Wealth tax and negative interest hit retired and poor

retired and poor

Retired and poor New Zealanders are most likely to feel the impact of negative interest rates.

Increased inequality and a worsening of the wealth gap are likely outcomes of the Official Cash Rate (OCR) falling below zero, warn ASB economists.

The ASB warns that from a longer-term perspective zero interest rates could actually create wider inequality within society.

“Monetary policy is a blunt instrument. Lower interest rates reward those able and willing to borrow and penalise those who save. They also tend to boost asset prices and the wealth of the ‘haves’ relative to the ‘have nots,’” the bank says.

The impact of negative interest rates is particularly harsh for older New Zealanders who have worked and saved for their retirement.

News of negative interest rates comes as Green Party and Government minister, Julie Anne Genter told a Newstalk ZB small business panel discussion the Greens election tax policy would be a ‘bottom-line’ condition that must be met for her part to join into a coalition government with Labour.

The Greens election policies include a plan to make Kiwis with a net-worth greater than $1 million, for example, including the family home, shares, Kiwi-Saver, and savings, pay 1 percent of their wealth to the government as a tax.

Pressured to explain, Genter defended the policy saying it would only impact the wealthy.

However attempting to quell the uncertainty, Revenue Minister Stuart Nash says “the wealth tax would be very difficult to implement,” and confirmed that Finance Minister Grant Robertson has repeatedly ruled out a wealth tax.

Under some heat to comment, Green Party leader James Shaw said the Greens don’t have bottom lines, but would advocate strongly for key policies if in a position to negotiate after the election.

As an alternative to negative interest rates and in terms of the overall economy, ASB economists say they prefer an overstimulated economy and toleration of a period of high inflation rather having the economy too “undercooked” and running the risk of deepening the downturn.

They say they expect the OCR to hold after dropping to zero and that it is unclear how easy it will be for the economy to extricate itself from the negative interest rate environment.

With the Reserve Bank of New Zealand likely to leave its current policy setting “untouched” negative interest rates are almost certain warns Kiwibank economist, Jarred Kerr.

“The reason interest rates are falling, and will likely go negative (for wholesale rates), is because the RBNZ (Reserve Bank of New Zealand) believes there is not enough stimulus in the economy to return us to full employment,” he explained.

“If we had done too much, interest rates would be rising. The fact we haven’t done enough means interest rates will keep falling. It’s that simple.”

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News category: New Zealand.

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