Sunday, May 25, 2008

NZ faces chaos, says financial adviser

When did New Zealand last have a tax cut? I have to say that I can't remember. I do, however, remember the publicity that surrounded it. There was, for example, a television commercial in which a comedian walked through an airport departure lounge, or some such place, asking people how they were going to use the extra money.

Extra money? Well, yes, for a few weeks, or even for a few months, one does seem to have a little more money than before in one's pocket. But then prices go up, and one's pay goes up - until, eventually, one is pushed into the next tax bracket, and finds oneself paying tax at a higher rate again. And in no time at all, the tax cut becomes meaningless, and is forgotten.

Unsurprisingly, this is what many people are saying in the wake last week's national budget from the Labour Government. The budget raised all tax thresholds from October 1, giving most workers from $12 to $28 a week extra. These sums will rise to between $21 and $55 a week in 2011, the Government says. But by then, of course, anything could happen.

(The rises for pensioners - and I am one of those - are $23.84 a fortnight for singles and $45.88 a fortnight for couples.)

Some of the most interesting comments on the budget have come from Palmerston North financial adviser Kathy Jarrett, who says not even $100 extra a week would fix the financial mess that New Zealanders have got themselves into.

This mess is a result, she says, of an inability to budget and an inability to distinguish between wants and needs, and has been at least 20 years in the making.

Now, she says, the bubble has burst, "and everyone is screaming like a stuck pig". And the chaos society faces, 18 months to two years down the track, could be worse than the Great Depression, she warns.

She advises people to stash their cash, grow vegetables, make sure their boss loves them, and try to save a reserve of six months in mortgage payments.

The era in which people could remortgage their home to buy a new car, and remortgage it again to fix the kitchen, are over, she says.

Underlining Ms Jarrett's comments is an article by Ruth Laugesen in today's Sunday Star Times. This quotes a finding by Roy Morgan New Zealand that nearly 150,000 New Zealand households are at "extreme risk" of missing mortgage repayments and losing their homes. Those at "extreme risk" are defined as those spending more than 30-45 percent of their income on interest payments alone.

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