Saturday, May 21, 2011

Budget-I have to put my 5 cents in :)

I live in New Zealand and our new Budget was delivered yesterday. It is the most discussed subject right now-and for a good reason.
We are just a small island country, in all actuality. There are no major resources (I am not considering our millions of sheep "resources") and we are very far away from everywhere else in the world.
Although England considers us it's pet, I am quite certain it will not come to our rescue and pour billions into our economy,should we find ourselves drowning.
We are not a member of European community and thus shall not expect to be bailed out like Greece.
So Budget is really important: it is our future,our survival. It is very real and affects every one of us almost immediately (NZ only has population of about 4 million).
It is very much akin to a household budget.
I am politically agnostic-I only consider policies and Budgets for their practical merit, i.e. "bottom line". I can care less about the ideology behind them.
I don't like politicians categorically and have NEVER voted for anyone while I lived in US (in NZ it is compulsory,unfortunately), because I think they all terrible people with over-inflated egos who can care less about the future of their country and it's people. It's all about power and money for them.
What I do like is discipline (I've mentioned that several times before) and simplicity.
So, what is the bottom line? Just like in every household,we need to reduce expenditure and reduce debt.
It is that simple.
There are 4 key points in this last Budget that sparked huge controversy and polarized opinions:
1. Cutbacks associated with student loans
2. Cutbacks associated with KiwiSaver contribution (for those who don't live in NZ: KiwiSaver is government-assisted individual retirement plan-kind of like 401K in US-same concept)
3. Cutbacks associated with "Working for families" credit (tax credit for people with kids)
4. Partial sell down of some public assets (Air NZ being one of them).

Let's look at those individually.
Student Loans.
Although I am a big supporter of education and do seriously believe that it is priceless, while I lived in NZ for over 3 years I've noticed a clearly emerging pattern.
A lot of youngsters (I personally know at least couple of dozen) enroll into Universities and Colleges  for the sole purpose of receiving Government grant (about $225/week, give or take), thus avoiding working and  enjoying doing nothing for a few months/years. These people have little or no interest in the subjects taught, they miss classes regularly, and, as a rule, have no intention of ever paying their student loans back.
I don't mean to say everyone is like that, but it is a fair percentage.
There is another category: people who do,in fact, want to educate themselves, but have much bigger plans for their future. As soon as they graduate, they leave the country to work for big bucks someplace else as a result of their qualification and, again, often don't bother repaying their student loans in NZ.
Bottom line is: if you honestly and sincerely want to educate yourself, you can and will do so,regardless of whether or not you getting Government assistance.
Case in point: I used to know someone, a girl from NZ, who lives in Australia now. Although she never received a formal University education, through reading,researching,etc she is on much higher ground  educationally than some Bachelor Degree holders I know. In fact, she is not even in the same ballpark-she is playing a different stadium,so to speak ( much superior one) and all that at zero cost to her Government and her fellow taxpayers.
Yes, if you want to become a doctor or an engineer, you absolutely must attend a formal school. But if you chose one of those fields, it also means that you're fairly committed and responsible.
Another side of this education coin,in my opinion, is that NZ puts way too much value in "paper" credentials and the country ended up with "pie in their face" twice in the last 3 years because of that (I am talking about false credentials provided by candidates for high-paying Government jobs,one of them associated with Immigration, another with military intelligence)
What I mean is so many jobs require certain formal qualifications. Although in some fields it is reasonable (like a University Lecturer, for instance), in some it's totally unnecessary.
Example: a lot of restaurants, when hiring a Head Chefs and a Sous Chefs and even a Chef De Parte's , require Level 4 NZQA certification. But what does that paper prove? As a long-term hospitality veteran, I am here to tell you: zilch,zip,zero. It just proves that you've gone to school and managed to graduate-it doesn't even specify your marks! It does not reflect your personal skills or even ability to perform the job required!
I've lived in US for 20 years and, although, I don't particularly care for that country, they did get some things right. One of those things is the fact that if you can prove that you're capable of doing the job, you can and will be hired, formal certifications be damned.
In fact, a lot of places require an "audition". For instance, when I applied for a job as a Nail Technician at the Canyon Ranch Spa at the Venetian hotel, I was asked to perform a series of services on the manager: pedicure, acrylic nails application, manicure,silk and gel nails application. They took careful note of my technique,timing and,most importantly, FINISHED PRODUCT. That's what it's all about: whether or not you can  deliver the result. I was hired, based strictly on the results of that audition. If I failed even in one area, all my certificates and recommendation letters would not get me that job.
The most desirable employers in US (those who pay big bucks) don't want to waste their time "training"- for the money that they pay, they expect you to "hit the ground running". I don't think it's such a bad concept.
So to get proper training and to gain experience, you have to start "at the bottom"-with those less desirable employers. They pay you less, but you still earn money while you're getting trained and,often times, this training proves invaluable, as this is "real time" which is much different from "class time" in controlled environment.
I think NZ Government would save a lot of money if they allowed or even sponsored more apprenticeship programs.

From the outsider's point of view (mine,that is), Kiwis have very carefree attitude to living beyond their means. I wonder if they realise that NZ is called a "Nanny State" by a lot of foreigners. Everyone  here seems  to expect the Government to take care of them regardless of circumstances.
Here is one story. When I worked in a restaurant in Hawkes Bay, most of employees were high school kids or Uni students or those who graduated high school but couldn't decide what to do with themselves.
One of those (undecided) was 19 year old guy named Adam.
Although quite intelligent, Adam spent his entire days doing various drugs and drinking with his mates. He had potential,definitely, but he really did not apply himself.
When he was arrested for drunk driving for the third time in as many years, he was given home detention sentence because I wrote a nice letter pleading with the Court for leniency (otherwise he would have gone to prison).
He promptly got fired from the restaurant 3 weeks later (had a huge row with the owner and, although he was somewhat right, I couldn't do anything about it-the owner wanted him out).
So he found himself unable to leave his house,thus couldn't go looking for another job and without any means of support.
He gave me authorisation to apply for help for him from "Work and Income" (NZ welfare department). To my astonishment, they actually put him on a benefit (called "the dole" in NZ) of $180/week AND at one point, when he didn't have any money to buy groceries, they  gave him the voucher for $80 to do so.
So the Government paid all his expenses for 4 months while he was meant to be punished for wrongdoing! And he spent those months drinking,doing drugs and playing "PlayStation" (which he purchased with the "dole" money-that's why he was short on "food" money).
Towards the end, I managed to get him a job in my friend's restaurant and he is actually doing much better now:off drugs,cleaned his act and attending some classes to further his education. I give my friends credit for that,as they treat their employees like a family and really are a great positive influence.

But back to savings conversation: most Kiwis live "paycheck-to-paycheck" and don't have any savings whatsoever. That is why Government started KiwiSaver in the first place: they wanted to encourage their citizens to save. A lot of incentives were given, such as matching contributions and tax-free status.
But let's face it: providing for our future is our own responsibility. It is up to us to make sure we have enough money put away for "golden age". It has been like this for hundreds of years all over the world. Why do Kiwis think it's different for them? Why should they rely on the Government?
We are very fortunate we have a stable Government and peaceful country. Think about some South American and African countries where Governments change every few years. The suggestion of putting their savings into government's hands in those countries will make citizens laugh!
It is up to us to look after ourselves-we are adults,after all.

Working For Families Credit.
This is tax credit associated with having kids. I know I am going to spark a controversy, but here it goes: having kids is not a right, it's a choice and a privilege.
I am pro-choice, but before pro-lifer's start on me, let me say this: "choice" begins long before abortion issue even come into play.
It is a choice not to use contraceptives.
It is a choice to have unprotected sex.
It is a choice not to do anything about it straight away (in this age of morning-after pills, which are FREE in NZ, and various other steps that could be taken to prevent pregnancy).
And, yes, it is a choice to keep the baby when you know that you cannot ensure that the child will be cared for properly,fed,clothed and educated. Love is great, it really is, but it doesn't pay the bills and neither should the government be expected to.
I feel I have every right to say this,as I have decided when I was 19 that I do not want to have any children and am very glad that I did not bend under pressure of society, my parents and my husbands.

Partial sell down of the assets.
We have 16 billion dollar deficit. It is a fact. It does not matter at this stage how we got it-no reason to cry over spilled milk.
We need to reduce this debt. Partial sell down is definitely the way to do it under the circumstances and much more preferable to whole sell down.
We will still be able to participate in ownership (as we will retain majority of the shares) and,as major shareholders, we will partake in the profits. The assets will be protected from falling into overseas control.
This is a great way to reduce the mortgage instead of just paying the interest.
Example. Say you own an investment property and it brings in decent rent. So far so good. Now let's say you had an unexpected event that put you in financial hardship (you were made redundant and cannot find another job, your company went bust, huge medical bills,etc). You now have a sizable debt. Right thing to do would be to sell your investment property. Yes, it brings income, but not nearly enough to cover the gaping hole in your finances and you're probably running up your credit card balances as well. The golden rule: you don't borrow to save. It is much better to clear off your debts and start fresh.
Our Government doing even better: they are selling only part of the assets. To me it's a win/win situation.

In my opinion, this is very realistic Budget and if we do it right,we can and will be in black again.

1 comment:

  1. I found your views on the working for familes tax credits quite interesting. The thing is though the credits are not designed to help the parents, ie the ones who didnt get an abortion or choose not to have kids, the credit is there to help the kids. Basically its just another way of saying its not the kids fault that they were born into a low income family and they should not suffer because their parents are idiots who dont have any hope in providing for them. The problem is that there is no way to ensure that the extra money given to the parents is actually spent in the correct way (helping the kids). I think a better idea would be subsidizing the costs of having kids by providing certain services free of charge for them. For instance kids that come from familes that qualify could be provided a free lunch at school and then given extra food to take home with them over the weekend, they would also be given vouchers that can only be used at say a clothing store or similar to help make sure they have basic clothes and shoes and then maybe. I mean really if you were providing breakfast and lunch and some extra food for weekends then thats probably the equivilent of around 50-80$ per week which is close to what the actual credit is in cash. I think that would be a much better system as it ensures basic needs of the kids are met but does not reward parents for their choice to have kids.