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Politics is not everyone’s cup of tea. It can be complicated, time-intensive to follow and understand and at times, messy and scrappy like a bad soap opera. In the face of that, there are many well-documented reasons why people don’t vote. Some feel like their voice doesn’t matter and would rather not be involved. Some might like the policies of one party, but not agree with their other policies, making it hard to choose who to vote for. Some might not like any of the parties at all! For some, it’s just a pain to vote, for whatever reason. These reasons can make it tempting to pop politics into the “too-hard basket” and ignore it.
However, disregarding politics can come at a cost.
It can be tempting to become indifferent to politics however, as the catch cry of the Feminists in the 60’s put it – “The personal is political”.
What the feminists meant was that their personal rights, which impacted their day to day lives, were decided by the Government of the day. So, even if you avoid the conversations and the media noise and don’t vote, your life is still affected by politics regardless.
Even if you aren’t going to the booths this year, it’s worth knowing what is being proposed and how that may impact you, more specifically, your financial position, depending on who wins in October.
To give you a 101 overview, I’ve done a quick summary of each party’s policy in areas that affect our financial wellbeing – including Tax, Kiwisaver, Property Investment, Family & Health.
These policies will have a strong bearing on your financial position and, regardless of how you cast your vote, it’s helpful to know what to expect from the next three years.
First off the bat, there are no real policies aimed at improving financial outcomes for women announced so far. If the government is going to tinker with KiwiSaver (which National seem keen on) they could at least look at improving women’s retirement balances. Or when it comes to tax, I wouldn’t say no to taking GST off period products, as we know that the cost of these can even prevent girls from attending college in NZ which is deeply concerning.
Let’s look at going on and how it affects you. We will get the big one out of the way first; tax is always a hot topic at election time so here’s a breakdown of the proposed changes so far.
Te Pati Maori have been campaigning to remove GST from all food for a while now, but a major player has finally come to the table with Labour promising to remove GST from fresh fruit and vegetables. Given the price of food currently, this has been a popular move for many people. It is especially worth noting that GST as a type of tax disproportionately affects those on lower household incomes. This is because those households spend a higher percentage of their income on items that have GST, even if the dollar value they spend is lower.
Following hard on the heels of that announcement however, Labour announced an increase to the petrol tax of 12c/litre over the next 3 years, in order to pay for their plans to improve roading infrastructure around the country. Given that the cost of food is impacted by the cost of getting that food from the source of production to your supermarket, there is a good likelihood that this new petrol tax will in fact have a flow on effect on the price of food, amongst other things.
National has stated that they would roll back several taxes implemented by the last government, as well as reduce income tax across the board by ensuring tax brackets are inflation adjusted going forward. They have yet to provide full details on their tax policy but have indicated that an individual on $75,000 per year would be $950 better off as a result of their tax cuts.
ACT’s tax policy is perhaps the most dramatic, with a proposal to simplify our current income tax to only 2 brackets, 17.5% and 28%. This would have a huge impact on anyone earning over $70,000, who would be dropping from the current tax rate of 33% and for any earnings over $180,000 they would be 11% better off.
Lastly the Greens have suggested making your first $10,000 tax free, something which would cut tax for everyone but with a higher impact for those on low incomes. They would balance a new top tax rate of 45% for those earning over $180,000 (currently the top tax rate is 39%) but say that anyone earning under $125,000 will pay less in tax. They have also proposed a wealth tax of 2.5% on net wealth (this is your assets, such as property or investments, minus your debts) over $2m, as well as increases in Trust Tax and Corporate tax.
Moving on from tax to something I certainly find more interesting, what in the world is going on with KiwiSaver this election?
National have so far proposed two different changes to KiwiSaver, neither of which have been well received, at least in the adviser industry. First they have promised that under 30s can withdraw from their KiwiSaver funds to pay bond on a flat. The two main concerns here are that it is very common not to get your entire bond back (often through no fault of the tenant in question) and secondly, for however long the bond is being held, that money is not generating an investment return - which it would do if it were in their KiwSaver during that period. This combination will lower the overall balance of young kiwis who are struggling to buy first homes already.
The second suggestion is that people could start splitting their KiwiSaver between multiple providers, theoretically giving them greater diversification. In reality, KiwiSaver is already diversified, and kiwis are already lacking in knowledge and confidence about choosing a provider and a fund. Adding further complexity undermines the role of KiwiSaver as a tool for all kiwis regardless of financial literacy or access to professional advice.
Act have indicated that they consider the Government contributions to KiwiSaver a waste of government funds and would reduce this, possibly through means testing who gets the contributions, although the details are not clear. Many self-employed people already struggle to see the value in KiwiSaver as they don’t receive employer contributions; if Government contributions are removed as well there is a good chance this segment of society will stop engaging with KiwiSaver at all.
From KiwiSaver – the government’s hope for our retirement – we move to investment property, the traditional asset Kiwis have looked to for their retirement planning. Perhaps unsurprisingly, Labour have not proposed any changes to the current legislation, which has changed significantly under their Government already.
National and ACT have both said that they would re-introduce interest deductibility on investment properties. Currently if you run a business, you can claim interest on any loans you have as an expense, thereby lowering your tax obligations. Investment properties were treated the same way until recently, allowing landlords to essentially offset the interest part of their mortgage (and often it is an interest-only mortgage) against any profit made on the property. Currently you can only deduct the interest on new builds, which has left landlords with existing properties with much less cost effective investments.
National and ACT will return investment property to a business model, and have also promised to pull back the bright line test to 2 years rather than the current 10, if not abolish it altogether. The bright line test is a form of capital gains tax whereby any increase in value on the property (the capital gain) between the purchase date and sale date, is taxed.
The Greens have come at property from the opposite point of view, that of the tenants, and are proposing rental controls to ensure rent can’t be increased beyond certain caps, a rental Warrant of Fitness and a Landlord’s register that tenants can check, to ensure that the property they are looking at moving into has a good track record.
On a positive note, there are some areas at least where all parties appear to agree, and that is the need for more accessible healthcare, and that families are doing it tough and need some support.
This ranges from the Greens’ Income Guarantee policy which is aimed at ensuring that no one falls below a minimum standard of living, everyone in NZ would have at least $385/week, regardless of whether they are in work or not. Families would receive a top-up per child as well, with the amount being adjusted once you earn $60,000 or more.
National and Labour have more targeted policies, largely benefitting families with working parents. Labour will increase the In Work Tax Credit by $25/week as well as making 20 hours free Early Childcare available from age 2, rather than age 3. This may enable parents to go back to work sooner or have more flexibility in the roles they go back to, if childcare is affordable from an earlier age!
National’s Family Boost policy would provide a 25% tax rebate on childcare costs, for all families earning up to $180,000. The maximum rebate would be $75/week for households earning up to $130,000, and for households earning between $130,000 and $180,000 the rebate is tapered down.
Health is another big concern, not just to families but to all kiwis, as we know the health system is under huge pressure. Labour has announced they would make GP prescriptions, currently $5/per script, free for all. National have immediately said they would scrap that policy if elected but have more recently announced that instead of funding prescriptions they would fund 13 more cancer drugs through PHARMAC. Currently if you need those drugs to treat your cancer diagnosis your options are to have a health insurance in place which covers Non-PHARMAC drugs (not all do) or to find the tens of thousands it costs to pay for them yourself.
The Greens have announced that their focus is on free dental, but they also have a proposal to make ACC cover illness as well as accidents, essentially replacing income protection insurances. The levies paid by both employers and employees would be increased to cover this.
Lastly, ACT have said they would put more funding into GP practices however it’s unclear whether this would subsidise the current costs of going to see the GP, or whether the costs would remain the same and this funding would be directed at keeping GPs in business and ensuring we have enough doctors to meet demand.
Whew! If you’ve got this far and you’re feeling confused, I don’t blame you. In all honesty, writing this blog has made me question how I might cast my vote this year! Your own situation will determine which policies resonate with you, and which will benefit you most. Remember that there are plenty of other policies not covered in this blog, so please do have a read or a listen and chat with your friends and family.
As an adviser, I can’t tell you who is going to win this election and I certainly can’t tell you who to vote for, but I can help you navigate the financial implications of new policies that might come into effect as a result of these elections. The personal is political. Have your say if you can, and then come on in and let’s make a personalised plan for your future, starting with the how the next three years might look for you.
Elizabeth
Hi, I'm Elizabeth, one of the Financial Advisers here at Velocity Financial. Day-to-day, this involves engaging in conversations with clients about their lives, families, aspirations, and, of course, financial goals. In a big picture sense, though, I'm driven by my perpetual desire to improve outcomes for individuals and, eventually, communities. At Velocity we aim to bolster the financial literacy of Kiwis, helping to alleviate financial anxieties, and opening up the possibilities of what can be achieved. We empower our clients to formulate a plan for the future. I'm particularly passionate about assisting women in reaching their financial goals and feeling confident in managing their money. To aid in this, I write a monthly blog on topics that affect women and maintain an Instagram page @what_would_she_do.vf. This platform provides financial content for those who might not be prepared to consult with an adviser yet but still require and deserve sound advice. In my past life, I was a nurse, so helping people is essentially my modus operandi (I'm also quite resilient and not easily grossed out!). During my spare time, I'm likely attempting to keep up with my energetic kids. If I do manage to find some time for myself, you'll find me curled up with a coffee and a book.
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Elizabeth is the author of the monthly blog What Would She Do? A column for women, by women.
Disclaimer: Elizabeth Tsikanovski (FSP693611) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Elizabeth’s disclosure statement on our website.