Thursday, April 06, 2006

Stuck On Stupid

The rulers of New Zealand and the EU both act stupid. This is good and bad for their citizenry - stupid governments are less oppressive, but they're also likely to be poor at national defense.

Yesterday’s WSJ ($) reports a New Zealand pension crisis:

The country's dependency ratio, a measure of the number of retired people supported by the working age population, is projected to rise to 45% in 2050, up from 18% in 2005.

To complicate things further, New Zealanders ...spend far more than they save. As of March 2005, household spending exceeded disposable income by 13.8% in New Zealand, compared to 0.2% in the U.S.

In an attempt to address this, the government is introducing a savings scheme. It won't work because here’s why New Zealanders don’t save like the rest of us (my ellipsis and emphasis):

Today, Wellington guarantees 65% of the national average wage upon retirement -- at the sprightly age of 65. These payments aren't income or asset tested, meaning everyone receives the same treatment, regardless of wealth.

New Zealanders' pensions are paid for by their kids (my ellipsis and emphasis):

Because of its historically ‘generous’ level, it has become the main source of income in retirement for many New Zealanders. It is funded out of current taxes rather than being ‘pre-funded’, and (pensions) represents the greatest single expenditure from tax revenue.

So no matter what scheme the government introduces, no rational New Zealander will save for their old age.

Now the EU, which recently imposed a withholding tax on every savings account held by their nationals both in the EU and in nations outside that the EU that they bullied into compliance - including Switzerland. This was to stop citizens escaping member states’ punitive taxation. Well, guess what (my ellipsis)?

Swissinfo.org reports that the European Union's much-vaunted savings tax directive is not going to collect the huge piles of money hoped for by politicians. The directive is riddled with loopholes. (An expert reports) "It is very easy to invest in products or structures that are beyond the scope of withholding tax. You only have to click on the homepages of banks to see what these are."

This was bound to happen - if Swiss banks had started taxing on behalf of the EU, their customers would have bolted to Singapore (a few did). So they (and others outside the reach of the EU) just circumvented the tax.

Citizens of New Zealand and the EU just have to hope their masters don't have to do anything important - like defend them.