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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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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Tax Working Group – Why?
Filed under: Economics, For the numpties amongst us, Future Finances, General Budgeting, Investing in general, Jobs & Work, Property Investing
(Other than whacking “rich pricks” over the head with a big stick for being greedy of course.)
Well, for a start – the National Government claims it doesn’t actually want to increase overall tax. And if you believe that – I’m the tooth fairy.
What they want to do is move away from taxing income, to taxing capital – or wealth. For the purposes of this – you need to understand that Wealth is not about how much you earn – it’s about how much you own. So if you have scrimped and saved and accumulated assets that are worth money – they want to tax you on it. Because as previously discussed, it’s not fair that you scrimped and saved to accumulate wealth.
And if Income Tax is too high – it discourages people from getting better jobs and earning more money because they will lose too much of it in tax. And that of course means they have less money to spend. And economies don’t grow if people don’t spend.
The other main goal is to “align the tax rates”. This is because at the moment, the top rate of personal tax is 38%, whereas tax on trusts is 33% and tax on companies is 30%. Which means that taxpayers who would normally be charged 38% can “hide” their income in trusts and companies to reduce their tax.
So dropping the top tax rate to 30% should stop us having to do this.
To see why in theory they need to do this – you need to look at what happened when Michael “I hate rich people, even though I earned a whopping $276,000 a year plus tax-free expenses” Cullen, introduced the 39% income tax bracket.
What this shows is that the year after the tax was introduced, there was a huge spike in the number of people paying tax on 60k a year income, because they used measures to legally reduce their incomes down to that level.
So in trying to tax “rich” people – they kinda failed.
Now – the new government wants to make it “fairer” and stop that happening. Unfortunately there is every chance this too will fail – because in general – the richer people are, the more they can move and are prepared to make choices about where they live and what taxes they will pay. And there’s always loopholes.
Like us for example – who moved from the UK to get away from 51% tax on our income and new and more colourful taxes being imposed left right and centre.
So in general terms, lowering the top tax bracket is a good thing. I just can’t get my head round why taxing people who have invested is a good thing to replace it with. It’s kind of a big incentive not to be financially stable and able to support yourself in retirement.
Personally – in the perfect word in which I am the benevolent dictator for life – I would insist that Governments have to stick to strict budgets, have to stop throwing money away, and treat the money they take in taxes with some respect, and the taxpayers as something other than a constant deep well of extra funds every time they fail to stick to their budgets. Like setting an $11 million budget to refurbish the Supreme Court building and then spending $81 million instead because taxpayers won’t complain.
Which is like budgeting to retile your bathroom, and deciding instead to knock your 3 bed house down and build a 70 bedroom mansion instead, and demanding the overspend from your boss.
The thing about this is that if we as the people overspend each month – we cannot in fact go to our bosses and demand that they pay us more. But the government can do that with tax – because if you don’t pay it – they can send you to jail.
So while the “why” may be sensible and in some ways a good thing – it’s kinda fixing the wrong problem. We don’t need to give them any more taxes – they need to stop wasting the money they already screw out of us.
Please bear in mind that the Tax Working Group changes are recomendations – and may not happen.
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What’s the effect of the global financial mess?
Having some spare time in the house with the slightly crappy weather, I’ve been watching some of the TED talks that have been sat on the iPod waiting patiently for me.
One in particular was from John Gerzema, talking about the ‘post crisis consumer‘. Beyond some of the academic/economic waffle, and the ‘America is the world perspective’ it did contain some interesting observations.
First off is the (US) savings rate over the last 70 odd years from 1935 to 2005 (sorry the graphics are a little fuzzy), giving us confirmation that it’s in the last few years that average households have negative savings – i.e. no savings and money oweing on credit, while since the 1950’s it’s been in the 5-10% band
The blip in the early 1940’s is of course the war. But only because there was nothing to buy, rather than a patriotic drive to save money into war bonds as there was in the UK. It is interesting though, even when there were almost no consumer goods to buy, savings rates only averaged 20-25%.
Anyhow, while these numbers are now four years old it begs the question – ‘What are people doing now?’. Well the (startling) observation is that people are paying off debt. Because they don’t want to be beholden to the banks as much anymore. Which is good news. And more people are using debit cards to access money in their bank accounts, rather than using credit cards and borrowing the money. Again good news.
Of course, neither the banks or the credit card companies are happy with this – since they don’t get to bleed us all dry with interest rates and charges. But still, they’re not hurting yet and it’s early days in the whole economic recovery thing.
More interesting was the information about how people are dealing with the stress. While it doesn’t say what the sample population was here (Wall St executives still in jobs, as opposed to homeless families in some Detroit ghetto), and the percentages are more than 100%, so people are obviously doing a number of things, it does make interesting reading;
5% of people are dealing with the stress by buying more stuff. This is taken as a good sign, as we’re getting more savvy about what we buy, and we aint’ buying any old crap the marketing people want us to buy.
Still, draw your own conclusions. Good news for Nintendo, where people are playing video games and exercising (Wii), possibly with their family. Really good news for ISP’s and TV broadcasters.
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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Avalon’s Money Thread: Working out our net worth.
Filed under: Avalon's Money Thread, Banks, Economics, General Budgeting, Investing in general, Mortgages in New Zealand, Property Investing
We’ve done the budget, we’ve made some decisions, our personal Fixed Rate mortgage comes up for renewal in January, and we have decided to rejig the way we pay our mortgages.
All that was left to do was to track what our Net Worth was – which given the economy was a highly daunting task to be honest.
Your Net Worth is basically the value of what you own (assets) minus the value of you owe (debts). Unlike a Budget, which tells you what you are going to do over a month or year – your Net Worth tells you how much you have right now. Today.
It’s not difficult (especially if you have your accounts in order and your paperwork filed)– just a bit depressing at the moment. Because I like spreadsheets, and I’m lazy, I just copy the same spreadsheet from last year and fill in the numbers – its quite straightforward. In fact the only difficult bit to be honest is grabbing the bits of paper that contain the info you need.
On one side I have a list of all the assets: property, banks accounts, savings accounts, shares, pensions, car, and household goods (Insurance value is the best way to determine that).
On the other side are the mortgages, credit cards and any loans.
Take one from the other, and what is left is how much you are worth today.
In our case – about $250,000 less that we were 2 years ago.
I kid you not.
So why am I not crying into my coffee right now?
Well, Net Worth is a really good indicator of how you are doing financially. But it has to be taken in context. Most of that “wealth” is paper money. It doesn’t really exist. I don’t have $250,000 less dollar coins than I had – it’s just that my properties have gone down in value. In time – the value will go up again, and so will my “wealth”.
It becomes an issue if you want to borrow money and maximise how much money the banks will lend you – as they want to know the value of your assets. When I spoke to the valuer to get ours revalued – he said that he’s never been busier with banks insisting on clients getting up to date values on all their properties. While this can be annoying – I have to say I think I’m actually with the banks on this one.
I spoke to ANZ the other day about the possibility of refinancing a rental (the funds to be used to reduce personal mortgage – so no extra lending overall). They won’t lend more than 70% of the value of a rental, and my mortgage was for 75% already. The thing is, while doing this is defiantly for the banks good – it also prevents us as buyers from over extending. I think we personally got lucky that the recession hit so fast just after we bought our 3 rentals and couldn’t buy any more. It prevented us going mad, getting caught up in a storm and going belly-up which has happened to an awful lot of people.
We have “protected” as much as we can of our net worth by paying down as much debt as we can as fast as we can. So while our assets are worth much less, so are our debts. There is actually a lot you can learn from a recession, and if you can get through this and come out the other side – then just think what you will be like when the economic climate improves.
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Argghhh – why all these “extra” charges???
My perennial favourite of course being the patently ridiculous “Automatic Payment Loading Fee” the bank charges me to do their job for them and set up a standing order – but just this week I have seen three almost as ridiculous examples of spurious rip offs.
First goes to Ticketec. Now they always add silly charges – mostly for posting your tickets to you. Extra if you live in the countryside of course. And they will charge you if you don’t want them to send it to you – you want to pick them up instead. But now they have gone one further and will charge you $5 if you want to print your ticket at home, on your own printer, using your own ink, and your own paper.
Second goes to Reading Cinema who again charges you $2 for the “privilege” of ordering your ticket over the internet and saving the staff 2 minutes work.
But taking the biscuit completely for a wacky and completely pointless charge goes to Aotea Pathology. I needed to go have a blood test on Saturday morning – which meant I had to get up at 7am (and on a Saturday dammit) and go into Welly because the local clinics don’t do tests on Saturday (sensible people).
So I go in, give my name, pay the bill and am asked to sit down and wait. It wasn’t until I came out of the labs that I happened to look at the bill. Alongside the two charges for the tests themselves is a third charge.
Encounter Fee – $12.57
WHAT?????
This it seems is the charge for the lady at reception to take my name and charge me the fee and ask me to sit down.
The mind boggles.
Bloody rip off merchants.
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Applying for a new credit card.
Well, it was easy enough to apply – just fill in an online form at Kiwibank.
If only.
So first off – why on earth would I want a new credit card? I’m not a fan of them, and yet I already have three. The problem is the major rip-off that is most reward schemes in New Zealand. The misleading “Flybuys” that so many people go to great lengths to accumulate will only let you actually transfer points into Air New Zealand Airdollars if you own a BNZ global plus credit card. As we had to give ours up – due to BNZ allowing other people to use our credit card details with impunity, and then getting shitty with us when we dared to object to their incompetence –we are no longer able to use “Fly”buys to – well – fly anywhere. (And the other things you can buy with them are a waste of time anyway.)
However we did quite well with our ASB cards. ASB run a rewards program, which costs $10 ever six months, for each person on each card (so with 3 joint cards that’s $60 every 6 months). Because all our spending goes on Credit cards – we were making enough points for that to be worth it.
Except ASB, in the way that only banks can be stupid enough to do – keep altering the scheme to make it less attractive. First – they stopped allowing you to use your points to pay your bank fees – which is something I thought was brilliant. (I really don’t want a bleedin’ toaster – but a cut in bank fees is worth real money). Then, just recently – they have decided that we can no longer change our True Rewards in Airpoints Dollars at Air New Zealand. So we have arranged with our manager that next time our TR fees becomes payable – we are removing it for two of the cards as we don’t do enough business on them to make it worth the cost.
Step in Kiwibank.
They are now offering a GoFly Credit card – where for every $150 spent you get $1 in Airpoints dollars. With a platinum card – you get $1 for every $90 spent.
Magic.
And the best bit – although the card fees are slightly higher – you don’t pay extra to join the reward scheme (they can set up an Airdollars account for free – saving the $50 that Air New Zealand want to scam you for). So we are going to pay a whole dollar more ever 6 months on our fees. I think I can live with that.
Really – the only downside was the application process. I filled in the online form, but it won’t let you apply for joint accounts online. So I applied in Hubby’s name (as he is the one with the income), and then phoned to add some details to let them know this would be a replacement card rather than an application for extra credit. Only Kiwibank at this point need Hubby’s Permission to speak to me.
WHAT???
I’ve just applied for a credit card for him – and now he needs to give permission? Because it’s HIS account – not a joint account. Well – can we make it a joint account I asked – since that’s what we really want in the first place? No – not without his permission.
Thankfully Hubby was here – so I threw the phone at him and asked acidly if he would give Kiwibank “permission” to speak to such a lowlife as myself. When he stopped laughing – we managed to get the account application converted to a joint one – where now I am considered eligible to be spoken to.
Sheesh – banks. Hate them all.
We should know by the end of the week if Kiwibank consider us worthy to have an account with them. If they have any brains they will – because we are looking at alternative banks for our mortgages all the time – and this is a way of showing us that they are a bank worth doing business with. It never ceases to amaze me how much the New Zealand banks see their customers and potential customers as if they are something they have just stepped in – rather than the source of their much needed income.
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I really love Amazon.
Right now the benefits of a crap exchange rate are working in the favour of people already living in New Zealand – so it’s worth making the most of it. Even at $3 to the UK£ its often more cost effective buying books from the UK than buying them in New Zealand, but with the rate at nearer $2 to the UK£ – we are laughing.
On an Amazon order of about £180 (the whole family really loves books), I’ve saved about $200 on Christmas pressies purely because of the exchange rate.
I guess that the thing with currency – when it’s bad for one person – it can be great for others.
But there’s also been an interesting development at Amazon.co.uk which can be even better for us. They are now charging in local currency – so if you live in New Zealand and have an NZ Credit card – you can be charged directly in NZ$. You will be told at the time of order, before you confirm, what the NZ$ cost is, and if you switch the currency conversion on, you will have the option of changing your mind before you confirm the order.
This means that you can avoid paying the banks their extra charges and fees they always like to screw us for. You wont get the Interbank rate – but then the banks never give you that anyway – and then they add all the extra fees on top of a crap rate.
I’d use the Amazon converter on principle just to take the fees away from the banks.
It’s worth noting that all the items in your order have to be in stock and ready to ship to be able to use this service. If anything is out of stock or on a delay – you cant use it and have to pay in UK£.
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