It would be a bit tricky, though. Would the Government go back and give the kick-start to the KiwiSaver members who have missed out because they joined after May 2015?
With a total of about 335,000 people who have joined in that period, that would cost the Government $335m, plus the cost of those who join in the future.
On the other hand, reintroducing the kick-start would certainly boost its attractiveness for children.
Under-18s don't get tax credits or compulsory employer contributions, so without the kick-start, KiwiSaver hasn't had much appeal.
And that's a pity. Getting kids into KiwiSaver — so that they start contributing when they get their first job — is a great way of setting up a lifetime saving habit.
Of course, if the Government was to make KiwiSaver compulsory for all employees, it wouldn't need to bother with a kick-start — not that I've heard that that is in the offing.
Long-term gain
The St Marys Bay derelict property recently reported as sold for $3 million in the Herald was bought 118 years ago for $800 (£400).
That's about 7.2 per cent compounded annually. At 4 per cent, it would have been just $82,000. But at 10 per cent it would have sold at $61m.
Astonishing numbers — which other readers can check out on any online lump sum calculator.
It shows how much difference the rate of return makes over a long period, which is why it's good for long-term savings to be in a higher-risk, higher-return KiwiSaver or other fund.
If you can cope with the balance sometimes falling over in the long run, you usually end up with lots more.
The Reserve Bank's inflation calculator — a favourite online tool of mine that you can find at tinyurl.com/RBNZcalc — has data on CPI inflation all the way back to 1862, but unfortunately it goes back only to 1962 for housing inflation.
It shows that since 1962 the average New Zealand house price has risen 8.5 per cent.
By the way, the calculator also tells you how much food, clothing, wages and transport have risen over time.
For example, from the start of 2000 to the end of last year, CPI inflation has meant items that cost $100 then cost $146 now. Meanwhile, wages have risen from $100 to $172 — so at least most people are getting ahead.
Looking at different sectors, transport that cost $100 then costs $131 now, and food that cost $100 then costs $150 now.
The standouts are housing and clothing. Housing that cost $100 then has zoomed to $353 now, whereas clothing that cost $100 then costs just $101 now — almost no change in 18 years.
Healthy retirement
I read your column for your good advice, but you took me by surprise when you recommended that retirees not own rental property.
I own five rental flats in the CBD in Auckland, which generate between 5 and 12 per cent net return after rates, and body corporate fees.
This translates into about $1800 a week in income after taxes. All the while I can see a 2 to 3 per cent value increase per year. I may just be lucky, but your advice is music to my ears as there will be less competition for additional properties.
What I said two weeks ago was: "But rental property is not a great investment in retirement, because of the hassle and the fact that you receive only rent and can't spend the capital. I suggest to retirees that unless they have plenty of other income, it's a good idea to sell a rental when they retire."
Where I said "unless they have plenty of other income" I should have added, "or receive enough income from the rentals".
What I was getting at is that many people in retirement with one or two rental properties are getting by on not a particularly high income. If they sold the property, they could spend that money and have a much more luxurious retirement.
But you seem to be comfortably off, so good on you.
Great investment
I know quite a few property investors who, like myself, find property a great investment in retirement (it would be greater if it was not for the constant meddling with the rules, but these too bring opportunities for seasoned investors as newer, less capitalised ones are driven out of the market).
The return is better than we can get in the bank if we cashed up. In addition, we have growth potential as well as income, as does the stock market.
Importantly, many of us are hands-on and enjoy working on our properties and improving our portfolio. We can add value both for ourselves and for our tenants, as well as the eventual inheritors of our hard work (there is no denying it is hard work and, like all returns, has risks).
One investor I know in his late 70s still manages and maintains his properties and has recently bought more and is upgrading them. Our properties help keep us young (although some tenants do manage to age us overnight, as does overzealous officialdom).
Whereas it is true that there may be losses in the beginning (and in my case it took many more years than I hoped before I could live on the returns), this is not unlike many businesses. Certainly we bought for long-term holds, with rental growth in mind.
Given how fast many homeowners upgrade and move house (without paying tax on the gain), it would be interesting to see the average holding periods of the two different groups, setting aside the actions of speculators, who should be treated differently.
It's true that the return on your rentals is probably better than in the bank. But if you were cashed up, you could also spend the capital, giving you a higher income. But, like the previous correspondent, perhaps you don't need it.
I take your point about enjoying working on your properties. I mentioned hassle above, but to some people the repairs and maintenance are fun — although, as you say, some tenants aren't.
On your last point, I'm not sure how we distinguish landlords from speculators, other than by how long they own a property. So to imply that non-speculator landlords have longer holding periods than homeowners is cheating a bit! We would need to also exclude short-term homeowners.
And by the way, those short-term homeowners don't escape tax. Says Inland Revenue on its website: "If you have a pattern of buying and selling property, then you may be a property dealer and may have to pay tax when you sell property, even on your family home."
Market competition
I don't understand the logic of the person who said in your column that when an investor buys a home there's one less for the others to fight over.
These "others" are those who at least have a show at bidding. If an investor buys, the house becomes available to tenants, most of whom are too poor to ever dream of bidding on a house. Is it ethical to hope to fix the home ownership problem by squeezing out the poor?
Ah, but if fewer property investors were bidding, prices would be somewhat lower and a few more families, who can't currently afford their own house, would be able to own.
Put another way, converting one landlord from owning two homes — their own plus a rental — to owning just their home gives us one more home for a tenant to buy.
Inequality of taxation
Two weeks ago you wrote: "But the current system — with people taxed on the income they earn from work while others are not taxed on the income they earn sitting around doing nothing — has got to be less fair."
I've got to say that I agree totally with that statement.
First, I feel very lucky to be in the group that is not taxed, while earning increased wealth through investments that enable me to live very well. I'm in my mid-50s and recently sold a business and invested the proceeds in various things that I feel give a balanced portfolio (shares, illiquid long-term ventures, a couple of properties, etc).
There is very little net income generated (such as dividend payments, net rent, bank interest), but each year there is considerable net wealth generated.
I live by periodically liquidating some of the wealth, but each year I gain more than I liquidate.
I didn't pay tax on the proceeds of the sale of the business, and I don't pay tax on the net wealth increase because it isn't income.
To me this is patently unfair. Yes, I pay GST, rates and various other taxes, but I pay nothing on the bulk of my net worth increase.
Some claim that because the companies I own shares in pay taxes that I shouldn't have to pay again, but I discount that as a greedy viewpoint to take.
Companies are entities in themselves and therefore should pay tax separately from those who own them, in my view.
Instead, a huge tax burden is placed on people who work for others and earn salaries or wages.
Although some of these people earn very good salaries, most are on average or lower wages, and there are many people such as myself who "earn" more than most salaried people and yet pay no tax because we have no income.
As I have circulated more in these circles, I have come to realise that there is a large group of these people both in New Zealand and globally, and the vast majority of them see no problem with not being taxed; in fact, many view it as a right. "I owned a company that created many jobs, so the country owes me", is a common theme.
Thank you for your honesty. I hope the Tax Working Group is listening.
Meanwhile, can I cheekily say that one way to ease your conscience would be to make large donations to your favourite charities — or larger ones if you are already a giver.
Next week we'll hear from a reader who strongly disagrees with my comment that you liked.
- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
