P.M. directs interest rate warning at life offices

Press, 28 April 1984, Page 22

P.M. directs interest rate warning at life offices

The Prime Minister, Sir Robert Muldoon, warned the life-insurance offices last evening about their lending interest rates. Addressing the twentyfifth anniversary cocktail party of Superannuation Investments, Ltd, at the Park Hotel, Sir Robert said that he had been a little disappointed by the life offices in recent times. This was because they had taken the view that “when I try to bring down the whole level of the in-terest-rate market they are entitled to get what they can while the going’s good.” Life-insurance premiums were tax deductible because successive governments had seen investment in life insurance as a desirable form of investment, the Prime Minister said. “If the life insurances take the view that they are going to be perhaps a little less responsible than they have been in the past, the Government might take the view that this type of investment is not as desirable as it used to be and should not be encouraged to the same extent,” Sir, Robert said. The Government might take the view that concessions should not be quite as great. The British Government

had recently decided to end tax deductions for premiums. “I have not made that decision. If any such decision was made it would apply to new premiums,” said Sir Robert. “We do expect responsibility from those institutions that get concessional treatment as far as their contributions are concerned. I have already conveyed that view to the Life Offices Association,” said Sir Robert. He said that the Government would get interest rates down. At present, investors were enjoying the highest real interest rates

that he had yet seen. That is, the difference between current inflation and the current rate of interest was the highest it had been for many years. “Not long ago we had significant negative real interest rates — certainly after tax,” Sir Robert said.

“Now we have a healthy positive rate of interest after tax, but it is too high in my view. I would like to see it down to a good positive rate, but not as high as it is now.” Interest was very important to the economy. It was the biggest single cost to the farmer — “broadly 16.5 per cent of total costs.” For business it was a major cost, even when it could be passed on in prices, and it was the principal cost of the home-owning wage earner. The Prime Minister said he believed that superannuation was “a good thing” for the self employed. It would continue to be encouraged. On the question of Government investment ratios, Sir Robert said that these were related to the national internal deficit. “We have got an internal deficit of $2.9 billion to $3 billion for the year just ended. We were budgeting for $3.2 billion, but we have

got it down by one means or another. “In the year we are now in, the deficit will probably be hundreds of millions of dollars less than that but it will still be pretty high.” The deficit could be reduced by two means: © By cutting back heavily on National Superannuation. © By reforming the personal tax scale reduced in the 1982 Budget. Cutting the superannuation would mean breaking a promise, Sir Robert said. “What we would do is destroy the certainty that is gradually being built into the scheme.” The new tax scale had been called for over a long time. People had said that it was not worth working overtime. “The principle put into practice then was that we got a standard top rate of 31 per cent, now 31.5 per cent, for more than 90 per cent of the taxpayers. The cost of that in the year just ended was $lOOO million.” He would not attack the deficit by changing the 1982 tax scale or by attacking national superannuation. To prevent inflation from the deficit, “we have to get people to buy Government stock.”

The deficit would gradually be reduced, but in the meantime the Government must have the co-operation of the lending institutions in their competition for funds, he said.

“But that’s another story, which will be in my next instalment in about a fortnight’s time,” the Prime Minister said.