Count your blessings, not your taxes

By MARY HOLM

Q: Having come to New Zealand from a poor Asian background with hardly any pocket money, I know the value of money.

So I worked hard in New Zealand and have never drawn a single cent from any social services in this country.

I knew nothing about investing but learned on the fly. I saved and invested my money in the savings banks, sharemarket etc.

My current portfolio is made up as follows: 43 per cent in local and US shares (which I manage myself), 35 per cent in term deposits, 9 per cent in bonus bonds and 13 per cent in on-call accounts. The total value is just over $250,000.

Despite paying huge amounts of personal income tax, I continue to be hit each year with withholding tax and owe the IRD more taxes.

It looks like there is no incentive for people like me who save and who have never depended on the state for anything but the privilege of being in this country.

Am I doing the right thing? Is my portfolio balanced? How can I reduce my tax liability?

By the way, you will note that I am not into investing in properties, as I do not want the headache of dealing with tenants and the associated administrative burdens and fees.

A: You certainly seem to be doing the right thing. And yes, your portfolio looks pretty well balanced. More on that in a minute. But first, let's look at tax.

I can't see any obvious ways for you to reduce your tax. And I think that's fine.

Your situation is common enough. You've put far more into the state over the years than you've taken out. And you're getting sick of it.

My response: Lucky you. Those of us who haven't had to use welfare are more fortunate than those who have.

OK, you might have worked harder than many people who are on welfare. We've all got our stories about bludgers.

But all sorts of factors - parental attitudes, the people you know, your health - help determine who ends up paying more tax than they get back. And there's a lot of luck in those factors.

Even your tough circumstances when you first came to New Zealand might now, perhaps, be regarded as a blessing. The experience made you stronger.

The point is that nobody who feels they've paid more than their fair share of taxes would want to trade places with a welfare recipient.

So - while we can applaud efforts to stop people from bludging - perhaps we have to just accept that high taxes come with success, and that much of our tax money goes to support people genuinely in need.

As far as tax incentives for saving are concerned, it would seem that you don't need them.

Every time the Government gives someone a tax break, that money must be made up from somewhere else. Does it really make sense for other taxpayers to subsidise you?

Sorry if I seem nasty. You should be congratulated, not told off, for doing as well as you have. But I'm not willing to reach into my pocket for you.

Back to your portfolio. It's fairly conservative. If you're quite close to retirement, or just don't like big value fluctuations, it probably suits you well. I'm sure that in the past couple of years you've been glad you haven't got more in US shares.

But if you've got a decade or more before retirement, you would probably end up better off if you put more into shares or a share fund.

Putting your fixed-interest money into term deposits is also conservative. Consider talking to a sharebroker or financial adviser about investing some of that money in, say, high-quality corporate bonds or similar.

And do you really need $32,000-odd on call? You might want to tie up some of that in a term deposit for, say, six months or a year and get a higher return.

With the quantities you're talking about, your bank must regard you as a good customer. If you suddenly need a lot of money, I would think the bank might be a bit flexible in letting you break a deposit early or lending you money in the meantime.

Meantime, be glad you're not being taxed at 66 per cent, as some people were in the 1980s!

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