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Tuesday, 24 August 2010, 11:53 am Press Release: new Zealand Government Wide brief for expert group on savingsoptions An independent Savings WorkingGroup announced today by the Government has a wide brief toconsider how new Zealand can improve its national savings,Finance Minister Bill English says. “Improving the levelof national savings is the next step in the Government’sprogramme for tilting the economy towards savings andexports. “We have deliberately set wide terms ofreference for the Working Group. the only exclusions are NewZealand Superannuation, which this Government will notchange, and broad taxation of capital gains or land, whichwe have previously said we will notintroduce. “Otherwise, we are not ruling anything in orout,” mr English says. The Savings Working Group willnot focus solely on options for retirement savings: it willcanvass a range of options for improving new Zealand’soverall savings performance, including governmentsavings. “the Government has an open mind about whatmight be required and we don’t want to prejudge theoutcome,” mr English says. “We also hope this exercisestimulates constructive public debate and discussion alongthe way “Increasing our national savings and investmentlevels is a critical issue for new Zealand, because of ourheavy reliance on foreign capital. this has produced highand rising debt to the rest of the world, which cannotcontinue.” New Zealand’s challenges around savings andinvestment are stark, mr English says. Theyinclude: • Running a current account deficit every yearsince 1973, implying that investment in new Zealand hascontinuously exceeded national savings. the difference hasbeen funded mostly by borrowing offshore. • Net debt tothe world – across government, households and business –jumping from about $100 billion in 2000 to almost $180billion currently, and forecast to be almost $250 billion by2014.“so we have a big task to turn around thiseconomy and rebalance it towards savings and growth,” MrEnglish says. The Savings Working Group, which willdevelop a practical menu of options for ministers by January2011, will consider all areas of importance to nationalsavings. this will include: Fiscal policy: The roleof Government savings as part of the national savingspicture, including long-term savings/debt targets and anyoffset between government and privatesavings. Taxation: The impact of the tax system,particularly taxation of income from savings and investment,on the level and composition of national savings andinvestment decisions. this will include: • The case formoving to a dual income tax system, where labour and incomefrom savings and investment might be taxed at separaterates. • Indexation/part-indexation of the tax system sothat real, rather than nominal, income from savings andinvestment is taxed. KiwiSaver: The role ofKiwiSaver in improving national savings, suchas: • Improving the operation and outcomes of KiwiSaver– including options where KiwiSaver is either voluntary orcompulsory. • The fairness and effectiveness of currentKiwiSaver subsidies. The Savings Working Group will bechaired by experienced company director and consultant KerryMcDonald. other Working Group members are: • Dr CraigAnsley – Capital Markets Research director.• Dr AndrewColeman – Motu Economic and Public Policy Research seniorfellow.• Mary Holm – financial columnist, AucklandUniversity senior lecturer.• Dr John McDermott -Reserve Bank assistant governor.• Paul Mersi -PricewaterhouseCoopers partner.• Stephen Toplis – Bankof new Zealand head of research. The Working Group willbe supported by Treasury, which will shortly publish adiscussion paper setting out savings and investment issuesand trends. Working Group members will be paid about$70,000 in total. this and all operating costs will be metfrom within Treasury’s existing budget, with staff supportfrom the Reserve Bank, Inland Revenue and Statistics NewZealand. Working Group website (including Terms ofReference):www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroupSAVINGSWORKING GROUP – MEDIA Qs ANDAs1. Why is the Government usinganother working group?The challenge of increasingNew Zealand’s national savings is important, requiringconsideration of a number of issues and potential options.the Government wants this process to be open and transparent– and to encourage constructive public debate.

WorkingGroups have fulfilled this role well in other areas such astaxation, social housing andwelfare.2. What is the Working Group’sbrief?The Savings Work Group has been asked toreport to the Minister of Finance with advice on options forimproved national savings in new Zealand. The Group’sscope will include: • The role of Government savings aspart of new Zealand’s overall savings picture, includinglong-term savings/debt targets.• The impact of the taxsystem on the level and composition of national savings andinvestment decisions. • The role of KiwiSaver inimproving national savings.3. What problemis the Working Group looking to fix?Savings andcapital formation are essential parts of any economy. Overthe next four years, new Zealand’s net debt (private andpublic sector) is projected to grow to more than our income.new Zealand has produced current account deficits every yearsince 1973, which implies that national investment hascontinuously exceeded national savings across both theprivate public sectors. 4. How do new Zealand savings rates compare withother countries?There are a number of ways ofmeasuring this – and this is something the Working Groupwill look at in detail. on at least two measures, ourchallenges are stark: new Zealand’s net debt to the restof the world has increased to almost $180 billion and thecountry has run a current account deficit every year since1973. 5. Is the Government committed to changingsavings policies after the Working Group reportsback?The Government will consider the WorkingGroup’s advice when it receives its final report. at thisstage, we are not ruling anything in or out – apart fromconfirming that we will not change entitlements to NewZealand Superannuation and that we will not introduce abroad taxation of capital gains orland.6. What timeframe is theGovernment working to – when will the Working Group reportback and will there be changes announced in the Budget nextyear?The Working Group will hold its first meetingthis month. it plans a series of six meetings, before afinal working session in December 2010, with interim papersto be made public along the way. the Working Group isscheduled to report to the Minister of Finance in January2011. 7. Will this lead to compulsory retirementsavings?The issue of compulsory retirement savingsis just a small part of new Zealand’s overall nationalsavings picture. the Government is focused first andforemost on comprehensively understanding the wide range ofsavings and investment issues facing new Zealand. at thisstage, we are not commenting on specific ideas that mightcome out of this debate.8. What will thismean for taxpayer-funded new ZealandSuperannuation?There will be no changes to eitherthe age of entitlement or payment levels of new ZealandSuperannuation. the Government has already committed tokeeping existing arrangements inplace.9. Could further tax changes be partof any savings package?We have asked the WorkingGroup to look at the impact of the tax system, particularlythe taxation of income from savings and investment on thelevel and composition of national savings and investmentdecisions. in particular, the Group will consider the casefor moving to a dual income tax system, where labour andsavings and investment income might be taxed at differentrates. it will also look at indexation or part indexation ofthe tax system so that real, rather than nominal, savingsand investment income is taxed. 10. Will the WorkingGroup exercise influence Government decisions aroundcontributions to the new Zealand SuperannuationFund?No – this exercise is about increasingnational savings. As we’ve said, borrowing to invest inthe Super Fund does not increase national savings – itsimply changes the mix of the Crown’s balance sheet.Contributions to the Superannuation Fund will resume whenbudget surpluses permit. 11. How much will theWorking Group cost?The cost of members’ fees willbe about $70,000 and there will be additional operating andsalary costs of the secretariat supporting the WorkingGroup. All of these costs will be met from within theexisting budget baselines of Treasury, with staffcontributed from the Reserve Bank, Inland Revenue Departmentand Statistics NewZealand.” ENDS Wide brief for expert group on savings options