Sometimes Boring Is Good For You

By Paul Dunne, Partner, KPMG

Sometimes a tight and boring budget can be a good thing – KPMG is pleased that the Government’s top priority is focussed on getting the country’s fiscal and deficit position under control.

Business should view this in a positive light as getting the fiscal and deficit position under control will help reduce the volatility on our interest and exchange rates.

The proposed KiwiSaver tax credit reductions and taxing the employer contributions shifts the onus to greater employee and employer contributions to make up the difference. This is not a bad thing per se – incentives come at a cost, including currently higher Government borrowing. The need for action on retirement savings must be compelling with or without incentives. It is however dependent on income growth and a robust savings sector.

On an individual front, savings will increase as a result of the increase in KiwiSaver contribution rates to 3% for both members and employers from 1 April 2013. However, the Government’s rate of contribution will fall. In our view, the basic proposition that KiwiSaver is a favourable investment for New Zealanders is unchanged. The Government contribution continues to enhance the returns and reduce the impact of falls in investment markets on investors’ funds.

However, despite being billed as a savings related Budget, Government has left many issues undecided. Still under consideration are the Savings Working Group’s recommendations about auto-enrolling people into KiwiSaver. Also undecided are the recommendations about taxing savings differently to other income.

KPMG believe that it is important that Government moves to address these matters.

Debt reduction is also key. The Government has clearly signalled its intention to pursue mixed ownership of some State Owned Enterprises as a mechanism to reduce funding pressure. The Government, knowing that its policies need to be sustainable in the long-term, is giving New Zealanders the ultimate say in November.

This Budget is about holding the course rather than dramatic reform. The Treasury is telling us the combination of increased private savings, reduced Government expenditure and Canterbury rebuild will see us through. Many businesses are facing challenging times at present: it is essential that the underlying assumptions are accurate and expected future economic benefits are realised.

Government has laid out the pathway and is relying on the electorate to understand the economic realities for New Zealand. The November 2011 election will be a vote of confidence in economic direction.

ends

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