The Government is taking steps to swiftly repay investors, reduce the cost to taxpayers and ensure minimal disruption to the wider economy following the receivership of South Canterbury Finance, Finance Minister Bill English says.

"It's sad to see a longstanding New Zealand institution in this position. The Government, like everyone else involved, hoped South Canterbury would be able to work its way through its difficulties, but unfortunately we were advised today that it has been put in receivership," Mr English says.

"As a result of the receivership, the Government is moving swiftly to repay the money owed to South Canterbury depositors under the Crown Retail Deposit Guarantee. We are also taking other steps to reduce the cost to taxpayers and minimise disruption to the wider economy.

Steps the Government has taken include:

• The Crown has nominated the Trustee as the eligible creditor under the terms of the guarantee and will pay the Trustee $1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.
• The Crown will today make a loan to the receiver of $175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts. Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so we can ensure an orderly and well-managed receivership process.

"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy.

"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.

"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets.

"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.

"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.

"The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme," Mr English says.

31 August. The Finance Minister briefs the media on the Government's moves swiftly repay investors, reduce the cost to taxpayers and ensure minimal disruption to the wider economy following the receivership of South Canterbury Finance. See
http://beehive.govt.nz/release/govt+m... for details.

The enactment of the Insurance (Prudential Supervision) Bill provides increased certainty for New Zealand insurance policy holders, Finance Minister Bill English says.

The Bill, passed last week, makes the Reserve Bank of New Zealand the prudential regulator of all insurance providers that carry out insurance business in New Zealand. It is the first time the New Zealand industry has been subject to legislated prudential regulation.

"The Bill's main purpose is to promote the maintenance of a sound and efficient insurance sector. Policyholders will benefit from greater certainty their insurer has sufficient financial strength to ensure it can pay claims when they are made," Mr English says.

"In addition, it is a clear signal to the rest of the world that New Zealand is aligning itself with established trends in overseas insurance regulation.

"The strong consultative and collaborative approach followed in developing this legislation has ensured the Act does not impose excessive or unnecessary compliance costs on providers and is generally accepted by the industry," Mr English says.

The implementation phase of the new Act will include a transitional period of up to three years to enable insurers to bring themselves into compliance with the new requirements.

Finance Minister Bill English will visit Hong Kong and Singapore next week, to meet business, investment and government leaders and update them on New Zealand's economic programme to achieve faster growth and jobs.

"Asia and New Zealand have developed strong trade and business links in recent years, and we are building on that through a series of free trade agreements and other initiatives," Mr English says.

"The Government is keen to continue open dialogue with business and government leaders in this part of the world - there is considerable interest in New Zealand's economic programme.

"In particular, we will update them on economic and fiscal developments since I visited last year. We will also share ideas about building a strong and sustainable recovery from the worst global recession in many decades."

Mr English will meet senior Government figures and speak to the New Zealand Chamber of Commerce in Hong Kong on 31 August. The following day, he will meet Hong Kong Monetary Authority chief executive Norman Chan.

In Singapore on  2 September, Mr English will meet Foreign Minister George Yeo, speak to the New Zealand Chamber of Commerce and visit the Singaporean Agency for Science, Technology and Research.

The next day he will meet Singapore Prime Minister Lee Hsien Loong and Finance Minister Tharman Shanmugaratnam, and Mr English will speak at The Economist Asia-Pacific regional economic forum.

New Zealand's economic recovery is being led by the export side of the economy which has experienced a significant turnaround from the low point of the recession, Finance Minister Bill English says.

"The recovery will be patchy at times. We are seeing this reflected in stable rather than growing results for domestic industries like housing and retail, and indicators such as business confidence and the share market," Mr English said in a speech to the Farmers Mutual Group Farming Leaders Forum today.

"However the outlook for the tradeables sector - exports and import competing industries - is strong. This is particularly so for primary industries which have increased their output and enjoyed good price rises since the middle of last year.

"Higher export prices drove a 5.9 per cent jump in the terms of trade in the March 2010 quarter. This is the largest quarterly rise since 1976.

"In addition, the seasonally adjusted trade balance for the June 2010 quarter was a surplus of $389 million. This follows a seasonally adjusted surplus in the March quarter - the first since December 2001.

"While commodity prices slipped back slightly in June and July - as measured by the ANZ World Commodity Price Index - prices remain 47 per cent higher than a year ago and near the record highs they hit March this year.

"So while parts of the domestic side of the economy have been fairly flat - due to the uncertain global environment and the need for businesses and households to pay down large stocks of debt - our tradeables sector is leading New Zealand's recovery.

"This is starting the process of rebalancing our economy towards exports and growth and away from unsustainable borrowing, government spending and consumption.

"However, turning around the imbalances that built up over the past decade will require a relentless, long-term focus and commitment. The only way we can permanently lift New Zealand's economic growth is through considered and consistent reform and change, year after year.                              

"Budget 2010 took several steps in that direction - including across the board personal tax cuts from 1 October, which will encourage hard-working New Zealanders to earn and save more.

"In the past 18 months, we have been extremely busy rolling out policies. In recent days we have tasked the Savings Working Group with the job of taking a close look at how to improve New Zealand's national savings record and we will announce more policies in coming months," Mr English says

Central and local government must work together to ensure smarter infrastructure decisions and investment, Minister for Infrastructure Bill English says.

Mr English and other Government Ministers met last night with Local Government New Zealand (LGNZ) representatives to discuss infrastructure issues.

"This Government has increased infrastructure investment - we currently spend about $6 billion a year on the purchase and maintenance of our critical infrastructure and hold about $110 billion in physical assets," Mr English says.

"However at a time when our finances are constrained, it is vital we get the most out of this investment. That means projects must be properly selected and must provide a justifiable return on taxpayers' funds.

"The Government is determined to improve the management of its assets - both the current stock and how decisions are made about future investment.

"Local government holds about $84 billion in assets and I'm pleased LGNZ shares the view that New Zealand could be smarter in its approach to  investment and how the various parts of government decide which projects should proceed.

"A vital step in achieving smarter infrastructure investment in the future will be greater central and local government collaboration. This is one of the areas that will be developed further in the next National Infrastructure Plan.

"Greater collaboration and co-ordination will help ensure the right projects are built when they are needed and that taxpayers and ratepayers get the best possible return on limited funds. I welcome the mayors' and LGNZ's constructive approach to this issue," Mr English says.

During discussions Ministers and mayors agreed to work towards:

• Developing an integrated planning framework to provide greater certainty about investment and decision-making, get better information about infrastructure priorities and likely future demand, and improve strategic alignment between central and local government.
• Identifying opportunities to remove unnecessary regulatory barriers.
• Further developing and sharing asset management skills and practice.
• Ensuring local government has the tools it needs to manage emerging infrastructure pressures.

The mayors of Wellington, Hastings, New Plymouth, South Wairarapa and Ashburton attended the meeting as well as the chair of Northland Regional Council. LGNZ's statement can be read at www.lgnz.co.nz.

New Zealanders' real after tax average earnings have increased faster than those in Australia since 2008, Finance Minister Bill English said today.

"That's because Australia has had significantly higher inflation than New Zealand over this period, and tax cuts across the Tasman have been relatively modest compared to those in New Zealand," he told Parliament.

"As a result, the wage gap between the two countries has actually narrowed slightly.

"We are not getting too excited about that, because we are such a long way behind Australia to begin with. But it's a good start."

The figures use data on average weekly ordinary time earnings (per FTE) from Statistics New Zealand's Quarterly Employment Survey - the official series which is also used to calculate the wage floor for New Zealand Superannuation.

The figures have been adjusted to account for income tax and inflation - giving a true picture of changes in New Zealanders' spending power.

Since September 2008, real after-tax wages in New Zealand have increased by 8.7 per cent. Using a comparable series, Australia's real after-tax wages have increased by 4.8 per cent in the same period.

"By comparison, New Zealand wage growth significantly lagged Australia's in the nine years to September 2008. Over that entire period, New Zealand's real after tax wage growth was a paltry 3 per cent, compared with 19 per cent growth in Australia.

"Put another way, when Labour was in office, real after tax wages in Australia increased over six times faster than wages in New Zealand. No wonder the wage gap blew out under Labour's watch."

An independent Savings Working Group announced today by the Government has a wide brief to consider how New Zealand can improve its national savings, Finance Minister Bill English says.

"Improving the level of national savings is the next step in the Government's programme for tilting the economy towards savings and exports.

"We have deliberately set wide terms of reference for the Working Group. The only exclusions are New Zealand Superannuation, which this Government will not change, and broad taxation of capital gains or land, which we have previously said we will not introduce.

"Otherwise, we are not ruling anything in or out," Mr English says.

The Savings Working Group will not focus solely on options for retirement savings: it will canvass a range of options for improving New Zealand's overall savings performance, including government savings.

"The Government has an open mind about what might be required and we don't want to prejudge the outcome," Mr English says. "We also hope this exercise stimulates constructive public debate and discussion along the way.

"Increasing our national savings and investment levels is a critical issue for New Zealand, because of our heavy reliance on foreign capital. This has produced high and rising debt to the rest of the world, which cannot continue."

New Zealand's challenges around savings and investment are stark, Mr English says. They include:

• Running a current account deficit every year since 1973, implying that investment in New Zealand has continuously exceeded national savings. The difference has been funded mostly by borrowing offshore.

• Net debt to the world - across government, households and business - jumping from about $100 billion in 2000 to almost $180 billion currently, and forecast to be almost $250 billion by 2014.

"So we have a big task to turn around this economy and rebalance it towards savings and growth," Mr English says.

The Savings Working Group, which will develop a practical menu of options for ministers by January 2011, will consider all areas of importance to national savings. This will include:

Fiscal policy: The role of Government savings as part of the national savings picture, including long-term savings/debt targets and any offset between government and private savings.

Taxation: The impact of the tax system, particularly taxation of income from savings and investment, on the level and composition of national savings and investment decisions. This will include:

• The case for moving to a dual income tax system, where labour and income from savings and investment might be taxed at separate rates.

• Indexation/part-indexation of the tax system so that real, rather than nominal, income from savings and investment is taxed.

KiwiSaver: The role of KiwiSaver in improving national savings, such as:

• Improving the operation and outcomes of KiwiSaver - including options where KiwiSaver is either voluntary or compulsory.

• The fairness and effectiveness of current KiwiSaver subsidies.

The Savings Working Group will be chaired by experienced company director and consultant Kerry McDonald. Other Working Group members are:

• Dr Craig Ansley - Capital Markets Research director.
• Dr Andrew Coleman - Motu Economic and Public Policy Research senior fellow.
• Mary Holm - financial columnist, Auckland University senior lecturer.
• Dr John McDermott - Reserve Bank assistant governor.
• Paul Mersi - PricewaterhouseCoopers partner.
• Stephen Toplis - Bank of New Zealand head of research.

The Working Group will be supported by Treasury, which will shortly publish a discussion paper setting out savings and investment issues and trends.

Working Group members will be paid about $70,000 in total. This and all operating costs will be met from within Treasury's existing budget, with staff support from the Reserve Bank, Inland Revenue and Statistics New Zealand.

Working Group website (including Terms of Reference):

www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup

SAVINGS WORKING GROUP - MEDIA Qs AND As

1. Why is the Government using another working group?

The challenge of increasing New Zealand's national savings is important, requiring consideration of a number of issues and potential options. The Government wants this process to be open and transparent - and to encourage constructive public debate. Working Groups have fulfilled this role well in other areas such as taxation, social housing and welfare.

2. What is the Working Group's brief?

The Savings Work Group has been asked to report to the Minister of Finance with advice on options for improved national savings in New Zealand.

The Group's scope will include:

• The role of Government savings as part of New Zealand's overall savings picture, including long-term savings/debt targets.
• The impact of the tax system on the level and composition of national savings and investment decisions.
• The role of KiwiSaver in improving national savings.

3. What problem is the Working Group looking to fix?

Savings and capital formation are essential parts of any economy.  Over the next four years, New Zealand's net debt (private and public sector) is projected to grow to more than our income. New Zealand has produced current account deficits every year since 1973, which implies that national investment has continuously exceeded national savings across both the private public sectors.

4. How do New Zealand savings rates compare with other countries?

There are a number of ways of measuring this - and this is something the Working Group will look at in detail. On at least two measures, our challenges are stark: New Zealand's net debt to the rest of the world has increased to almost $180 billion and the country has run a current account deficit every year since 1973.

5. Is the Government committed to changing savings policies after the Working Group reports back?

The Government will consider the Working Group's advice when it receives its final report. At this stage, we are not ruling anything in or out - apart from confirming that we will not change entitlements to New Zealand Superannuation and that we will not introduce a broad taxation of capital gains or land.

6.  What timeframe is the Government working to - when will the Working Group report back and will there be changes announced in the Budget next year?

The Working Group will hold its first meeting this month. It plans a series of six meetings, before a final working session in December 2010, with interim papers to be made public along the way. The Working Group is scheduled to report to the Minister of Finance in January 2011.

7. Will this lead to compulsory retirement savings?

The issue of compulsory retirement savings is just a small part of New Zealand's overall national savings picture. The Government is focused first and foremost on comprehensively understanding the wide range of savings and investment issues facing New Zealand. At this stage, we are not commenting on specific ideas that might come out of this debate.

8. What will this mean for taxpayer-funded New Zealand Superannuation?

There will be no changes to either the age of entitlement or payment levels of New Zealand Superannuation. The Government has already committed to keeping existing arrangements in place.

9. Could further tax changes be part of any savings package?

We have asked the Working Group to look at the impact of the tax system, particularly the taxation of income from savings and investment on the level and composition of national savings and investment decisions. In particular, the Group will consider the case for moving to a dual income tax system, where labour and savings and investment income might be taxed at different rates. It will also look at indexation or part indexation of the tax system so that real, rather than nominal, savings and investment income is taxed.

10. Will the Working Group exercise influence Government decisions around contributions to the New Zealand Superannuation Fund?

No - this exercise is about increasing national savings. As we've said, borrowing to invest in the Super Fund does not increase national savings - it simply changes the mix of the Crown's balance sheet. Contributions to the Superannuation Fund will resume when budget surpluses permit. 

11. How much will the Working Group cost?

The cost of members' fees will be about $70,000 and there will be additional operating and salary costs of the secretariat supporting the Working Group. All of these costs will be met from within the existing budget baselines of Treasury, with staff contributed from the Reserve Bank, Inland Revenue Department and Statistics New Zealand."

Related document:

Savings working group terms of reference (pdf, 92 Kb)

Real after tax average earnings in New Zealand have increased 8.7 per cent since September 2008 - a significant improvement on the 3 per cent total growth over the previous nine years.

Trends had fluctuated markedly over the past 20 years, Finance Minister Bill English told Parliament today.

The figures use data on average weekly ordinary time earnings (per FTE) from Statistics New Zealand's Quarterly Employment Survey - the official series which is also used to calculate the wage floor for New Zealand Superannuation.

The figures have been adjusted to account for income tax and inflation - giving a true picture of changes in New Zealanders' spending power.

Between 1990 and 1999, real after-tax earnings increased 15.5 per cent.

Between 1999 and 2008, real after-tax earnings increased by a meagre 3 per cent - an average of just 0.3 per cent a year. Within this period, there was virtually no increase between 2005 and 2008, as inflation and creeping income tax wiped out wage and salary increases.

"This is quite staggering, given that it was a time of economic prosperity around the world," Mr English says. "Appearances of a strong New Zealand economy during this time were clearly quite deceptive.

"Growth came from all the wrong places, such as government spending and excessive debt, and hard-working New Zealanders paid the price through anaemic real take home pay increases."

Since September 2008, real after-tax earnings have increased 8.7 per cent, despite the 2008 - 2009 recession, reflecting two rounds of income tax cuts and lower inflation.

"This is a good start, but we have plenty more to do to keep raising New Zealanders' earnings.

"As a next step, across the board personal income tax cuts on 1 October will further increase after-tax earnings - the average household will be about $25 a week better off, and the average wage earner about $15 a week better off - even after the increase in GST," Mr English says.

Real after-tax average earnings

Sources:

The Government has agreed to measures that support New Zealand Post's credit rating and assist Kiwibank's continued growth, Finance Minister Bill English and SOEs Minister Simon Power announced today.

"The Government has agreed to provide an uncalled capital facility to NZ Post to enable Kiwibank's continued growth. This demonstrates the National-led Government's commitment to both NZ Post and Kiwibank," Mr English says.

"The agreement follows the NZ Post board requesting support from shareholding Ministers to enable the company to preserve its credit rating while Kiwibank continues with its current growth-focused business plan.

"We're confident this provision of uncalled capital, on commercial terms, will give NZ Post and Kiwibank the financial certainty they need to pursue their plans," Mr English says.

Mr Power says NZ Post will be able to call on the capital only in certain defined circumstances, such as Kiwibank experiencing a substantial shock event beyond its own resources and beyond the resources of its parent

"Subscribing for uncalled capital in NZ Post is a proactive measure to support both NZ Post and Kiwibank.

"The uncalled capital provides stakeholders with the assurance that the Government is providing the financial support the NZ Post Group requires, while maintaining a prudent approach to injecting new equity into Crown companies.

"It sits alongside other Government measures such as allowing Kiwibank to retain profits and requiring a lower dividend from NZ Post," Mr Power says.

The exact size of the facility will be reviewed over time in line with the needs of NZ Post.