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KiwiSaver – what if…

Written By: - Date published: 4:56 pm, February 7th, 2008 - 25 comments
Categories: flip-flop, john key, national - Tags: , ,

Kiwis are showing their canny side in the way we’ve been flocking to sign up to KiwiSaver – now over 400,000 strong and still growing.

It’s another dead rat that John Key has swallowed to make National an electable brand but let’s not forget that in 1975 National abolished Labour’s universal superannuation scheme.

Bryan Gaynor describes a dreadful political decision that…

transformed New Zealand from the potential Switzerland of the Southern Hemisphere into a low-ranking OECD economy.

Without this decision we would now be called “The Antipodean Tiger” and be the envy of the rest of the world. We would have a current account surplus, one of the lowest interest-rate structures in the world and would probably rank as one of the top five OECD economies.

We would still own ASB Bank, Bank of New Zealand and most of the other major companies now overseas-owned. Our entrepreneurs would have a plentiful supply of risk capital and would probably own a large number of Australian companies.

Most New Zealanders would face a comfortable retirement and would be the envy of their Australian peers. The Government would have a substantial Budget surplus and we would have one of the best educational and healthcare systems in the world.

He says the fund would be worth more than $240 billion today and would have transformed the New Zealand economy into a world beater over the past 30 years.

Ouch!

25 comments on “KiwiSaver – what if…”

  1. Gooner 1

    Yeah, and if Labour Prime Minister David Lange didn’t have his ‘cup of tea’ in 1988? we would be in a similar position.

  2. Billy 2

    People get to choose between accepting a bribe of their own money… or not. Most choose accepting the bribe. Bugger me. With a pig.

  3. James Kearney 3

    Yeah, and if Labour Prime Minister David Lange didn’t have his ‘cup of tea’ in 1988? we would be in a similar position.

    No, we’d be Argentina.

  4. Dean 4

    The longer you insist on blaming past National governments for current problems, the more you make your statements just look stupid.

    Because of course, theres nothing Labour governments have ever done that could have contributed, right? Or do you still insist on blaming that on “renegades” while refusing to give National the same leeway?

    Your post is nothing but sad, empty rhetoric.

  5. Leftie 5

    Yup, and its Gooner’s, Billy’s, and Dean’s attitudes that have got us where we are today, starting our Kiwisaver 30 years later.

  6. AncientGeek 6

    I think that the point people are making about the national party in or out of government is that they seem to have an inherent internal contradiction.

    If the free market could do everything as some of the right-wing comments appear to suggest, then we wouldn’t need a government at all. This is exactly what some of the anarchist’s say as well. I’ve never noticed that happening in practice.

    Government is there, in my opinion, to handle the areas that the market does not perform well in. In particular to handle disasters of various types, and to deal with long-term structural issues.

    National in government seems to be too lazy to do the work, preferring to always try to and leave it up to the market. Consequently they have let our society drift towards structural disasters.

    The superannuation issue is a classic example. Muldoon put in a system as a response to the Kirk scheme.

    The Kirk scheme was maintainable over the long-term, as people put money aside for their own retirement on an involuntary basis. Therefore they became less of a burden on the taxpayer when they stopped working.

    The Muldoon scheme transferred the liability of superannuation to future generations. That was inherently unmaintainable of the age structure of the population changed, which it did, and was known it would when the scheme was put into place. It was totally irresponsible for a government to do that, and appears to have been done purely for short-term electoral advantage.

    Similarly the welfare budget cuts by national in 1991 were done to solve a short-term financial issue, and lead inevitably to a long-term problem – generational unemployment and dysfunctional families.

    The same national government at the time didn’t look at the long-term issue of how to increase the number of sustainable high-paying jobs in the economy. They tried to simply let the market do it by playing with the employment laws. Consequently our economy started dropping even faster compared to the rest of the OECD because the market preferred to use low-cost workers from a high unemployment pool, rather putting in the capital investment to increase productivity.

    You can look back to the national governments in the 50’s and 60’s to see the same tendency to drift towards disaster.

    For all of their faults, labour has tended to change things in government looking forward into the 20 year time horizon.

    National governments just ineptly drift into structural disasters, living for today and who cares about tommorrow.

    Of course that is just my opinion…… But it is what I vote on.

  7. The Double Standard 7

    Similarly the welfare budget cuts by national in 1991 were done to solve a short-term financial issue, and lead inevitably to a long-term problem – generational unemployment and dysfunctional families.

    Hmmm, and which party created the financial issue that you now describe as short term?

  8. Aj 8

    We beleive gooners, billy, or deans interpretation of events or believe the consensus views of many of New Zealands most repsected economists. The gulf is very, very wide.

    Capcha – typing with – lol

  9. AncientGeek 9

    TDS: From wikipedia on Ruthanasia.

    Upon winning the 1990 election, Bolger and Richardson quickly became aware of two unrelated financial crises: firstly, that the Bank of New Zealand required an immediate injection of capital to avoid insolvency as a result of the poor performance of a NZ$2.8bn loan portfolio in Australia, and secondly that the outgoing finance minister David Caygill’s projection of a modest fiscal surplus was inaccurate, and that the country instead faced a fiscal deficit of NZ$5.2bn if action were not taken immediately.

    That is pretty accurate from what I remember. The BNZ was an issue because it was guaranteed by the NZ government. The variation in the fiscal surplus was pretty common from the late 70’s to the mid-90’s and wasn’t massively different from the previous 5 years (I’d love to dig out numbers – but it seems to be too old for the web). It is really hard to predict revenue when a country is going through massive long-delayed structural change.

    The question for me is – were the actions taken at the time by the government appropriate? The government did an across the board reduction in benefit payments.

    Having lived, worked and paid taxes through that time I would emphatically say that they were not just inappropriate, they were close to the worst thing that could have been done.

    I was in the retail sector at the time, and everyone in the sector had a massive fall in sales immediately after the budget was announced. That caused business confidence to plummet, and every employer started battening down the hatches. Unemployment rose very very fast. It caused a viscous spiral. We had a nasty long recession that lasted for about 5 years. Have a look at table 3.04 at the rise in long duration unemployment in here

    From memory, the fiscal deficit due to revenue drops in the following years were far larger that the original problem.

    I’d say that the Ruthanasia turned a short-term financial problem into a longer term one. They’d have been better off not reducing government spending, borrowing to cover the deficit. Then concentrating on how to increase revenue while reducing expenditure more slowly. Then they wouldn’t have spooked the business sector into a panic reaction.

    But that would have been pragmatic and against doctrine.

  10. AncientGeek 10

    And I forgot to mention – the total government expenditure rose in the following years as a result of Ruthanasia – all those unemployed cost, even when you are paying them less, if their numbers increase dramatically.

  11. Mike 11

    But KiwiSaver is not the same as the old compulsory superannuation scheme.
    It’s voluntary for a start.

  12. AncientGeek 12

    On a bit of a side issue, but on the general topic of government decisions affecting economies. Have a look at this article from the economist Of internet cafés and power cuts from their series on “Technology in emerging economies”.

    The World Bank has been doing some work –

    The results, laid out last month in the bank’s annual Global Economic Prospects report, measure technological progress in its broadest sense: as the spread of ideas, techniques and new forms of business organisation.

    As you’d expect, lead technologies over time have been adopted faster into developing economies

    The upshot is that technology is spreading to emerging markets faster than it has ever done anywhere. The World Bank looked at how much time elapsed between the invention of something and its widespread adoption (defined as when 80% of countries that use a technology first report it; see chart 1). For 19th-century technologies the gap was long: 120 years for trains and open-hearth steel furnaces, 100 years for the telephone. For aviation and radio, invented in the early 20th century, the lag was 60 years. But for the PC and CAT scans the gap was around 20 years and for mobile phones just 16. In most countries, most technologies are available in some degree.

    But then the economist looks at how widespread the technology is. The story gets different. It tends to concentrate. Looking at where it concentrates looks to me like an infrastructure issue. If there isn’t reliable power or telecommunications, it is hard to build an IT industry.

    As a result, technology use in developing countries is highly concentrated. Almost three-quarters of China’s high-tech trade comes from just four regions on the coast. More than two-thirds of the stock of foreign investment in Russia in 2000 was in Moscow and its surroundings. Whereas half of India’s city-dwellers have telephones, little more than one-twentieth of people in the countryside do.

    There are also big differences between comparable countries.

    When they look at duffusion of technology by regions, it becomes pretty clear that it is related to government policies. Their comparison between Latin America and Eastern Europe shows the EE following Western Europes rate of technology adoption across income groups. But LA has completely different curve with far less overall intrusion.

    Broadly, two sets of obstacles stand in the way of technological progress in emerging economies. The first is their technological inheritance. Most advances are based on the labours of previous generations: you need electricity to run computers and reliable communications for modern health care, for instance. So countries that failed to adopt old technologies are at a disadvantage when it comes to new ones. Mobile phones, which require no wires, are a prominent exception.

    The other set of problems has to do with the intangible things that affect a country’s capacity to absorb technology: education; R&D; financial systems; the quality of government.

    If the government does not do its job in what I call infrastructure, physical, human, and legal – then the free market cannot do its job and spread technology. This then causes problems using later technologies because there is little to grow on.

    The economist concludes with

    Yet it would be wrong to be gloomy about the technological outlook of emerging economies. The channels of technology transfer have widened enormously over the past ten years. Technological literacy has risen, especially among the young. But all this has helped emerging economies mainly in the first stage: absorption. The second stage—diffusion—has so far proved much more testing.

    I’d disagree with that. Early adoption isn’t all that useful without the diffusion into the economy from what I’ve seen.

  13. AncientGeek 13

    My point about this for NZ is that while the economist is looking at developing economies, it isn’t that much different for developed economies. Developing economies just show the same economic factors in starker relief.

    A government to do its job on infrastructure has to look at least 20 odd years ahead to prepare for new tech. If they don’t, then an economy gets crippled. Doing things in trhe short-term like I have seen the Nats do so often is just a recipe for disaster for your kids.

  14. AncientGeek 14

    Mike:

    It’s voluntary for a start.

    Almost all of the other details are the same.

    Problem is that we already have a compulsory super system in place that runs on a completely different basis – it is on “pay for your parents and grandparents, and get your kids and grandkids to pay for you”. People are relying on that so it is difficult to impossible to change over.

    I think that the poster and Gaynor are arguing that the decision in 1975 was a classic case of an long-term structural opportunity lost to short-term political expediency. At least that is what I believe.

  15. outofbed 15

    Which makes sense completely as right wing politics are the politics of the self. Just read Billy. Monty et al ,

    They can’t really help it, It’s all to do with their dorsolateral prefrontal cortex.

    But luckily there are people around whose dorsolateral prefrontal cortex has fully developed and therefore DON”t want to use Somalia as their model for society

    Captcha bill doh

  16. Phil 16

    “Kiwisaver; Saviour of New Zealand’s OECD ranking”

    Gosh, that would be lovely if it weren’t such a fantasy.

    The biggest problem with bandying about the 400,000 members, is that we dont actually know where they’ve come from. That is; are they ‘green’ retirement savers, or have they simply switched from their existing scheme into Kiwisaver? I believe that the vast majority of members are the latter.

    The Reserve Bank publishes quarterly figures on the value of employment related super, so over the coming year(s) it will be interesting to see if that series shows a structural deviation from it’s normal growth rate.

  17. insider 17

    Phil

    Good point re movement of private employer schemes. I certainly know of companies and the government that are encouraging people out of in house schemes and into kiwisaver. Some are closing schemes to new entrants and using kS as the new provider.

    It’s weird people criticisng Muldoon yet I read of other authorities saying that our Nat Super is a fantastic and very affordable scheme that is the envy of the world.

    20-20 hindsignt is wonderful. How do we know the Lange govt wouldn;t have changed the scheme in the 80s or the nats in the 90s? We know both parties have hidden major financial issues in the past and these funds could have been used to bail them out.

  18. AncientGeek 18

    Good point Phil…

    There are no numbers on transfers that I’m aware of. I’m aware of people shifting from super schemes to KS, people going on KS as only super scheme, and people having their old super scheme KS.

    So in the event that it does show that the investment in all super schemes including KiwiSaver increasing quite a lot faster than the previous super velocity – what will you say then?

  19. andy 19

    Phil,

    It is a good point.

    I have started KS and had no other specific retirement savings scheme, this has just shifted some of my general savings to a specific type via less disposable income.

    In my mind KS offers a more stable savings environment for employees who will change jobs many times over working life. Private schemes are becoming more rare and are problematic for employers especially if a company restructures/changes hands. In that instance they tend to end and become personal and the employer drops its obligations.

  20. BeShakey 20

    I haven’t looked at Treasury’s predictions, but I’d be pretty shocked if they didn’t factor in a degree of cross over from existing schemes to KS. Even if a significant amount of the extra growth is from existing savers, that isn’t a bad thing, and would be difficult to avoid even if it was.

    It seems tough to debate the fact that a significant number of non-savers have been (and will continue) to enrol, even if existing savers also enrol. The benefits of this seem to have been acknowledged across the entire political spectrum.

  21. Phil 21

    AG,
    I’m not saying Kiwisaver’s a bad thing (quite the contrary, especially with the free cash being ladled out in association with it) all I’m pointing out is that the membership number is likely to be significantly over-inflated if we look at ‘real’ growth in the level of retirement savings.

    andy,
    I don’t accept that private schemes are becoming rare. I used to work on Stats NZ’s Annual Non-Wage Labour Cost Survey, and the number of corporates/companies and even SME’s running them (and providing contributions… or else they wouldn’t be in the survey) is astonishingly large.
    They also usually run in parallel with fairly sophisticated IT at the fund magagers, so moving employees from one to another is not a problem at all.

  22. andy 22

    Phil,

    Fair call, my evidence is anecdotal, i asked most of my peers and none has a work based scheme available, to the under 30 ish set. I think its still around for older more entrenched workers, and the payments go up over time as the wages increase. Basically newer employees are not invited…

    captcha: excellent controller

  23. Dean 23

    AJ said: “We beleive gooners, billy, or deans interpretation of events or believe the consensus views of many of New Zealands most repsected economists. The gulf is very, very wide.”

    Right. So, because I have a problem with every problem currently experienced in this country being blamed on previous National governments I’m somehow out of step with economists? And previous Labour governments, including the one in 84, did nothing to contribute?

    Get a grip, AJ.

  24. AncientGeek 24

    Sure the 84-90 government made a *lot* of screwups, too fast, too far, too little, too late, and not enough all in one. It was almost having to rebuild the economic structure while having virtually no resources to do it.

    But in the end they actually made changes, and almost all of them stuck. Most of those changes benefited the succeeding generations. But the stasis that happened for the 30 years prior to that government is something devotedly to be avoided, at least if you want to avoid the maelstrom from about 78 to 90.

    Problem I see is that I can’t see anything in the nats policy apart from heading back to stasis. Punctuated stasis and chaos is a lot less comfortable than having to put up with continuous change.

  25. AncientGeek 25

    Perhaps we should look for anything that the nats have ever done in government that benefited people 20 years down the track?

    Offhand the only one I can think of is the Fiscal Responsibility Act. And they dumped the author.

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