The recovery continues to build
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Recovery continues to build
Taxation changes
How demographics are changing the world
Have you read From Crisis to Confidence?
By Bevan Graham, Chief Economist AXA Global Investors
The global economic recovery continues to build. It is proving to be hard work, but structural change was never going to be easy. The early signs are that the necessary rebalancing in growth we need to see for a sustained recovery is also starting to occur. 
There is still a long way to go, but should the next set of risks be successfully traversed, we could in future look back on recent developments as the dawning of a new age of global prosperity.
The next task is the management of the “Great Unwinding”, the unwinding
of the extraordinary monetary, fiscal and liquidity measures that were put in
place during the darkest days of the crisis.
The timing and sequencing of these moves will be critical. In our view, the hardest task ahead in many countries will be getting fiscal policy back onto a sustainable path.
Indeed, sovereign risk moved to the fore over the quarter as concerns over Greece’s fiscal accounts shook investors into taking a harder look at other countries’ finances.
We’ve been warning readers since June 2009 that elevated budget deficits present upside risk to bond yields, particularly US and UK yields.
Back then we judged downside risk to credit spreads outweighed upside risk to government yields. With credit spreads now much closer to their long-term average, this is no longer the case. We think it’s time to add a little more sovereign risk insurance to the portfolios.
Thus we have reduced our global bond allocation further, placing the funds in domestic cash. We have also reduced our offshore currency hedge; because the NZ dollar usually falls during global risk events, increasing the offshore currency exposure adds further downside protection.
With the global economy recovering and corporate profits rising, decreasing the equity allocation is too costly insurance at this stage. Thus we remain overweight equities, with emerging markets still our preferred asset class.
Our views in summary
By Spicers Portfolio Management
Changes to Resident Withholding Tax (RWT) and Portfolio Investment Entity (PIE) tax rates will take effect on 1 April 2010. This will align with changes to personal tax rates and the 30% company tax rate made last year.
You pay Resident Withholding Tax on interest you earn from bank accounts or other investments. The bank or investing organisation deducts this when they credit interest to your account.
RWT changes
Payments of interest to NZ resident investors are subject to withholding tax based on the RWT rates.
The new RWT rates for individuals that will be applied from 1 April 2010 are as follows:
No Withholding taxwill be deducted where the investor has provided a certificate of exemption for RWT.
From 1 April 2010:
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Spicers will change clients who are currently on the 19.5% RWT rate to the 21% RWT rate unless otherwise advised.
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The default RWT rate for individuals who do not provide their IRD number or elect another rate will be 38%.
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For those investors currently on 39% Spicers will change their rate to 38% unless clients advise otherwise.
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Individuals electing the 12.5% RWT rate need to consider if they have a reasonable expectation that their income will be $14,000 or less.
RWT rate for companies
From 1 April 2010 the RWT rate for companies will be 30%.
Do I need to do anything?
If you are a Spicers client, we will automatically change your RWT rate to 21% from 19.5% from 1 April 2010. If you have a reasonable expectation that your income will be $14,000 or less please contact your adviser.
Prescribed Investor Rate (PIR changes)
If you have invested in or are considering investing in a certain type of portfolio investment entity (PIE) such as Spicers Premium Plus or KiwiSaver, then you will need to provide your IRD number and your prescribed investor rate (PIR) to the PIE.
From 1 April 2010
The new PIRs and income thresholds that will apply to individuals from 1 April 2010 are as follows:
Spicers will change all individual PIR rates of 19.5% to 21% unless clients advise otherwise.
PIRs for non charitable trusts
There have also been changes to the PIRs that can be used by non-charitable trusts to help trustees manage their provisional tax obligations.
For the current year ending 31 March 2010 Trusts (excluding charitable trusts) can elect a 0%, 19.5% or 30% PIR. The 19.5% PIR has been added as an option for trustees. If the 0% or 19.5% PIR is elected the trust will be required to include in its tax return the PIE allocated taxable income and tax credits.
From 1 April 2010 non-charitable trusts can elect a 0%, 21% or 30%. Non charitable testamentary trusts (for example settled under a will) can elect a 12.5% PIR. If the 0%, 12.5% or 21% PIR is elected the trust will be required to include in its tax return the PIE allocated taxable income and tax credits.
Trusts that have elected the 12.5% or 21% (or 19.5% prior to 1 April 2010) PIR can not include any PIE allocated tax loss in their tax return.
PIRs for charitable trusts
Effective from 1 April 2009 trustees of charitable trusts must be zero rated portfolio investors.
Selection of incorrect PIR
From 1 April 2010 the Commissioner of the IRD can override a PIR incorrectly selected by an investor; the exercise of this discretion would result in the default PIR of 30% applying.
Do I need to do anything?
If you are a Spicers client, we will automatically change your PIR rate to 21% from 19.5% from 1 April 2010 for individual investors. If you are unsure if you qualify for the 12.5% PIR please contact your adviser.
We hope this information gives you an insight into the taxation changes that are taking place soon. Should you want to know more please refer to www.ird.govt.nz
By Spicers Portfolio Management
The last century saw a dramatic increase in the world’s population: the number of people alive in 1900 was 1.65 billion; by 1950 the total was 2.59 billion; by 1980, 4.43 billion; and by the end of the twentieth century, the world’s population had reached 6.07 billion. And this increase is continuing with the world’s population reaching 6.71 billion by mid-2008. 
The next 30 years will see an equally dramatic change, but this time in
the age composition of populations. The rate of total population
growth is now slowing – although, even so, the UN forecasts that the
world’s population will top 9 billion by 2050.
However, at the same time it is aging on a scale never seen before in human history. In the next 30 years the proportion of New Zealand’s population classified as elderly will go from 12% to 21% of the total population, and on a global scale the aging trend is even far more accentuated.
In the year 2000 there were 5.3 New Zealanders in the workforce for every person aged 65 or older. This seems relatively comfortable when compared with ratios of 3.4:1 in Italy and 3.6:1 in Japan. However, by 2040 there will only be 2.6 people in New Zealand of workforce age for every person in retirement. This will provide a significant strain on the country’s pension and tax planning system.
As a voting bloc, the dominance of the elderly will increase, making it politically difficult to wind back pension entitlements. It will take some benevolence by the elderly on behalf of the interests of their children and grandchildren to prevent future tax rates appreciating rapidly to fund pensions under the status quo.
Furthermore, what we think of today as ‘retirement’ may be forced to change over the coming decades, with an expectation of seeing more elderly people in the workforce, either in full-time or part-time work. The elderly now also face the increasing prospect of growing old alone, particularly women. Not only do women outlive men, but they tend to be younger than their spouses, creating the possibility of a solo decade for women at the end of their lives.
The challenge for the world will be how to provide adequate care for the old without placing a crushing burden on the young. The implications for how society deals with this challenge will be a defining moment in human history. The structures we need to adopt to deal with an aging population, and how people invest their capital, look to be more significant for the next 30 years than at any time in the past 300 years.
By Spicers Portfolio Management
Over the past two years, in both global and local markets, we've witnessed the
collapse of the finance sector, sharemarkets have been in free fall, and the property market in turmoil.
Simply relying on your personal financial matters to look after themselves is no longer an option. Now, more than ever, we need sound, practical and well-grounded advice to keep our investments safe and productive.
From Crisis to Confidence is a new book from Spicers that lifts the lid on what caused the credit crisis and provides invaluable investment guidance for the future.
It provides a series of down-to-earth essays written by New Zealand economists, investment professionals and financial planners for every investor.
Published by Penguin, $40, From Crisis to Confidence is available in all good bookstores.
For further information, please contact Spicers Portfolio Management on 0800 102 100
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Financial Update is a regular publication published by Spicers Portfolio Management. It discusses topical investment and financial planning issues. A free copy of Spicers disclosure statement can be obtained by calling
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www.spicers.co.nz.
Spicers is widely recognised as one of New Zealand's leading financial planning firms with a strong reputation for quality advice, integrity and delivering results. Established in 1987, the company has a network of 45 advisers throughout New Zealand and successfully provides advice on more than NZ$1.2 billion on behalf of its clients.
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Disclaimer
The investment views in this publication do not constitute specific advice (whether of an investment, legal, tax, accounting or any other nature) to any person. The information has been published in good faith and has been obtained from sources believed to be reliable and accurate at the time of preparation. The opinions contained in this document reflect a judgment at the date of publication by Spicers Portfolio Management and are subject to change without notice.