Well, they said they were going to run this campaign on policy and make the bold moves, and Labour proved that with their savings policy. National is been left floundering. Labour has the policy-focused discourse it wanted and Key will look silly parading in front of the faithful on the weekend with nothing to say.
Brand Key is unraveling while Labour starts to dictate the play for the first time since Orewa. But the substance of the savings policy wants a closer look, it has both good and bad aspects.
Restarting Cullen Fund contributions
No real argument on this. It just makes sense to save now as a country for the retirement glut coming in the 2030s. National’s suspension of contributions will mean $30 billion less in the Fund in 2050. Key thought it was better to borrow for tax cuts for the rich than to build up our future wealth. That means more of the cost of super in the future will have to be funded from cutting other services or raising taxes. Or, lowering superannuation costs.
Raising the retirement age
Labour has grabbed a second of the so-called third rail issues of New Zealand politics and found that it hasn’t delivered the deadly shock everyone assumed.
Most people realise that, as people live longer (the life expectancy is rising at the rate of 3 months per year) and the population ages, the retirement age needs to go up. Most people realise that the limited resources of the welfare system need to be fairly distributed over the whole population (see this plea by leading doctors in the NZ Medical Journal). The pension system was never intended to support the average retiree for 25 years as it does now (that average is rising). Nor was it intended to support one pensioner for every three working age people.
People are increasingly healthy and capable as they age. Every dollar spent on supporting 65 and 66 year olds who are capable of supporting themselves (and 40% of them are working) is a dollar that can’t be spent on higher priorities, like health, education, tackling climate change, and investing in an oil-free future.
In fact, John Key said:
“will lifting the retirement age by a couple of years in twenty years time be all that big a deal? I suspect not. If anything it is likely to be welcomed by the majority of New Zealanders who recognize that increased levels of longevity, inevitably means that any private capital they have squirreled away will need to be spread more thinly and last longer.”
Of course, that was back in 2004, when he still actually dared to say what he thinks, rather than always charting the path of less resistance, and before he discovered his talent for smiling and waving.
The big issue with raising the age people who are physically incapable of working longer and it’s good to see that Labour has said it will allow people who aren’t healthy enough to work at 65 (and don’t have private means) to get a transition allowance of the same value as the pension.
Keeping access to Kiwisaver at 65 is a good move for people who need to or want to retire earlier than 67 too.
But Labour could have been more creative. Why not allow the transition allowance for anyone over 60 who is too worn out from physical labour to work anymore?
And why we don’t means test in general as a way of reducing expenditure, rather than raising the age. Would that be fairer? Of course, there was pretty strong opposition when National tried to introduce means testing in the 90s.
In general, a good policy as long as it allows for people who aren’t up to working to 67.
Just having a universal basic income would get around all these issues.
Compulsory Kiwisaver is great. It makes every worker an owner of capital as well. Given our poor savings culture, it will be the only way for some people to build a pool of wealth for their retirement and for building up to pay for a mortgage. From a wider view, it helps New Zealand to build a pool of capital wealth with which to build our future productive capacity, without having it all owned offshore with our country just a source of profits for foreign investors. It will further transfer investment out of housing into businsses.
But the employer contribution is worrying a lot of people. The employer contribution will ramp up at 0.5% a year from 3% to 7%. The Right’s moaning that will will hurt businesses but the worry is that they will rip the increased contributions out of workers’ wages.
You might remember that, when Kiwisaver came in, businesses were deducting their contributions from workers’ wages but Labour made that illegal. Then, National made it legal again. Under this new policy, Labour would leave it legal. The policy says:
“The impact of the 0.5 per cent annual increase on wage negotiations will be a matter for discussion between unions and employers.”
So, Labour is implicitly saying that employers will be able to offset their rising contributions against wage increases . So, workers would end up 4% worse off cash in hand, although with much bigger Kiwisaver nesteggs, as a result. It is going to end up being an employee contribution, not an employer contribution in many cases.
That’s no big deal if you’re getting the 4% average nominal wage growth that Treasury reckons is the norm but when was the last time you saw that kind of a rise? If you’re stuck going backwards in real terms in your wages anyway, then having another half a percent a year ratcheted off will be nasty. Especially for low wage workers who already worry that 2% is too much, being handed a pay cut by their employer will be another burden.
This is closely based on what happened when Aussie introduced their compulsory scheme. Unions agreed to forgo some wage rises in return for the employers’ 9% contributions. But, at the time, the Aussies had strong wage growth and that was driving high inflation. We don’t have strong wage growth.
Another reason to join your union, actually. Union workers have been getting pay hikes while nearly everyone else has been stagnating. And unions will fight hard to make sure that the employer absorbs the higher employer contributions, rather than passing them on.
Farrar is trumpeting this as Labour’s policy to cut wages. What a joke. He was just last week crying about Labour’s work and wages policy to increase wages. Nobody will buy his crocodile tears now.
But the possibility, well likelihood, that the higher employer contributions will end up as a compulsory tax hike on workers’ wages when workers are already struggling is a serious concern.
To be fair, Labour’s other policies will offset this somewhat, if not in full. The first $5,000 tax-free and the $15 minimum wage will make sure that lower paid workers aren’t left out of pocket (and will have much more when they retire). The work and wages policy will help raise wages, particularly for non-union workers. They’re sort of giving with one hand and taking with another (although, let’s not forget it’s your money still when it’s in Kiwisaver).
So why didn’t they make the work and wages policy their big one for the campaign launch? They practically tried to bury it.
And have they thought through the equity implications? If people are retiring with really large Kiwisaver nesteggs will the pressure come on to cut super payments? Australia’s pension is a lot lower because they all have their personal superannuation. But how much you have in your Kiwisaver depends on your income during your working life. The rich will have more to retire on. Will public, universal superannuation get edged out by private, universal but unequal superannuation?
Again, Labour could have been much more creative. Why not have an adjustable employee contribution rather than this employee contribution by stealth and use it to control inflation?
Singapore has something like that. Compulsory savings with a variable contribution level. Rather than increasing the profits to banks by hiking our mortgage rates when inflation goes up in an effort to constrain consumer demand, make us put more of our money into our savings instead (and, thereby, avoid cutting off credit to business as interest rate hikes do). It seems to work for them and it means sending fewer profits offshore.
And where’s the public Kiwisaver option run by Kiwibank with the mandate to buy strategic New Zealand assets? They could have made this much more of a tool for economic reliance and decreasing our level of foreign ownership.
So, compulsory Kiwisaver is good but, if wages don’t rise, the employer contribution will end up being a surprise sting for many workers. And another bloody good reason to join your union. (hey, Farrar, there’s a line for you ‘Labour’s stealth unionistation policy’)
So, it’s a mixed policy. They’ve tried to good things. These good things have some pretty bad side-effects and they haven’t really done enough to address them. And they haven’t been as inventive as they could have been.
Still, when the alternative is this guy ….