All posts tagged Alan Bollard

Tax cuts: High earners set to benefit most

Source: nzherald.co.nz

 By Audrey Young  

 4:00 AM Wednesday Feb 10, 2010

 Big personal tax cuts for middle and high-income earners are likely to be announced in the May Budget and take effect from October this year.

The tax cuts of up to $4 billion will be funded mainly by increasing GST from 12.5 per cent to 15 per cent, and cutting depreciation tax breaks on buildings.

Prime Minister John Key pledged to give across-the-board tax cuts in his statement to Parliament yesterday on his plans for the year.

There would be upfront increases in social welfare benefits, superannuation and working for family payments to compensate for the GST rise.

He acknowledged that higher income families would benefit more from the tax cuts, because they pay more in tax. Lower income earners would be no worse off – unless they owned rental property – and he expected them to be better off.

He said the Government would not increase GST “unless it saw the vast bulk of New Zealanders better off”. “GST is a very difficult tax to avoid, no matter how people structure their financial affairs. As David Lange once observed, even drug dealers pay GST.

His plan also set new priorities in science and innovation, and in exploiting the financial gains in gas and oil exploration and mining minerals – on conservation land.

“We are not magicians,” he told reporters. “We are not a Government that has spare cash, so we are having to move things around to make sure we can invest in areas we think are most critical for our growth.”

Referring to comments by Reserve Bank Governor Alan Bollard on Sunday about New Zealand’s gap with Australia, he said: “Alan Bollard might be satisfied with the crumbs off Australia’s table – I want the entree, the main course and the dessert.”

It is thought that the Government’s present aim with the October tax cuts will be to align the top personal tax rate of 38c and trust rate of 33c with the corporate tax rate of 30c.

But there is still more work and modelling for officials to do before that looks like a certainty. At the very least there is an expectation that the top personal tax rate will drop to 33c.

The Government may want to keep something in reserve in case it has to match a cut in the Australian business tax rate from 30c.

The measures will have the effect of reinstating, in a broad sense, the tax cuts that National cancelled because of the recession, and funding them from elsewhere.

Yesterday’s statement was the Government’s response to the tax working group which urged reform for a “broken” tax system by lowering personal taxes, and steering investment away from residential property to more productive sectors.

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by Auckland Law Firm, Quay Law on 09/02/2010  •  Permalink
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Posted by Auckland Law Firm, Quay Law on 09/02/2010

http://aucklandlawfirm.co.nz/2010/02/09/tax-cuts-high-earners-set-to-benefit-most/

Bollard hints at earlier rate hikes; kiwi jumps

Thursday, 10 December 2009, 11:00 am
Article: Businesswire

Bollard hints at earlier rate hikes; kiwi jumps Thursday, 10 December 2009, 11:00 am

Article: Businesswire Bollard brings forward timing of OCR hikes, driving up kiwi dollar, short bond rates By Paul McBeth Dec. 10 (BusinessWire)

Reserve Bank Governor Alan Bollard brought forward the likely timing of increases in the official cash rate after lifting his forecast for the pace of economic growth, driving up the kiwi dollar and short bond rates. Bollard kept the OCR unchanged at a record low 2.5%, as expected, and said provided the economy continues to grow, “conditions may support beginning to remove the monetary stimulus around the middle of 2010.” He has previously said rates would not rise until the second half of next year. Search New Zealand Business Related Stories on Scoop NZ dollar jumps on Bollard hint of early rate hike 10/12/2009 Bollard to hold rates steady; may point to rebound 07/12/2009 RBA hikes rates for third straight month 01/12/2009 Bollard talks down impact of rate hikes on kiwi 21/10/2009 NZ inflation accelerates; kiwi dollar jumps 15/10/2009 Results powered by search.scoop.co.nz More Related Stories >>> “The economy continues to recover, reflecting improved world growth, higher export commodity prices, increased government spending and housing strength,” Bollard said in a statement released in Wellington today. The New Zealand dollar jumped to 71.87 U.S. cents after the Monetary Policy Statement was released in Wellington, from 71.22 cents immediately before. The yield on two-year government bonds soared 20 basis points to 4.55%. “I’m a little surprised they are happy for business and mortgage rates to go up,” said Grant Hassell, who oversees about $4 billion as head of fixed income at AMP Capital Investors. The central bank may have been “spooked” by the strength of the housing market. Helping underpin the kiwi, Bollard indicated a “sense of comfort” with the current level of the New Zealand dollar, which “stops it falling any further in my view,” Hassell said. There is a “very real possibility” the RBNZ hikes rates in March, as the market has priced in, especially given the Reserve Bank of Australia probably won’t slow its tightening process. Still, Bollard would prefer to wait until June, he said. Domestic property values climbed 1% in the 12 months through November, the second month of gains from the same time a year earlier, according to QV Valuations data. The central bank will have to walk a fine line over stoking economic activity without over-egging it as inflation begins to speed up ahead of Bollard’s expectations and the housing market continues to show signs of emerging from the lethargy of the past 18 months. The Reserve Bank’s Expectations Survey found respondents see inflation accelerating to a 2.6% annual pace from 2.3% over the next two years. Prices unexpectedly rose in the third quarter, with the Consumer Price Index increasing to an annual 1.7%, according to government data, ahead of the 1.2% pace forecast by the RBNZ. The central bank has a benign outlook for inflation, and Bollard said he expects the annual consumer price index will remain below 2% until early 2011 and “track within the target range over the medium term.” The Reserve Bank expects the 90-day bank bill to begin rising in the June quarter next year, when rates climb 0.1 percentage points to 2.9%, and increase to 3.3% in the September quarter. The bank previously forecast this to occur in the December quarter of 2010 and March quarter of 2011, respectively. Before today’s statement, traders had been betting the central bank would hike the OCR by 1.63 percentage points in the next 12 months, based on the Overnight Index Swap curve. The scale of expected tightening has declined in the past month as Bollard reiterated the divergence of monetary policy between New Zealand and Australia, where rates have been rising for the past three months. Bollard said he tried to combat the market’s tendency to “price some degree of interest rate normalisation” once investors guessed the OCR had hit its bottom by adopting his outlook on how long interest rates would remain depressed. “We believe this communication has helped reduce the extent to which markets priced near-term OCR increases,” he said in his report. The trade-weighted index for the New Zealand dollar, the central bank’s preferred method of tracking the currency, has climbed more than 24% from its low in March, and has damped Bollard’s preferred export-led recovery. “The high level of the New Zealand dollar has limited the scope for exports to contribute to the recovery,” he said and the central bank predicts the 90% gain in dairy prices on Fonterra Cooperative Group’s online auction website over the past four months have largely been offset by resurgent currency. New Zealand climbed out of its first recession in a decade in the second quarter this year as returning expatriates and an inflow of new migrants helped underpin the housing market, and boost business and consumer confidence, and the bank boosted its forecast for economic growth, projecting 1.1% quarterly gains in gross domestic product in the December quarter next year and March quarter of 2011. The central bank said unemployment had been tempered by businesses cutting worker hours rather than laying off staff, and was near its trough. The Reserve Bank cut its projections for the unemployment rate, which is expected to peak at 6.7% next year, down from the 7% forecast in the September statement. Bollard highlighted the links between monetary and fiscal policy, and said “fiscal consolidation would help reduce the work that monetary policy might otherwise need to do” as the economy returns to growth. The central bank’s main policy tool came under scrutiny after Parliamentarians criticised the big our Australian-owned banks earlier this year for failing to pass on all of the OCR cuts to their customers. Faster consolidation and tweaks to the tax system could help increase the national savings rate, and lead to lower interest rates on average, he said in his report. A big uncertainty for the economy is whether consumer spending will follow on from the resurgent property market, with households taking a “very cautious” approach to their spending decisions, Bollard said. Consumer spending has shown a small spark ahead of the Christmas shopping season, with core retail spending on electronic cards, which excludes auto-related sales, up 0.3% according to Statistics New Zealand. (BusinessWire)

Source: Scoop.co.nz

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by Auckland Law Firm, Quay Law on 13/12/2009  •  Permalink
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Posted by Auckland Law Firm, Quay Law on 13/12/2009

http://aucklandlawfirm.co.nz/2009/12/13/bollard-hints-at-earlier-rate-hikes-kiwi-jumps/

Beware a return to bad habits

NZ Herald

Reserve Bank Governor Alan Bollard is worried about deja vu when it comes to New Zealanders’ love for property investment and consumption, rather than saving and investing to produce more exports. Bollard believes we could be making the same mistake all over again and there appears to be nothing he can do. His bluntest instrument is the Official Cash Rate and he has promised to sit on that for the next year or so. Bollard’s decision this week to leave the OCR at a record low of 2.5 per cent is consistent with his promise to keep it at that rate or lower until late next year. The economy is crawling towards recovery, but may yet go through more dips before anything sustainable arrives. Bollard can’t cut interest rates, but neither can he raise them much without damaging a fragile recovery. Some exporters would argue he should cut rates to bring down a painfully high New Zealand dollar. Yet consumers seem to be slipping back into their bad old habits. Home buyers and investors are hitting the open homes again and there is ample anecdotal evidence of renewed heat in the housing market as spring arrives. This is exactly what Bollard does not want. New Zealand’s economy is careering towards a credit rating downgrade and foreign lending freeze unless New Zealanders save more, spend less and invest more in the productive sector. More property investment will simply tip that balance even further in the wrong direction. So what can Bollard and policymakers do? They seem to be powerless, but there are some tweaks they could make to restrain the banks’ ability to lend heavily into property. The Reserve Bank looked at other tools for influencing the housing market and the broader economy in 2006 when it was pushing up the OCR in vain to cool a housing market that refused to listen. It looked at a mortgage interest levy, a discretionary limit on bank loan to value ratios and linking bank capital to cyclical risk. In the end none was adopted, partly because the Reserve Bank was going through the complicated business of converting to Basel II, the new set of international rules for measuring capital adequacy. Under Basel 1 banks had to put aside a set amount of capital for different types of loans. This was known as risk weighting. Residential lending was given a 50 per cent risk weighting, while other loans were given a 100 per cent risk weighting. This encouraged banks to lend more on property because they didn’t have to put aside so much capital for this lending. Under Basel II the banks were allowed to set their risk weightings according to their own experience of losses, which meant they could lend even more into housing because loss rates on home loans were very low, meaning they could set their risk weightings lower than 50 per cent. However, under Basel II the Reserve Bank has the right to impose a discretionary “scalar” to these risk weightings for mortgages if it thinks the banks’ own assessments are too optimistic. The Reserve Bank has already imposed a 15 per cent discretionary scalar to the capital adequacy requirements and in May in its Financial Stability Report it imposed extra restrictions on how the banks calculated their risk weightings for rural lending. Changing the discretionary scalar could be a way for the Reserve Bank to push the banks to lend less on property without having to change the OCR or damage other types of lending. It could even reduce the risk weightings for business loans to encourage lending to business. The Reserve Bank has to look at innovations if it wants to break out from its own Catch 22.

http://blogs.nzherald.co.nz/blog/show-me-money/2009/8/2/beware-return-bad-habits/?c_id=34&objectid=10588055

Bernard Hickey from interest.co.nz on personal finance trends, mortgages, homeloan affordability, credit cards and more

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by Auckland Law Firm, Quay Law on 02/08/2009  •  Permalink
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Posted by Auckland Law Firm, Quay Law on 02/08/2009

http://aucklandlawfirm.co.nz/2009/08/02/beware-a-return-to-bad-habits/

Blow to NZ’s economy

By TRACY WATKINS

Growing economic confidence has been knocked by New Zealand being placed on negative creditwatch as the Government puts its hat out to international lenders. International ratings agency Fitch said it was worried about New Zealand’s high debt levels and reliance on overseas borrowing. The agency confirmed New Zealand’s rating at AA plus, but yesterday’s decision to revise its outlook for New Zealand’s credit rating from stable to negative came out of the blue. It comes as the Government looks to increase its borrowing the Budget foreshadowed a need to borrow $34 billion over the next four years to help cushion the blow of a recession. Any threat of a downgrade could push up borrowing costs. But Finance Minister English said he was confident that would not happen. The Government had so far managed to raise money “at a reasonable cost”. But with the Fitch warning coming as it prepared to seek more money between now and Christmas, more assurances may be required. “We are setting out to borrow a large amount of money and we’re going to be going to those investors who are lending us to tell them our story. No doubt this kind of new rating will mean they’ve got a few more questions.” Earlier in the year, there were serious concerns the global credit crunch would leave money in short supply and force the Government to borrow at higher rates. A credit downgrade hung over the Government in the leadup to the May Budget, but its decision to cancel the next round of tax cuts and trim spending looked to have staved that off, with one of the biggest ratings agencies, Standard & Poor’s, awarding an upgrade. Fitch said it was worried about the medium-term growth outlook for New Zealand given its persistently large current account deficit and rising indebtedness. Analysts said it also appeared to be worried about the risk of another housing market bubble, funded by overseas borrowings. Fitch head of Asia Pacific sovereign ratings James McCormack told Radio New Zealand today that he thought New Zealand’s current account deficit was a structural feature of the economy. “It does tell us the economy as a whole is living beyond its means and borrowing money to finance that,” he said. “When the economy is living beyond its means you can divide it into the public and private sector and the private sector is not saving enough money in New Zealand, so we think if that is going to be the case going forward then it comes down to the public sector to save more money.” That would mean spending cuts. Fitch was not critical of the Government providing tax cuts, saying countries all over the world were trying to provide short term stimulus during a global recession. Ad Feedback It acknowledged it was a difficult time for exporters. “It’s difficult for the export sector, there’s no question about that, there’s the pricing effect and there’s the New Zealand dollar and the third factor is global demand.” Householders needed to change their behaviour. “Household savings are particularly low in New Zealand, even lower than they have been in the US. . . they probably need to come up to a higher level.” Mr McCormack said if householders did improve saving there could be an “unpleasant adjustment” as their reduced spending impacted on the economy. The previous government started the Kiwisaver scheme and New Zealand Superannuation Fund to improve savings but it was “probably not enough”. Another concern Fitch raised was that the housing sector may bounce back and see even more borrowing. Mr Fitch said the agency would continue monitoring what happened in New Zealand. Credit rating downgrades affect New Zealand’s ability to borrow money and interest rates charged. “I think in order for the outlook to go up to stable we’d need to see an adjustment in the current account balance,” Mr McCormack said. “We started to see that in the first quarter. If the current account deficit continues to decline and decline in a meaningful way such that the external debt of New Zealand stabilises then I think the rating outlook could go back to stable.” Both the previous Labour government and the National Government have continually urged New Zealanders to save more. But its pessimism contrasts with signs of renewed confidence in recent weeks including Reserve Bank Governor Alan Bollard’s suggestion that New Zealand is likely to begin recovering from the global financial crisis ahead of the pack. “The New Zealand economy has taken some knocks but some form of recovery is now on the horizon,” he told a business audience this week. But Dr Bollard appears to be ahead of the Government Mr English was careful yesterday not to endorse his view. Asked if he agreed with Dr Bollard, he would say only “any optimism is welcome”. There was one silver lining yesterday, however the Fitch report came as Mr English was in Brisbane for talk with his Australian counterpart, Wayne Swan, where a deal was finally done to allow workers from each country to transfer their retirement savings home. Australia’s tax office estimates as much as A$13 billion (NZ$16.17b) is held in lost accounts within its compulsory superannuation system much of it believed to belong to Kiwis who have crossed the ditch to work. New Zealanders will now be able to transfer those savings to their KiwiSaver accounts, and vice versa. Mr English said he expected legislation within 12 months. WHAT IS THE CURRENT ACCOUNT DEFICIT? The difference between what we earn overseas from our exports and investments, and what we pay for our imports and the investments foreigners have in New Zealand. – with NZPA

http://www.stuff.co.nz/national/politics/2601367/Blow-to-NZs-economy

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by Auckland Law Firm, Quay Law on 17/07/2009  •  Permalink
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Posted by Auckland Law Firm, Quay Law on 17/07/2009

http://aucklandlawfirm.co.nz/2009/07/17/blow-to-nzs-economy/

Rates cut to 2.5pc

Richard Baron / Fairfax Media

Richard Baron / Fairfax Media

The Reserve Bank has dropped official interest rates to a new low of 2.5 percent and is promising low rates at least till the end of next year.

The decision, just announced by RBNZ Governor Alan Bollard, was as expected by a majority of economists.

The move continues a massive series of cuts since July when the Official Cash Rate stood at 8.25 percent, taking the OCR to its lowest level since it was created in 1999.

The news gave the Kiwi dollar a bit of a jolt. It dropped about three-quarters of a cent against the American currency and was just under US56.5c a short time ago.

“We consider it appropriate to provide further policy stimulus to the economy,” Bollard said.

“We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters.”

The latter comment goes against Bollard’s own words just last month when he said he saw interest rates bottoming at 2.5 percent. The market has been looking for a definitive assertion from the RBNZ that rates would stay low for a long time – and got it today.

The words from the governor have already prompted one bank – Westpac to move on its rates.

Westpac New Zealand has confirmed a 0.4 percent cut to its 6-month fixed housing lending rate. This brings its 6-month home loan rate to 5.39 percent. The rate will be effective from Friday.

Westpac General Manager of Product Management, David Cunningham said: “An important implication of the OCR announcement is the signal from the Reserve Bank that it intends for interest rates to remain low for an extended period. This will provide considerable cash flow benefit to New Zealand home owners with mortgages.”

Bollard has been cutting rates in response to the fact that New Zealand’s economy has been in recession since the start of 2008. Economists suggest there may now be very early signs that a recovery is on the horizon.

The latest National Bank business outlook survey released yesterday recorded the biggest improvement in sentiment among Kiwi companies since the December 2000 survey. “A turning point appears to have been reached for the economy,” National Bank chief economist Cameron Bagrie said.

The extent to which the latest reduction in official rates will be passed on to homeowners through lower mortgage rates is a key question, however.

Bollard has not been slow to prod the banks into action and he was at it again today – gently.

“We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing,” Bollard said.

Banks have been indicating increasing difficulty in passing on official rate reductions because the cost of money they are sourcing from overseas remains relatively high.

BNZ chief economist Tony Alexander told BusinessDay prior to today’s decision that even if the OCR eventually hits 2 percent – as he is predicting – it is unlikely either the retail banks’ fixed or floating home loan rates will come down much further.

Alexander says that is because the local banks borrow 40 percent of their funding from overseas and the turmoil in international credit markets is forcing them to pay more to secure that funding than in the past.

“You should not expect to see the floating rates coming down much more…I would not expect a 100 percent feed-through [of OCR cuts],” Alexander said.

The run-up to today’s rates review made the decision arguably the most fascinating – and hard to predict – since the bank started reducing rates last year.

While Bollard had chopped another 50 basis points off the official rates at the last review in March, he also talked the about the rates being on a “glidepath” to 2.5 percent. At the time most of the economists had been predicting a bottom of the cycle rate of 2 percent or even lower.

Bollard’s comments were taken by some in the market to mean that interest rates may actually be going UP again quite soon.

As a result of this, the wholesale interest rates charged between the banks started rising and the Kiwi dollar began to surge. Thousands of New Zealanders clamoured to fix long-term mortgage rates, fearing that they had missed the “cheap” rates. This itself, put more upward pressure on the rates.

Bollard was moved to the most unusual step of putting out a media release early this month saying that the rise in long-term wholesale interest rates was “out of line” with the RBNZ’s expectations.

 

By DAVID HARGREAVES and ADRIAN CHANG – BusinessDay

http://www.stuff.co.nz/business/2374640/Rates-cut-to-2-5pc

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by Auckland Law Firm, Quay Law on 29/04/2009  •  Permalink
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Posted by Auckland Law Firm, Quay Law on 29/04/2009

http://aucklandlawfirm.co.nz/2009/04/29/rates-cut-to-25pc/

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