Money matters: Changing banks not for fainthearted

By MARY HOLM

Q: Do you think the Government's proposed People's Bank will work?


A: I haven't put in the hours that the experts have on that question. I have, though, had an experience that perhaps none of them has had recently: I switched banks.

Never again. Or certainly not without a big incentive. If you think changing power companies is a hassle, try changing banks.

The closing and opening of accounts wasn't too traumatic - although when the people at the bank I had been with for years asked me why I was leaving, I did feel a bit like a traitor.

The hard part was transferring all the automatic bill payments, donations, contributions to kids' accounts, on-line payments, direct deposits and so on.

I've got lots of them. Having money go directly in and out of the bank is cheap, easy and efficient - until you want to undo everything.

I had a list of no fewer than 17 organisations to ring. Many sent me forms to fill out and return to them or the bank. Some said they would send forms but didn't.

To cover all bases, I kept accounts open at both banks for two or three months. Some organisations took a monthly payment from both accounts; others took it from neither.

I had to argue my way out of a late-payment penalty that wasn't my fault. When one charity got double its normal money one month, I decided it was easiest just to be generous.

It all settled down in the end, of course. And, admittedly, not everybody's banking is as complicated as mine. For some, switching banks would be quite simple.

I suspect, though, that those who do have lots of automatic payments going to and fro - who will therefore be reluctant bank-switchers - tend to be the better-off people.

Better-off people are also less likely to switch banks to save a few dollars in fees or to get weekend counter service. And they're likely to be put off by the fact that the new bank's customers will probably be able to use only two banks' ATMs.

If the new bank doesn't attract a fair few people who have a few hundred or thousand dollars sitting around in bank accounts, it might find it hard to make a profit.

New Zealand Post has said it needs at least 100,000 customers for the new bank to break even. It adds that up to 175,000 people switch banks each year, so it should easily reach its target.

But will enough of the future bank-switchers choose the new bank to switch to? More importantly, will enough of those who do move to the new bank be the "high net worth" customers that banks find profitable?

With $78.2 million of our money riding on that question, let's hope so.

Q: Would your low-income people (in last week's Money Matters) be entitled to an accommodation supplement from Winz and IRD tax credits, when they are on one income?


A: Yes. And the Inland Revenue goodies would certainly help the family meet the mortgage payments on their new home.

The Winz accommodation supplement, however, might not make a lot of difference to last week's family.

The supplement is payable to lower-income people whose rent, board or mortgage payments are high relative to their income. Their family circumstances, assets and other outgoings are taken into account. Beneficiaries and non-beneficiaries are eligible.

After making a few assumptions, Winz says last week's family might get a supplement of $3 a week if they go ahead and buy a home with mortgage payments of $516 a month.

It's barely worth applying for. The spokeswoman adds, however, that if the family stay in their current rental accommodation, paying $220 a week ($953 a month), the supplement would be $79 a week.

Overall, though, the family would be better off buying a home and skipping the accommodation supplement - or going for the $3, if they can be bothered.

For more information on the accommodation supplement ring 0800 559-009. When I rang, a real person answered, and quite promptly.

Turning to the IRD, one easy way to get information on what's on offer is to go to its website (see below). I clicked on Family Assistance and learned of four entitlements, three of which might help the family in last week's column.

The first two, family support and the child tax credit, are basically for lower-income working families with children 18 or under living at home.

But the cut-off levels rise with the number of children. So, if you have a large family, you might still be eligible for some money even if you're on a pretty high income.

For instance, you can get family support if your total family income is less than $30,946 a year and you have one child. This ranges up to $58,680 if you have six children.

For the child tax credit, family income must be less than $33,546 if you have one child, ranging up to $74,280 if you have six children.

The third entitlement, the parental tax credit, is paid during the eight weeks after a baby is born. Lower and middle-income people are eligible. Your income must be less than $59,617 if you have one child, ranging up to $100,350 if you have six children.

What's more, in all three entitlements, if you have more kids or some of your kids are teenagers, the cutoffs are higher - presumably an acknowledgment that big kids cost more.

There's also a fourth entitlement, the family tax credit, which helps very low-income people only. Last week's family wouldn't be eligible.

The family tax credit brings a family's income up to at least $18,368 a year when at least one parent is working for salary or wages. In a single-parent family, the parent has to work at least 20 hours a week.

How much are the three entitlements worth for our family, after their income drops to $450 a week when their baby is born?

They should receive $69 a fortnight in family support (more if the $450 is a before-tax figure), plus $30 a fortnight in child tax credit.

And they'll get an extra $300 a fortnight in parental tax credit for the first couple of months of the baby's life. That's worth having.

To find out if you are eligible for family assistance, ring IRD's automated 24-hour phone service, on 0800 257-777. Key in your IRD number and then the hash key. Then press 1, then 4, then 1.

The nice recorded lady will then ask how many children under 18 you have, and your family income. She then tells you how much you might be able to get in fortnightly payments, and asks if you want to be sent the forms.

Q: In one reply to a question on capital gains tax, you say that some economists claim the accommodation enjoyed by people in owner-occupied houses should be regarded as income, and this "imputed rent" should be taxed.

I have some questions about this concept:

* The home will have been paid for out of tax-paid income, so how can it be taxed again?

* Would the imputed rent be taxable only on mortgage-free houses?

* If the imputed rent is regarded as income, would the costs of interest, insurance, rates and repairs and maintenance be deductible for tax purposes?


A: What do you think would be good? There's no law taxing imputed rent, just an idea wandering around out there. So we can make up whatever rules we please.

Here's what I would like.

First, I think that in an ideal tax system imputed rent should be taxed. After all, not having to pay for something is equivalent to receiving income.

Under the present system, owner-occupiers effectively pay themselves rent, and that income isn't taxed.

Tenants, meanwhile, invest their money in things other than houses. But the income they receive from that alternative investment is taxed.

This discriminates against tenants. It also leads people to put more of their money into owner-occupied housing than they otherwise would.

Now to your questions:

* The money that we put into any investment is already taxed. We then pay tax only on the new income generated by the investment - such as interest, dividends (the tax is usually paid at company level), or rent on an investment property. Why should imputed rent be different?

* I see no reason the tax shouldn't apply to houses with mortgages. But mortgage interest would be deductible against the imputed rent.

* Yes, I think all those costs should be deductible. For some households, that would leave little or no taxable imputed rent income.

I acknowledge, though, that keeping track of all this would be rather a drag. Perhaps we would be better to go with economist Gareth Morgan's suggestion, to tax just the imputed rent on land and not buildings.

Land is "a non-depreciating asset, as opposed to buildings, which conceptually at least are consumed a little each year," says Dr Morgan. We could, therefore, think of the money we spend on home maintenance as "the rent" we pay for the building.

How would we tax just the rent on the land? When local governments set rates, they divide up our property values into land and buildings. We could use that same allocation.

But before we get too carried away here, it might pay to note a point made by Dr Morgan in a recent paper. "In theory, the imputed rent concept is equally relevant to other forms of economic activity undertaken on one's own account," he writes, "for example, gardening, home maintenance, preparation of meals."

He adds, though, that for several reasons it would not be good tax policy to tax the value of those activities. Phew!

One final point: In all these discussions on tax, I'm not suggesting that our total taxes should be higher.

I actually think they should be lower.

So if imputed rent were taxed, other taxes could be reduced.

* Mary Holm is a freelance journalist and author of Investing Made Simple. Send questions for her to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@journalist.com. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information. Mary cannot answer all questions or give financial advice outside the column.

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