in £ to make it easier).
In the UK it works out at about £15,570 per person.
Now once you put it into terms like that it may or may not sound so scary to you. After all – we had personal debts of about £14,000 when we started our emigration journey, and it took us about a year to pay that off. So effectively the debt that the UK government has built up is just like 70,000,000 “Avalon and Hubbies” going on a spending spree.
This is on top of peoples personal debts in the UK which now are thought to be in the region of £1,460bn – so more than the UK government has racked up.
But at some point it all has to be paid back – and therein lies the problem. The personal debt has been spent on property, cars, clothes, food, and lifestyle. As individuals you can decide how to cut back – what is essential and what you have basically been frittering money away on just because you could and becuase you wanted to.
But Government spending is harder to cut back on becuase we all demand higher levels of service and benefits form the government and don’t see why we cant have it. And when Governments take drastic cuts and tell the people that the money just isn’t there – riots like we are seeing in Greece occur.
I wonder how much this has affected the UK election results? Theres a helluva lot of money to be paid back, and it is going to take someone with the strength of an ox to make the decisions necessary to get the country out of the crap. Who do you trust to do that? Becuase believe me, paying off a debt of about £14,000 is not an easy task. For individuals the mechanics are straightforward – there are ways and means of setting budget s and paying down debt. But even so the decision yo have to make are not always easy. There will be arguments. There will be fights. There will be blamestorming sessions like you would not believe. And then there will be anger as one or other of you realise you cant buy the things you want to buy anymore.
How do you scale that up and handle it in an entire country?
The New Zealand government is giving it a shot: getting rid of government waste, getting rid of excess civil servants (but then that can add to the unemployment benefit cost), and generally taking a big red pen to lots of paperwork and numbers. But New Zealand has also been pretty protected from the Financial fallout, especially when compared to many European countries – including the UK.
I don’t know who the best hope is for the UK. I am personally glad it’s not likely to be Gordon Brown as he does seem to have been pretty lousy as a finance minister and caused a lot of this – and his decision to borrow his way out of the crap is just insane. If its insane for us to to it – its no more right for a government to do it. The golden rule of problem debt is:
Never borrow more to pay it off.
So while the UK election plays itself out and we wait to find out if the Conservatives and Lib Dems can find a way to work together – I think its worth sparing a thought for the fact that they one helluva mess to sort out and they may have some tough decisions to make that will not please everyone.
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Be careful with re-fixing your Fixed Rate Mortgages
Filed under: Banks, Interest Rates, Credit Cards & Mortgages in NZ
Oddly enough – the New Zealand banks are trying to take a chunk of your cash for the privilege of paying more interest. Gits.
Fixed rates in New Zealand are currently way too high. Floating rates are at about 5.75% with fixed rates running at about 6% for 6 months upto a whopping 8.5% for 5 years.
Usually although in theory you would need to pay a fee for re-fixing a mortgage, but this is waived. Now it seems the banks are being a lot less keen on waiving that fee.
An ASB Bank document obtained by the Herald on Sunday said it introduced the new fee schedule to “reflect the time and complexity in providing the best in customer service”.
The fees would now apply from a series of dates between March and May.
While the document shows that the cost of the fees is reducing in some cases – from $250 to $50 – brokers say the customers will have a tougher time getting fees waived.
This is something we have had with ASB for about 2 years now. They wont waive bank charges, though they are still not charging us for new loans as we re-structure our lending. But to be honest – the cost of banking with them is going up, and the service is going down. I am certainly not getting “the best in customer service”. In fact – I’m getting lousy service – I just have to pay for it now.
So you do need to be careful. And you do need to shop around. Loyalty to a bank is frankly silly – they just do not deserve it – so if you are coming up to renewal time on your mortgages – shop around and go with whoever sweetens your life the best. Bear in mind that here in New Zealand one mortgages can splint up into several parts. That can add up if you get charged the full $250 to re-fix each part of a loan.
The only customers not having to pay fees for refixing a mortgage were those referred to as a “high value clients”.
The bank said in the document that fees were required by law to be “fair” and represent the cost of handling a loan. It said the fees were changing to “fairly reflect the time and resources we allocate to client interactions”.
The document also showed the ASB Bank was wiping a $500 contribution previously given to customers to help pay for legal fees.
Well, I’m certainly a “High Value Client” at ASB, but they still don’t give a damn. I have however managed to get them to reimburse us some legal fees that we have incurred because their loans department keeps stuffing up. So much for paying for service huh?
So be careful. Shop around, and make sure that paying off your mortgage is a high priority. That’s the one thing that will give you leeway to make your own choices and switch banks. Although the recession is basically over – the fallout from it could last years. The place we see that most is in the cost of mortgages and the unwillingness of banks to lend money to people who need it. Having small mortgages means the banks love you because you are a low risk to them. That’s a good position to be in!
Thanks to Christine for the heads-up!
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