Latest news with #MoneyCorrespondent
Scoop
4 days ago
- Business
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Money In Transaction Accounts Costing New Zealanders Billions
Article – RNZ New Zealanders could be leaving their share of more than $1b a year on the table by keeping their cash in transaction accounts. , Money Correspondent New Zealanders may be leaving money on the table by keeping their cash in transaction accounts. David Cunningham, chief executive of mortgage broking firm Squirrel, said there was significantly more money in transaction accounts now than before Covid. Most banks do not pay interest on transaction accounts. Cunningham said transaction account balances had peaked at $53 billion when interest rates were close to zero, and people could see little reason to change. It had fallen to a recent low of $37b but had now lifted again to $39b. 'Almost all of this earns 0 percent [interest].' If that money was shifted into an account paying 3 percent, it would give savers just under $1.2 billion in interest a year. Cunningham said before Covid hit, there was about $28 billion in transaction accounts. 'You're always going to need some float in your transaction accounts but a lot of this is lazy money.' He said it was customer inertia that also delivered higher profits to the banks, because they could make money from the cash sitting in the accounts. But he said banks should be encouraging customers to check that they had their money in the right accounts. 'Every time you log in they could remind you that you've got say $20,000 in a transaction account earning nothing and if you moved it to savings you could earn x… that would be a way to make sure people were better off,' Cunningham said. Claire Matthews, a banking expert from Massey University, said some people kept their money in transaction accounts because of the ease of access. 'They may have concerns about fees to access it if it's in a savings account. Partly I think it's because they don't think the interest will be worth it – but they may not have actually looked at the numbers, because depending on the amount it may be very worthwhile over time. Partly, however, it is probably just not getting around to doing it.' Banks have been cutting rates for term deposits and some savings this week, after the official cash rate reduction. Westpac said on Thursday it was cutting the rate offered on a number of term deposits by 10 basis points. ASB said it was cutting the rate offered on its Savings On Call, ASB Cash Fund, Savings Plus and Headstart accounts by 20 basis points. That took the Headstart rate to 2.7 percent.
Scoop
24-05-2025
- Business
- Scoop
Budget 2025: What Will KiwiSaver Changes Mean For Your Balance?
Article – RNZ Retirement Commissioner Jane Wrightson said low-income earners, Mori, women and self-employed people will be hit hardest by the changes. , Money Correspondent An increase in default KiwiSaver contribution rates announced in Thursday's Budget could leave KiwiSaver members more than $100,000 better off at retirement – but there is a warning that not everyone will benefit. As part of the Budget, a number of changes were announced to KiwiSaver. The government will halve the member tax credit available to people who contribute at least $1042 in a year to $260.72. When the scheme was first launched, the government provided a matching $1042. The cut is expected to save the government $400 million a year. Employer and government contributions will be made available to 16- and 17-year-olds. Previously, they had only applied to those aged 18 to 65. The default contribution rate for both employees and employers will increase in two stages to 4 percent from 1 April, 2028. Employees can opt to stay on the lower 3 percent rate, matched by their employer, but that will reset to the new default rate after 12 months. Impact of higher contributions KiwiSaver managers estimated that the increase to a default contribution rate of 4 percent, plus 4 percent for an employer, would make a material difference to KiwiSaver members' final outcomes. Murray Harris, head of KiwiSaver at Milford, calculated that someone who was 35, earning the average wage with a KiwiSaver balance of $25,000 in a balanced fund, could have an extra $56,000 (inflation adjusted) at 65. That would give them $50 a week more to spend, he said. At Sharesies, general manager of funds Matt Macpherson said without adjusting for inflation, the increase for a 30-year-old currently earning $75,000 a year with $30,000 saved in a growth fund would be $175,000 at 65. Harris said the increase would help to close the gap between what it cost to live in retirement and what NZ Super would provide. But he said it would have been good to see contributions extended to people over 65, as well as teenagers. Some KiwiSaver providers said the increase was not likely to be enough. Kōura founder Rupert Carlyon said 4 percent plus 4 percent was better than 3 percent plus 3 percent. 'But it's well short of six plus six, which would have brought us in line with Australia, and it's nowhere near the 15 percent OECD average pension contribution. We have a long way to go, but it's better than nowhere.' Dean Anderson, founder of Kernel Wealth, said the government should have followed Australia's lead and set a path detailing how contributions would increase over time. 'I don't know why we couldn't have gone further, with a long-term plan.' Carlyon said he was worried by stats showing that half of employers used a 'total remuneration' approach to KiwiSaver. This means that rather than providing a contribution on top of a person's salary, they are offered a total salary amount and the employee decides whether to contribute to KiwiSaver from that total. Carlyon said he was worried this would become more common as a way for employers to avoid the additional contribution. 'This is probably net positive for balances over time, but not for everyone – only a select group of people who have employers who do the right thing.' Reduction in member tax credit Macpherson said the impact of the smaller tax credit could compound out to $21,000 less for the 30-year-old earning $75,000 that he used as an example for the higher contribution calculation. He said some people were being left behind, 'in particular self-employed'. He said he saw many self-employed people contributing to Sharesies' scheme at the level to get the member tax credit – they would now have their returns reduced. Retirement Commissioner Jane Wrightson said low-income earners, Māori, women and self-employed people would be hit hardest by the reduction. 'It's a shame there are so few government incentives for a scheme that underpins private saving for retirement. I would at least have liked to see some of the savings from reducing government contributions be applied to serving those groups where we see the widest retirement savings gaps.' But other providers said the impact of the credit was not material for most KiwiSaver members. Anyone who was earning at least $50,000 a year and contributing 3 percent would have received the full payment. 'As much as I hate to see tweaking to KiwiSaver and removing incentives erodes confidence, when you're looking to find balance in the economy and make a saving, on a cost benefit basis, it's probably okay.'
Scoop
24-05-2025
- Business
- Scoop
Budget 2025: Who's Worse Off Under New KiwiSaver Changes?
, Money Correspondent An increase in contribution rates for KiwiSaver should make most savers better off - but it won't benefit everyone. As part of the Budget, the Government announced it was increasing the default KiwiSaver contribution rate to 4 percent from employees and 4 percent from employers. Over a saver's lifetime, including a first home withdrawal, it estimated this could make a high earner 28 percent better off at retirement and a low income or part-time worker 21 percent better off. But some people won't be better off at all. Retirement Commissioner Jane Wrightson said about 20 percent of KiwiSaver members would be worse off due to the Budget changes, The changes also included a reduction in the member tax credit to $260.72 (from $521.43 previously) when someone contributed at least $1042, and the removal of the credit entirely for people earning over $180,000. Total remuneration People who are paid on a "total remuneration" basis will not benefit when contribution rates increase. "Total remuneration" refers to the practice of employers offering a salary package, from which an employee can choose to make KiwiSaver contributions, rather than setting aside a separate contribution on top of an employee's salary. Some KiwiSaver providers, such as Kōura founder Rupert Carlyon, have expressed concern that more employers might shift to the total remuneration model, to avoid the higher rates. Wrightson said it would be important that did not happen. She has been calling for it to be banned for some time. Earlier Retirement Commission research showed just under half of employers used total remuneration for some employees. "It goes completely against the sprit of KiwiSaver whereby retirement savings are meant to be contributed by the employer, the employee and the Government contribution," Wrightson said. "That's the model. People will get no benefit from the changes on a total remuneration contract. This system needs to be changed so that total remuneration is abolished. "It's the old story - money in your hand versus money salted away. It becomes very tempting, so total remuneration was not permitted in the original KiwiSaver settings, it was changed a few years ago and I think it should change back." Lower-income workers Wrightson said lower-income workers were more affected by the drop in the member tax credit because it was responsible for a greater portion of their retirement savings. She said, for people earning less than $30,000 a year, the member tax credit was expected to add up to 15 percent or 20 percent of their total balance at 65. With the reduction, it would be 6 percent to 11 percent. Wrightson said there was a divide forming between people who could afford to make KiwiSaver contributions at all and those who could not. Self-employed Self-employed people do not have access to an employer contribution in many cases and many providers say it is common for them to opt to contribute only the $1042 required to get the member tax credit. In 2024, about 200,000 only received the government contribution, including 125,000 self-employed people, Wrightson said. She said the commission would conduct some more investigation into the impact of the changes on self-employed people and gig workers. "We're doing some work with Hnry to look at some of their data… We need to find out who's doing what, who's not doing what, where the gaps are and what the response by Government could be."
Scoop
19-05-2025
- Business
- Scoop
Budget 2025: How Does Government Spending Actually Work?
Article – RNZ There will be a lot of talk about government spending this week, but how does it actually work? Where does the money come from, and where does it go? , Money Correspondent You are going to hear a lot about government spending this week. But how does it actually work? Where does the money come from, and where does it go? First up, where does the government get its money from? The government pulls in money in a few different ways. Tax revenue is the big one. The government brings in about $120 billion in tax revenue every year. For the 2025 financial year, that was about $22,613 per person. It gets another $7833 per person from 'other income' from things like ACC levies, the emissions trading revenue, fines and other things. Just under half of the tax it collects comes from individuals paying tax on their income. Simplicity chief economist Shamubeel Eaqub said while our total tax bill is roughly 'middle of the pack' for the OECD, we are a bit unique in that our taxes are heavily paid by workers. We do not have the capital gains or inheritance taxes that some other countries have. Another 22 percent of tax collected comes from the GST we pay on things we buy, then 13 percent is from corporate tax, 6 percent from 'sin taxes' like tax on tobacco and alcohol, and 4 percent is from tax on interest and dividends. Then the government spends it… The money collected in tax is used to pay for the services the government provides. Social security and welfare is top of the list. Not including NZ Super, that's $6486 per person a year in the latest year. 'People think welfare is just poor people,' Eaqub said. 'It includes the working poor, things like Working for Families, the accommodation supplement.' Health is next, at $5804 per person, then NZ Super at $4352 per person a year. Education is in fourth place, at $4197 based on 2025 financial year numbers. The government also spends $1400 per person per year on law and order, $3061 on transport and communications, $3153 on economic and industrial services, $592 on defence and $536 on environmental protection, among other things. Spending can be classified as operational activities (sometimes called opex) and investment activities (sometimes called capex). If you think about the way a household is run, opex might be things like paying your power bill or doing your grocery shopping. Capex might be buying a house. But what about the shortfall? Eaqub said the government would earn about $30,446 for every New Zealander each year, but would spend $37,480. So it has to cover that $7000 from somewhere, and that's usually through borrowing or selling assets. Half of the shortfall borrowing is funding operating deficit – so that's your power bill or supermarket shopping. The other 47 percent is for money that has been used for infrastructure investments. Provided these were a good investment, this should pay off over time and the borrowing is less of a concern. The net interest payment made by the government – the difference between the interest on assets like bonds that the government sells to investors and the money it borrows – is about $550 per person per year. 'It's not the borrowing per se that's the problem, it's when you're borrowing for groceries… the last few years, we've done that repeatedly,' Eaqub said. 'It's not that debt is bad. Debt for stupid things is bad. Debt for high-quality infrastructure is good.' But he said the government could not increase spending without increasing either borrowing or tax revenue. 'We can't have it all, we've got to choose. The trick in the coming Budget is that there is no money for new purchases. 'All announcements are funded by cutting something else, a shuffling of the deck chairs… we can all agree there is a whole heap of waste in a lot of things but rather than doing a once over lightly on every line of spend, we've got to pick things we are doing to stop. What are you going to stop, what are you going to start, what are you going to keep? If there's a reduced envelope of taxes we've got to make stopping decision really carefully but also really precisely.'
Scoop
17-05-2025
- Business
- Scoop
Is It Actually A Good Time To Buy A House?
Twice this week, first-home buyers have been told it might be their big chance to get into the market. , Money Correspondent Twice this week, first-home buyers have been told that now might be their big chance to get into the housing market. First, QV said a lull in property values was giving first-time buyers a 'rare opportunity'. Then, the Real Estate Institute acting chief executive Rowan Dixon suggested that, if first-home buyers were looking for a chance to get into the property market, it was a good time to do so. 'There is still plenty of stock there, particularly in the main centres, good pricing and low interest rates… if people can get into the market for their first home now is a good time to do it before maybe things start to pick up a bit more.' But just how great an opportunity is it, really? RNZ looked at a number of factors that could help answer that question. Interest rates Interest rates have fallen significantly, which helps to make the prospect of servicing a mortgage a bit more palatable. From a peak of about 7 percent, two-year home loan fixes are now about 5 percent. That means, for a typical first home mortgage of $567,448, the weekly repayment would be about $700. That's still about $60 more than the national average rental rate. Usually, falling interest rates push up house prices but that hasn't happened to a significant degree yet. 'There's a window where financing is cheaper but it hasn't quite flowed through to house prices as it might have done historically,' Corelogic chief property economist Kelvin Davidson said. Brad Olsen, chief executive at Infometrics, said rates were not expected to get back to the 2 percent levels seen through the Covid times. 'Interest rates are down but to more usual long-term levels.' House prices Nationally, house prices are still down about 15 percent from the peak, although they are still up 4 percent a year compared to five years ago. Wellington's prices are furthest from the peak, still down more than 25 percent, Auckland's are down 21.6 percent. But all prices are still higher than five years ago. Earlier data from Corelogic showed they were the areas that had the largest affordability improvements, bringing them close to long-term averages. Places like Queenstown and Christchurch are a bit of an outlier – Canterbury is now just 3.2 percent below the peak and Southland has already exceeded it 'Houses are more affordable than they were,' Davidson said. 'I still wouldn't say they are affordable as such – they're cheaper, but not necessarily cheap. But are house prices really going to fall significantly further from here? It seems unlikely. They'll probably turn around and rise a bit. There's a sense now that they're as cheap as they're going to be even if they're not necessarily cheap.' KiwiSaver Some buyers' KiwiSaver accounts may have taken a hit through the start of this year due to market volatility. Most of those could have shown signs of recovery over the past week. Davidson said it was likely that people who were planning to buy in the near term had already shifted their money to conservative funds before the wobbles hit. Stock on the market Buyers have a lot of choice at the moment, which gives them the upper hand. In a buyers' market, they can take their time over their decisions and know they have a lot of options. says the amount of stock for sale was up 6.2 percent year-on-year in April. Olsen said that meant buyers could bargain for a lower price and play sellers off against each other. 'If you want to get a sale and a possible buyer knows there is probably another house for sale down the road you'll be doing a fair bit to make sure your house gets sold.' Rent But it's actually a good time to be a renter, too. There is also a lot of rental stock on the market in lots of parts of the country, and advertised rents are dropping. The picture isn't consistent across the entire country but it's taking longer than normal to rent in most places with the exception of parts of Canterbury and Hawke's Bay. 'You could make a case of why rush into it when you could get a good deal on a rental for a while and you're probably not going to get left behind by the housing market in the meantime,' Davidson said. 'In general terms renting is always cheaper than buying so nothing has really changed there… if you stuck to that line of argument no one would ever buy a house.' The job market Buying a house usually means you need to have reliable income. While the worst might be nearly over for the labour market, it's likely to be weak for a while to come, which could mean job losses are more likely and it could be harder to find a new job if you are unemployed. Anyone who is worried about their job security might hesitate about buying a house. 'They might be able to afford the house at the moment but not if they lost their job and couldn't find a new one,' Olsen said. The other stuff Davidson said you could argue that it's 'always a good time to be a first-home buyer'. 'In the sense that if you want to buy a house, like the house, like the location, you're secure in your job and you want security of tenure and you can secure the finance, you're going to be there for the long-term why wait?' He said for many first-home buyers the decision was more than financial. 'They're setting up a family base.' He said if people looked for negatives they would probably never do anything. 'There are always pros and cons but if we're asking a binary question, is it a good time to buy, yes or no, I would have to say yes.' Olsen said he was always worried when people said buyers should 'rush in'. 'It comes across as scarcity marketing to scare people into rushing into buying. Buyers definitely have a good opportunity at the moment, that is true. But I think they should keep their wits about them, look at what's out there and how much they can afford, run some scenarios on what they could afford if things changed around mortgage rates or their job.'
