Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
Generate is supporting my vision to improve the financial literacy of 100,000 Kiwis by sponsoring Keep the Change. Cheers Generate! Head to generatekiwisaver.co.nz forward slash change to find out more. The more I see these government budgets, I can't help but be reminded of the headwinds that are coming towards us.
The amount of borrowing over the next four years is reduced by $6 billion. The first downgrade since 2021. And that's all wrapped up into these assumptions about how the economy is going to grow. We're going to get to sort of 3% plus growth.
I think they fundamentally don't understand the SME market. I get a bit cynical, sceptical, that's probably a better word, because I look at these... graphs projecting out the future and they always look really perfectly curved and stuff. But if you look at anything historic, it's, you know, holy sheesh, you know, it is all over the show.
Every day people sort of looking and going, God, things are tough. Well, I spent a big part of my day yesterday at the budget lockup down at the Beehive, even got the receipts to prove it.
Chapter 2: What key changes were introduced in the NZ Budget 2026?
But today we're going to be digging into it and finding out what it may mean for all of us here in New Zealand. Greg Smith from Generate, the investment specialist. It is good to see you as always. Great to be back, Luke. Thanks for having me along. You've got a stack of notes there. I have.
I was busy yesterday. I listened to the whole thing, watched the whole thing online, and tried to make sense of it as I could. Is this sort of an annual thing for you? You really get deep into the budget and see what's on it? Oh, I think it affects everyone, and perhaps there weren't the fireworks that some were expecting. But, yeah, look, it has real consequences for a lot of people.
And what were some of the key themes that you spotted in this budget when you were going through it with your highlighter there?
Well, yeah, I've got my highlighter here. But, look... BBB, that's not our credit rating, by the way. We're still in the A's. But yeah, basics, build, and buffer. And maybe you could add boring to it as well. But look, there were some aspects I think worth sort of paying attention to. But the obvious or usual beneficiaries' health, that affects everyone, right?
So some of the things in the budget were quite targeted. But health is something that everyone benefits from, whether it be in the form of hospitals or better services. So $5.5 billion, that's a chunky number. But I don't think too many people would disagree with that being a heavy priority. Building, budget was about building a lot of stuff as well. So infrastructure.
So we're getting things like the new extension to the Cambridge Expressway. That's going to be great for the economy as well in terms of freight and in terms of efficiencies there. So that's around about $1.8 billion. There's rail as well. And then you've got schools, also very important, but also infrastructure. about tangible stuff, building actual classrooms.
So I thought that was pretty much a theme permeating things. The buffer, we've got the war still going. Well, I suppose we're in a ceasefire at the moment, and hopefully the conflict does end. But the reality is we're still paying more for our petrol debt.
existing subsidy I think is going to remain in place until 91 goes or 91 petrol goes below three dollars for I think it's four weeks or something like that so we're so we're not there yet and then of course we've got this 450 million buffer as well in case the war does drag on which we don't want to see but lots of interesting things that you think if I if there's there's the bank levy as well
So there's a bit to sort of choose. There's a few things left out. KiwiSaver didn't get a big mention at all, really. Neither did AI. But, you know, there's probably various reasons around both of those.
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Chapter 3: How does the budget impact everyday New Zealanders?
It's not after the fact. It's before the fact. So there's a bunch of assumptions that go into it. Perhaps it was a little bit surprising about, you know, obviously going into surplus a year earlier than expected.
I think the other really, you know, for a nerd, for sort of a finance nerd like me, the other big headline was that the amount of borrowing over the next four years is reduced by $6 billion. Wow. the first downgrade since 2021. And that's all wrapped up into these assumptions about how the economy is going to grow. We're going to get to sort of 3% plus growth by end of that forecast period.
So perhaps a little bit surprising and particularly for everyday people sort of looking at going, God, things are tough. We've talked about cost of living pressures before on the podcast. They're still here. In fact, they're here even more, aren't they, with what petrol's doing. Somehow we've got this position where the budget's going into surplus sort of a year earlier than planned.
So there's a lot of assumptions there about higher tax takes and the like. But yeah, look, as we're talking about the growth slant last year, and of course going into late February before the conflict started, yeah, New Zealand was... in a getting better sort of position.
There's probably sort of budding recovery, and we talked about green shoots and getting a little bit greener and a little bit taller maybe. And then, yeah, obviously we had the conflict started. But yeah, but then you've got this budget, which has got some optimistic tinges to it. But dealing with a lot of uncertainty, we don't know how long this conflict's going to go on.
But yeah, some really interesting divergences. And also notice one versus... What the Treasury is saying about when you look at rate hikes in New Zealand, the Treasury are only forecasting one this year. The market's saying we're going to get over three. We get an 80% chance of one in July.
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Chapter 4: What are the main themes identified in the budget analysis?
So there's some interesting assumptions there.
So we'll tell who's right. Well, if you're listening along, feel free on Spotify or YouTube to leave us a comment and let us know what you thought of the budget or what you thought could have been included in the budget. I learned a few things yesterday because I was down there for the first time understanding this budget in a bit more detail.
And I think it's probably worth pointing out for people that we have the Reserve Bank in New Zealand. We often get data from them. We then get Statistics New Zealand, who often give us data as well. Then we have Treasury. And Treasury effectively set these underlying fundamentals or methodology on which the budget is built on.
So then they sort of predict what house price growth may be, how many people are going to be moving to New Zealand, what they see the official cash rate being, what levels of inflation that we will have. And then the budget is built on top of those. I remember last year thinking, wow, Treasury think that property prices are going to grow 6% year on year. But they got that wrong.
And also that number has now been revised down from a year ago to a lower number. But all of this, I guess, is built on top of assumptions. And when I look through the budget, I get a bit cynical, skeptical, that's probably a better word, because I look at these graphs projecting out the future and they always look really perfectly curved and stuff. And debt will peak here and nicely come down.
But if you look at anything historic, it's, you know, holy sheesh, it is all over the show. But I think it's worth all of us remembering that these numbers and budgets are often based on an assumption into the future that And those assumptions can very well change. And I believe the budget data may have been sort of near on finalised in April. And now we are into May by the time we get this data.
So they've got to almost assume how much of an impact this war that was going on at the time of putting these numbers together and finalising is actually going to have on. on this budget. So not an easy thing to do when it is so hard to predict the future in this day and age.
Oh, for sure. And you have stuff happening all the time. I mean, just look at the last six years. We've had a pandemic. We've had Russia invading Ukraine. And then we've had the US effectively launching a war, US and Israel launching a war against Iran. So Yeah, you wouldn't predict any of those things. But look, that happens, and that happens throughout history.
It feels like a lot of stuff's happened in the last six years, which it has, but there is always stuff happening. And, yeah, you have to make assumptions to the best of your ability, I suppose, and just have to sort of see how it all plays out. But, yeah, there's budgets and assumptions. It's ideally how the government that's presenting that budget sees things playing out.
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Chapter 5: How is the budget addressing health and infrastructure needs?
So, yeah, it is taking a long-term view rather than going the other way. And this certainly wasn't a lolly scramble by any means. And so anyone that was expecting it to be will be deeply disappointed. But then, you know, I think it's prudent in many ways. Yeah, there's things that could have been better.
And I'm sure you could, depending on your political persuasion, could argue one case or another. You could also say there's a buffer there for us. You know, obviously we are heading into an election in a few months' time. So, you know, is there... Are the lollies going to be dispersed in a few months' time? Time will tell on that.
But yeah, a very element of sort of, and Nicola Wells obviously kept using the word about being a responsible budget. Yeah, it was a boring budget, but I think that aspect of, and whether it was Labour, whether it was National presenting somewhere where you're investing in roads and hospitals and schools, yeah, I think that's a good thing.
Yeah, there is obviously always a lot of chat because I think these things have become very political. But even if you go back to what you said, the basics, build and buffer, they're probably good foundations and fundamentals for us individually as households to be thinking about with our own budgets where you've got to...
keep an eye on what money you've got coming in what you've got going out what are you trying to build to in the future how can you delay gratification and then how can you have a buffer set aside for when things do get tricky as well and people hate comparing the household to the government budget but to a degree there's some good solid financial fundamentals in there
Oh, absolutely. And it sort of certainly brings true and you could sort of segue into a household. Yes, you spend and you want to have experiences in that, but you also got to think about the future. You think about your KiwiSaver, think about maybe should you be contributing more? And have a plan.
It's easy to go and have everything that comes in just sort of go out and there's cost of living pressures and so on. It's probably where budgeting is, of course, even more important, isn't it? And sort of having not spending or not sort of splashing the cash, which has happened potentially in the past. We saw that in the wake of the pandemic.
You know, interest rates got down to, you know, close to zero and some people maybe weren't as sensible as others. You looked at the, you know, we were going, lots of people were going in and buying new plasma screens and... flash new cars and upgrading their house just because borrowing costs were lower or they'd been cooped up and had some savings buffers.
But yeah, you do need to take a long-term view as well. Great to have fun in the here and now, but also thinking about the future. And I guess you just go across to KiwiSaver. That's obviously a fundamental aspect of what we're looking at there.
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Chapter 6: What are the implications of the new FIF rules?
Obviously, lots of talk around lifting the age to 67. And look, that's for the government to decide. But, yeah, that's going to go to $30 billion by 2030. And then there's the conversation, you know, what form is that even going to be in, say, 10 years' time? And Nicola Willis sort of did mention that.
So, yeah, from our point of view, we don't think there should be huge changes to ā obviously a lot of people are calling for a rash of changes to KiwiSaver ā Automatically it's contribution rates and fund choice. That's the biggest thing that matters. Getting advice and making contributions. We'd love to see a situation where those contribution rates are lifted further at a similar cadence.
As we've gone three, three and a half, four. If we can get that sort of cadence and that sort of increase over a consistent period, presuming the economy can sort of withstand it, that would be a great opportunity. If we got to six plus six, six from the employee, six from the employer, that takes us to 12. We've come up to 20 years next year. It took Australia 33 years to get to 12%.
Wouldn't it be so good to beat the Aussies in that sort of journey? Shouldn't take 20 years to do that either. Shouldn't take 20 years to get to six plus six. should be at a reasonable cadence, presumably the economy can afford. Yes, considerations in terms of employers and the impact there on businesses and that aspect would have to be looked at.
But yeah, that conversation is not going to go away. Obviously, they're also the ones about more recently about certain politician raising about enrolling all children from birth and then Again, worthy of a conversation, and certainly I'm sure those calls will head up into the election.
And I think as these KiwiSaver balances get bigger, it highlights the importance of getting good advice around it. I remember reading something recently around the differences in the age groups of generate customers versus the national average, and in each of those age groups, the people who have received advice have a higher balance than those who don't.
Now, that's not the only thing that contributes to that. However, a lot of people still have money in default funds or have just signed up to KiwiSaver and don't understand it. But as a country, we're now at a place where I think the average is just past $40,000. Markets have been on a run since that data was collected as well, which I'm sure we'll come back to.
that you guys are getting close to $10 billion worth of funds under management and giving advice out to nearly 200,000 people across the country.
Yeah, we're really super stoked by that journey. And yeah, the tribe sort of continues to build, which is amazing. But yeah, advice is a central part of that journey. So over 90% of our members came through advisors. So that's probably one of the highest, if not the highest. And that, you know, typically fosters better outcomes.
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Chapter 7: What role does AI play in the future of the economy?
So really happy that recently we won the Consumer NZ People's Choice Award for the sixth time. And so this is they do a questionnaire of are you happy with your KiwiSaver provider? and all sorts of questions. And bottom line was in terms of having customers that were very satisfied, 90% of Generate customers were very satisfied. And that sounds like a high number, right? It is a high number.
And the real telling aspect that the average for the industry is 62%. And second place, I'm not going to name any names here, we don't do that, and there was a few in second place, was 75%. That's not even close, 90 to 75%. So really super happy about that, and it's a reflection on the customer service people, the investment team across the board in general.
Hopefully a few Friday beer shouts or something like that to celebrate. I don't know what happens in financial institutions these days, but no doubt the team will be getting around each other and celebrating that. Hey, speaking of investors and a lot of budding investors listening to this and in New Zealand now with the likes of access to different funds and even individual stocks.
And one of the changes that came through the budget that I think I've seen a lot of my audience probably most excited about was the change to the foreign investment fund de minimis threshold. Now, what does that mean? Well, let's just keep it really simple for people. Basically, once you have cost over $50,000 worth of international stocks and Now, I want to point that word out again, cost.
It's not what do they become worth in the market. It is what did they cost you. Then you are exposed to fifth tax rules. So let's say Luke is a big Tesla fan and he gets the car and then decides he's going to buy some shares as well and he keeps buying these Tesla shares.
As soon as I go past $50,000 worth of those Tesla stocks, then I fall into a new set of tax rules and potentially have to return 5% of my ownership of those stocks as an income. My income is then taxed at my marginal tax rate and I've got to pay tax on that, whether I'm selling them, whether I've realised the profit or not.
Now, I want to point out that there's a couple of different ways for people to calculate this, but I'm just using this as an example to illustrate. But one thing that I also see people... Misunderstanding is that your cost price starts at the first financial year at which you have $50,000 in cost. So it may be the 30th of July and you finally buy 50 grand worth of your Tesla stock.
It's not from that date, it's actually your cost price would be from the 1st of April the following year that your cost price would start. Again, this is not tax advice, but just something that people miss. But they've doubled this threshold from $50,000 to $100,000.
The last time, well, this threshold was introduced, I think, in 2000, designed to probably encourage people to invest into New Zealand and tax people bringing a lot of money here that may have overseas shares. But also... ideally be simplified and keep the compliance at a minimum for people. But now people are saying, well, we're investing a lot because of different share platforms.
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Chapter 8: How does the budget affect KiwiSaver and retirement planning?
But I've obviously been straight into KiwiSaver and got on board, right? Yes, it's increased over 19 years, that being their salary, but goes to show time and a steady progress pays off. Still have 10 plus years till I get to 65. And I'm not contributing more than the minimum now as I want to deploy money to more accessible funds. So they've signed up to KiwiSaver.
And they've contributed over those 19 years. They're obviously learning to a point where they can see, sheesh, I've got a pretty good snowball here. Then they're learning about investing outside of it as well. But imagine logging in and going, sheesh, my investments have made me more money than I am.
And that's, I think, something that a lot of us are hoping to create at some stage in our life is to not have to work for every single dollar. And I think this beautifully encaptures what KiwiSaver was actually designed to do longer term.
Oh, that's right. Increase awareness and ultimately make people better prepared for retirement and more financially secure than they were. And for a long, long time in New Zealand, it's about owning that house, having that house, and that's your retirement sort of nest egg.
And you talked about before about the property market, what perhaps not the sure thing at once was, and who knows what's going to happen to rates over the next wee while, depending on the war. So, yeah, absolutely. It's all about fostering independence. And education is such a big part of it as well, people becoming financially aware.
um with technology yes you can look at your kiwi saver balance well you can't with all providers but you know most a lot of providers thankfully such as generate your app is really really really well sort of regarded uh you can check your kiwi saver balance easily and yeah people get a bit of a kick at it a bit of a buzz in it you gotta weigh it up though because you know for a long period there you know it's going up and up and up and then you get to
sort of march and, oh my goodness, it's going the other way. But again, that's fine, but just you need to, that's when communication sort of comes into it as well. But yeah, let's celebrate the 19 years that we've had. We've got millions of people that are better off than, okay, we've got a bunch that aren't contributing and that needs to be addressed and it's not perfect.
30% not contributing, that needs to be addressed or can't contribute. But, you know, there is a huge amount of positives about it and, you know, and awareness, you know, it's creating awareness. And as I say, if you go back 30 years, it was probably all about, oh, what's my house worth type thing. And that was about it. So, yeah, I reckon it's fantastic.
Well, this is not real, but we're going to have a national KiwiSaver day on the 30th of June. And Generator not endorsing this, so don't feel like you've got to put your name to this, mate. But I reckon we should have a national KiwiSaver day on the last day of the contributing year where people talk about it a bit more, maybe even mention their balance, ask someone else about it.
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