NewsTalkZB has just announced breaking news: the government has done a u-turn on its decision to impose GST on KiwiSaver management fees.
Could Three Waters be next?
NewsTalkZB has just announced breaking news: the government has done a u-turn on its decision to impose GST on KiwiSaver management fees.
Could Three Waters be next?
The government is being accused of ‘virtue-signalling’ after banning KiwiSaver default funds from investing in fossil fuel companies.
A number of changes will be made to how the default funds are run, including the new ban.
KiwiSaver members are allocated a default provider if they don’t actively choose a KiwiSaver fund – and nearly 700,000 people are currently in that situation. . .
People who do this are likely to be inexperienced investors.
Sam Stubbs from the KiwiSaver provider Simplicity said fossil fuel companies were not delivering great returns, so were not a hot pick for investing at the moment anyway.
Excluding fossil fuel investment in itself was not that controversial, he said, but it was notable the government was targeting individuals’ funds.
“There’s always the risk of moral hazard … where the government is playing God about where your money should be invested.” . .
Whose money is it? It’s the investors’ and the government shouldn’t be coming between them and their providers.
Chief Executive of the Petroleum Exploration and Production Association, John Carnegie, said while the industry was on board with the transition to renewable energy, he did not believe the government should be dictating which investments are acceptable.
The choice should be made by the saver, he said, in part because deciding what is “responsible or not is highly subjective”.
Stubbs agreed, saying people might not like plastics for example.
“And you might say let’s get rid of plastics … that means you get rid of all shoes, ear implants, heart valves, plastics are in everything – there are very obviously some bad things but some great things as well, all of these things are judgements.”
With investors already worried about their KiwiSaver balances due to uncertainty created by the Covid-19 virus, National’s Paul Goldsmith said the government has chosen now to “meddle” with their investments.
“The coronavirus will have a huge effect on our economy, an economy that is weaker than it should be because of this government’s poor economic management.
“Instead of focussing on ways to improve this, the government is tinkering around the edges and indulging in virtue signalling”, he said. . .
If KiwiSaver providers sell shares in fuel companies they will be bought by someone else and that will have absolutely no impact on the companies nor will it have any impact on the environment.
It is virtue signalling with other people’s money.
While this particular intervention will probably have little impact on returns for the funds, it establishes a very dangerous precedent. If it’s fuel companies this time, it could easily be something else that would negatively impact on people’s retirement funds next time.
It’s not the government’s money. It belongs to individual investors and they government should not be telling them, or their KiwiSaver provider, what to do with it.
Retirement Commissioner Peter Cordtz is suggesting people could be allowed to withdraw KiwiSaver funds to buy investment properties:
Home ownership has been declining for the past 30 years, from a high of about 78% in the 1980s, to about 55% today.
Māori and Pasifika have fared the worst – today only 35% of Māori and 20% of Pasifika own their own homes.
About 12% of New Zealanders aged 65-plus are renting, making them eligible to apply for the Accommodation Supplement if they are struggling. The cost to taxpayers of the accommodation supplement paid to people 65+ has already increased 92% in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.
This is on top of the cost of NZ Super, currently $39 million a day and forecast to rise to $120 million a day in 20 years due to the ageing population.
“Super wasn’t designed to cover rent – it currently pays $411 for a single person; $632 for a couple. At that rate, it assumes you have housing sorted,” says Cordtz.
“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker,” says Cordtz. “If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”
One idea open to public submissions is to loosen the KiwiSaver rules related to withdrawing savings for a deposit on a first home. Currently, the KiwiSaver member has to live in that property, but high house prices in cities like Auckland, Wellington and Tauranga mean it is difficult for members who work in those cities to purchase a home there to live in.
“If they could buy a property in a more affordable part of the country, they could use it as an investment to progress on the property ladder or simply to retire to one day,” says Cordtz.
He says the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.
“We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement,” says Cordtz. . .
I see this as an idea that could make it harder for a lot of other New Zealanders get on the property ladder.
High prices in several places is a problem for people wanting to buy their first home or upgrade an existing one, and not just the cities mentioned. Wanaka and Queenstown are at least as expensive.
The root cause is one of supply and demand.
Allowing people to use KiwSaver funds to buy investment properties will give people a bit more to spend but do nothing to increase the number of properties available.
Won’t that spread the problem of rising prices fueled by demand outpacing supply to other places, many of which have lower wages than in the places where people are already struggling to buy a first home?
The last thing would-be home owners in smaller towns and less densely populated cities need is buyers from other places competing with them and spreading the problem of property inflation wider.
Labour is opposing for opposing’s sake and in doing so shows it doesn’t know who its constituency is anymore.
The Labour Party has accused the Government of planning to build on land that includes a power sub-station, pylons, a cemetery, a fire station and school playing fields. . .
There have been suggestions that children living near pylons have a greater risk of developing leukemia after a cluster of cases. However, that was thought to be a coincidence not the cause.
As for the rest of the land – why shouldn’t houses be built on playing fields if they’re surplus to the schools’ requirements and what’s wrong with living near a cemetery or fire station? Lots of people already do and how will they feel about Labour when it’s disparaging about the location of their homes?
It is wasteful for the government to sit on land it doesn’t need. There’s the opportunity cost of the value of the land and it costs ratepayers because public land isn’t rateable.
Then there’s the angst about the end of the $100 kickstart for KiwiSaver.
Inland revenue’s regulatory impact found that KiwiSaver hasn’t substantially increased savings despite encouraging enrolment of a large number of individuals.
The KiwiSaver scheme currently costs around $800 million in subsidies per annum and the Government has spent in excess of $6 billion on it since inception in 2006 . There are currently two subsidies: a one – off $1,000 kick-start payment paid to all new enrolees in the scheme (the kick-start) and an annual member tax credit paid to members of up to a maximum of $521 (annual MTC). The scheme also has ongoing Inland Revenue administration costs.
A seven year evaluation of KiwiSaver concluded in 2014 . . .The Evaluation has broadly found that the scheme has been successful in attracting significant numbers of members and Inland Revenue’s role in the scheme has functioned well. However, the scheme has delivered very poor value for the Crown’s subsidies. A high degree of leakage to people outside the target group for KiwiSaver and substitution from other savings has occurred. Estimates range from zero to one-third of KiwiSaver balances representing new household savings. . .
The scheme delivers poor value for the public subsidies, most of the subsidies go to people who need it least and it hasn’t led to a significant increase in overall savings.
If Labour really thinks that it is better to subsidise the savings of people more able to help themselves than to spend the money on those in genuine need it really has lost its way.
The Budget which was expected to be boring was a business as usual one with surprises.
The business as usual bit is continuing focus on the careful management of public money and getting back to surplus without the slash and burn approach which past governments took.
The big surprise was an increase in benefits, above the normal adjustment for inflation, for the first time in more than 40 years.
Even the opposition was struggling to oppose that and balancing the increase is the requirement for sole parents to seek work once their youngest child is three and increased work obligations for those on job seeker benefits helps.
Dene Mackenzie says Bill English has pulled off a master stroke:
He pushed his political opponents off stride by announcing social spending better than anything Labour did during its most recent nine years in Government.
Mr English will continue to be criticised by opponents for not delivering his prized surplus this year, but spending $790 million on a package to help children in some of New Zealand’s poorest families was a touch of genius.
The package included more child-care support for low-income families, a $25-a-week increase in benefit rates for families with children, an increase in Working for Families payments to low-income families not on a benefit, and increased work obligations for sole parents on a benefit.
”This package strikes a balance that offers more support to low-income families with children while ensuring there remains a strong incentive for parents to move from welfare to work,” he said.
He also made it difficult for his political opponents to make any meaningful criticism by lifting benefit rates by more than inflation for the first time since 1972.
The Finance Minister has always been the social conscience of National, right from the days when he was a member of the party’s ”brat pack”.
At political conferences more than 20 years ago, he talked about ensuring a ”truck driver” from Balclutha could earn enough to feed and house his family. . .
The increase to Working for Families at the lower end of income ensures the truck driver and any other parents in paid work will be better off than those on benefits.
I don’t support WFF for families earning well above the average income but can’t think of a better way to ensure there’s a decent gap between income from benefits and low paid jobs.
The Budget at a glance is here.
I was listening to talkback on my way home from Christchurch last night. The cut in the $1000 kickstart for Kiwisaver wasn’t popular but it was less likely to go to those who’d need it most and tax credits and employer contributions remain.
Border security and the risk of biosecurity breeches is of increasing concern with more travellers. Requiring $6 from departing travellers and $16 from incoming ones is a little bit of user-pays.
The Finance Minister’s speech is here.
. . . New Zealand remains one of the faster-growing developed economies, with conditions supporting sustained solid growth, forecast at 2.8 per cent on average over the next four years.
Growth matters. It means more jobs, higher incomes and opportunities for families to get ahead.
By mid-2019, the number of people in work is expected to rise by another 150,000 and the unemployment rate to drop to 4.5 per cent. The average wage is also expected to rise by $7,000 to $63,000 a year.
New Zealand’s positive economic performance, relative to others, is demonstrated by the strength of the New Zealand dollar and the very low number of people leaving for Australia – the lowest, in net terms, since 1992.
Lower dairy prices are a headwind for growth, however, and global uncertainties remain. Monetary policy easing in other countries is helping to keep upward pressure on the exchange rate.
Unusually, given our current growth, New Zealand is experiencing very low inflation.
Annual CPI inflation is only 0.1 per cent, compared to the Budget 2014 forecast of 1.8 per cent.
This is good news for consumers and workers because their income goes a bit further and they get good value for any pay rises.
Low inflation is also keeping down interest rates. The concerns I expressed in last year’s Budget about rising interest rates have largely disappeared.
But lower-than-expected prices also mean that nominal GDP – the size of the economy in dollar terms – is not rising as quickly as previously expected, despite solid growth in the real economy.
This means tax revenue is not rising as quickly either.
Compared to what was forecast in last year’s Budget, nominal GDP is expected to be $15 billion lower in total over this year and the next three years, and tax revenue to be $4.5 billion lower in total over the same period. . .
Government’s fiscal priorities are:
Returning to surplus this year and maintaining surpluses in the future
Reducing net debt to 20 per cent of GDP by 2020, including repaying debt in dollar terms in 2017/18
Further reducing ACC levies
Beginning to reduce income taxes from 2017, and
Using any further fiscal headroom to reduce debt faster.
The Government is making good progress on all these fiscal priorities.
While expenditure is firmly under control, tax revenue – as I mentioned – is not rising as quickly as expected.
This is lowering operating balances across the forecast period, compared to Budget 2014 predictions.
But the overall trajectory has not changed. We have come from an $18.4 billion deficit four years ago to seeing steadily rising surpluses into the future.
A deficit of $684 million is now forecast for 2014/15, which is $2.2 billion better than last year’s deficit.
A surplus of $176 million is expected in 2015/16, followed by $1.5 billion in 2016/17 and rising to $3.6 billion in 2018/19.
As I’ve said previously, the Government has no intention of making spending cuts simply to chase a surplus in a particular year.
The surplus target has been successful in applying greater discipline to government spending.
That discipline has turned the Government’s books around, and the fiscal outlook remains very positive. . .
The government can, and should, control its spending and the disciplined approach to it that has been taken since National came to power in 2008 is the major reason New Zealand is doing as well as it is.
The government can influence the environment which helps the income side, but sustainable growth comes from the private sector.
Labour has confirmed it will make KiwiSaver compulsory – without details and with exceptions:
. . . Under Labour’s policy, all employees not already in the scheme would be automatically enrolled on October 1 next year. Students and beneficiaries would be exempt.
Low income earners would also be exempt – but the details of the minimum threshold will be subject to consultation, Mr Cunliffe said.
The elephant in the KiwiSaver room that no-one mentions is that in a few decades there will be significant inequality amongst retirees – those with KiwiSaver and those without.
The poor are least likely to have KiwiSaver accounts and making it compulsory for everyone else will merely compound that.
Labour expects auto-enrolment would bring a further half a million people into the scheme.
“Most of those are low income earners who are missing out on getting their fair share of government contributions”, Mr Cunliffe told reporters at Parliament this morning.
“These workers will have higher incomes after Labour raises the minimum wage and the ramp up of their employee contribution will be slower.” . . .
Raising the minimum wage will do little for most people because any increase will be cancelled out by reductions in Working for Families and other assistance such as accommodation supplements.
Increasing employer contributions will also have a depressing impact on wages and job opportunities and also threaten job stability.
Adding costs to employment without increasing productivity would mean businesses would have to charge more for whatever they sell which would flow through to inflation.
The alternative would be to absorb the cost which would reduce profits. That in turn could threaten viability and would reduce their ability to invest more in their business and their staff.
This policy would leave most workers with left in their pay packets – without Labour’s other daft idea of altering KiwiSaver rates to control inflation.
Saving is good, but many people would be better paying off a mortgage or other debt than putting more in KiwiSaver.
But the worst of this policy is, like so many others of labour’s – is its vagueness. Once more the party shows it doesn’t do details.
Spin doctors don’t do numbers, but the Treasury secondee the party sacked would have.
A policy without details isn’t really a policy, it’s just a vague idea of what the party might or might not do should it get into government.
The Green Party plans to impose a carbon tax on us:
. . . Co-leader Russel Norman wants to scrap the current carbon pricing system – the Emissions Trading Scheme.
In its place would be a tax of $25 per tonne of carbon on industry polluters. . .
Critics of the tax claim the tax is a burden on households, who pay higher electricity and fuel costs.
However, the Greens say their levy would be offset by a ”climate tax cut” on the first $2000 of income.
”We can reduce our emissions without hurting household budgets,” he said. ”Households will be on average $319 better off every year under the Green party policy.” . .
Imposing a tax with one hand and giving a tax with another won’t make anyone better off because the tax will lead to other cost increases on fuel, power and food which will passed on, in part or full, to consumers.
Agriculture – which is currently exempt from the ETS – would pay a reduced rate of $12.50 per tonne. This works out as an 12.5 per cent hit on farmers’ income. This includes 2 per cent on the working expenses of the average farm. A Berl Economics report, released with the policy, said dairying will be ”adversely affected.”
Dairying won’t just be adversely affected by the carbon tax, it will be hit by other Green policies too.
But it adds: ”However, at the currently projected pay-out for milk solids, even dairy farms in the lowest decile would remain well above break even in the face of an emissions levy.”
What happens when the payout drops to its long-term average which is well below the $7 forecast for the coming season?
What about the environmental impact of less efficient farmers in other countries increasing production because our produce is more expensive which makes it easier to compete with us?
And what about the poor people who will face higher prices for dairy products, power and fuel?
Other gas-emitting industries – such as electricity and road fuels – are less likely to be affected because they would be able to ”pass-on any production cost increases to households.” . . .
That will be the households whose earners will be getting a tax cut, the benefit of which will be less than the cost increases from the extra tax.
BusinessNZ Chief Executive Phil O’Reilly said the levy may threaten jobs.
“Our approach should be unlocking business solutions rather taxing business more,” he said.
As a “small open trading economy” New Zealand should participate in international emissions trading schemes.
Federated Farmers president Bruce Wills said the tax will make dairy farmers “less competitive” in international markets. . .
Less competitive means lower returns which means less export income which means less economic growth which means we’ll be less able to fund the first world education, health and other services we need.
However green they want to paint it, this is a red policy which will add costs, put downwards pressure on wages and threaten jobs.
Bernard Hickey told last week’s Alliance Group Pure South conference that the election will be close.
He then went on to list the policies that farmers could expect to adversely affect them under a Labour/Green coalition with whichever other left-wing parties they’d need to govern.
They included: capital gains tax, compulsory KiwiSaver and water restrictions and charges.
Those are three very good reasons to vote National and the Green carbon tax is another.
And Steven Joyce points out some inconvenient truths:
Bob Jones isn’t impressed with Labour’s monetary policy, with good reason:
The uncritical way the media have treated Labour’s ridiculous monetary policy proposal reflects its mood change. Despite its alluring symmetry, the concept is naive in the extreme. David Parker should be asked exactly what should the exchange rate be? That would be fun. Let us assume he succeeded in lowering the exchange rate drastically, for if not drastically, then why bother?
The effect: happy farmers and exporters (that is until they wanted to buy a new tractor, car and other spending), a reduced income for all houseowners other than the minority with floating-rate mortgages who stay neutral, and the return of inflation as virtually everything and not just imported goods leaps in cost. Ergo: back to the days of wage-costs cyclical increases and an end to stability.
A fall in the value of the dollar is not without costs – and for many people those costs could well be higher than those of a higher exchange rate.
Reducing the value of the dollar, reduces earning power in effect reducing the real value of wages.
But here’s the irony. For Labour to get up this year, they acknowledge they must capture the 30 per cent non-voting sector comprising mainly low-income people. Reducing their already tight incomes and adding to their consumption cost is an odd way to achieve that. . .
If Labour thinks they can sell a policy which would reduce people’s take-home pay by increasing Kiwisaver contributions while bemoaning the plight of the poor, they really don’t understand the people to whom they’re tying to appeal.
David Cunliffe is promising surpluses and to reduce unemployment to 4%.
Governments don’t create jobs, individuals and businesses do that.
The role of governments is to get the policies right which foster economic growth to give those who create jobs the confidence to do so.
That’s what National has done, is doing and will continue to do.
Labour’s prescription contains nothing to give any confidence.
They’re threatening more and higher taxes, will take us back to the 70s with their power plan, will create income uncertainty with their mad idea to meddle with KiwiSaver contributions, increase compliance, tighten labour laws . . .
But worse they’ll need the support of the Green Party which is anti-growth, anti-trade, anti-farming, anti-mineral exploration and anything else that will create real, sustainable jobs.
Labour will have to swallow a lot of dead rats to create the environment that would reduce unemployment to 4%.
Which will they be and how will they persuade the other parties they’ll need to form a coalition to agree to swallow them too?
Mr Parker couldn’t answer a simple question today on how much KiwiSaver contributions would have to go up for wage and salary earners in order to stop a 1% rise in interest rates.
“Surely you must be able to answer that question. If you can’t, it’s not a policy, it’s not even an idea, it’s just a David Parker thought bubble.
“It’s simply not thought through,” Mr Joyce says.
Mr Joyce says a 1 per cent increase in KiwiSaver contributions is only likely to generate about $400 million of net new savings.
“My estimate is it would take roughly $2.5 billion in extra savings to keep the OCR 1 per cent lower. Labour would need to take another 6 per cent of people’s pay packets off them and put it into KiwiSaver to avoid a 1 per cent increase in interest rates. Given they already want people to save 9 per cent, that would whack it through to 15 per cent,” Mr Joyce says.
“But it’s not my estimate that’s important on this one, it’s David Parker’s. Where are his numbers? What are his calculations? All he’s done so far is mumble about how complicated it is.
Mr Joyce says Parker’s KiwiSaver interest rate jack-up idea would simply force all KiwiSavers to spend a lot less of their own money just to avoid putting up interest rates for other borrowers.
“Housing is less than half of New Zealanders’ debt. The rest is companies, credit card holders, farmers, councils, government agencies and so on. Effectively he’d be telling businesses and councils to carry on borrowing and spending regardless because wage and salary earners will do all the belt-tightening for them,” Mr Joyce says.
Let’s not forget central government spending which put so much pressure on interest rates last time Labour was in government.
“The strength of using interest rates to control inflation is that it affects all borrowers equally and encourages all savers equally. Under the Parker Plan, wage and salary earners would be completely squeezed and everyone else would continue on regardless. The Reserve Bank Governor would end up putting interest rates up anyway.
“And that’s not all. Respected economists have this week said that if this idea does anything it would increase bank profits, increase house prices faster, and force people to buy overpriced shares with their savings.
“New Zealanders know the New Zealand economy is currently one of the best performing in the western world. And it’s National’s consistent and sensible economic policies that are helping achieve that.”
David Farrar has worked out how much people’s take home pay would drop if they were compelled to save more:
. . . So what does that means if you are on say $60,000 a year. It means your take home pay will drop by $3,600 a year or a massive $70 a week to stop interest rates rising by 1%.
A drop of $70 a week would put considerable strain on most people’s budgets.
Now you may not even have a mortgage. Most people do not. Everyone who does not currently have a mortgage will have their take home pay slashed.
But what if you do have a mortgage. Say you have $300,000 owing on it. Let’s say the VSR means your interest rate is at 6% instead of 7%. What difference does that make to your weekly repayments? At 7% a $300,000 20 year mortgage costs you $536 a week. At 6% it is $495 a week so that saves you just $41 a week.
If you’re very wealthy, you’ll benefit from this policy. If your mortgage is say $1 million you’ll save $136 a week and your KiwiSaver contributions won’t increase as you’re self-employed.
If this policy worked, and there’s strong doubts about that, it would help wealthy people with mortgages and other loans at the expense of those without them.
It would make budgeting difficult for middle income wage earners and harder still for the poor.
It’s hard enough dealing with cost increases, having to cope with income decreases at the same time would be the last straw for many.
The Green party is soliciting funds for its election campaign with an email that says:
. . . National’s policies of more mining, weakening environmental protections, poor economic management and growing inequality are not the recipe for a fair society and a better future.
In contrast to National, we have the ideas to deliver a richer New Zealand. . .
Green is supposed to be the colour of growth but these Greens are really reds promoting the policies that have failed in the past.
Take their plan to bring down the exchange rate. Prime Minister John Key says currency intervention and printing money won’t work:
. . . “It didn’t work very well for Argentina, or Venezuela or Zimbabwe and it could never be done in New Zealand at the sort of magnitude we’ve seen in the United States,” said Key.
As for the New Zealand dollar versus its United States counterpart, Key used a seesaw analogy.
“It’s a bit like being a seesaw and if I weigh 85 kilos and you weigh 170 kilos, I’m going to go up when you sit on the seesaw and you’re going to go down. And that’s really the situation we’ve got at the moment.”
“We kind of weigh 85 kilos and the United States weights 850 tonnes. Right up to this point it (the US) has been very unwell. It has got everything from aids to bird flu. It has really been pretty unwell so the market’s just massively adjusting what they’re doing.”
When people say the Reserve Bank should be printing money, Key said you wouldn’t do that with base rates – the Official Cash Rate – at 2.5%.
“All you do is cut interest rates for a start off. The second thing was even if you printed money, it’s never going to work. I think they’ve printed US$5.5 trillion in the US. I mean it’s massive. So what would we print? NZ$50 billion or something? It wouldn’t make an iota of difference.”
“So my view would be I know we want to get the exchange rate down and I know it’s hurting a lot of companies. But it’s a cycle you’re going to have to ride through and all the Government can do is control the things that are in our control. So get out there and reform the Resource Management Act, make sure we don’t spend too much money, make sure we keep pressure off interest rates, manage the place well,” Key said. . . .
The reds want to increase the burden of government, their policies will lead to higher interest rates and they haven’t a clue about good economic management.
. . . Furthermore, he said intervention in the currency markets never works.
Here Key cited an example from his previous career at Merrill Lynch, where at one time he was head of global foreign exchange. One of Merrill Lynch’s biggest clients was the Bank of Japan, which used to intervene in the currency markets through Merrill Lynch.
“To tell you how bad it got, one night we were sitting there and the Bank of Japan rang up and the US$-yen was about 90 or something and they didn’t want it to go down lower. And the guy said to me ‘I want you to start buying dollars at 90’. And I said ‘how many do you want me to buy’, and he said ‘well, I’m going out for three hours so I’ll give you a yell when I get home.’ And I said ‘yeah, but how many do you want me to buy?’ And he said ‘I’m going out for three hours, don’t you understand the conversation?’
“I bought US$4.5 billion in three hours. He said ‘where is it (the US dollar-yen exchange rate)’ and I said ‘it’s 90, you bought US$4.5 billion. And he said ‘ah, well I’m off to bed now give me a ring in the morning’,” said Key.
“It never worked, it just never worked. I don’t know how much money they lost on intervention but it was massive.” . . .
Who do you believe – someone who has worked in international finance and has managed the country through the global financial crisis or people who want to print money and whose power policy would have a chilling effect on on private investment? Rob Hosking writes:
. . . There is something essentially frivolous about anyone who would cheerfully rip up the value of some of the country’s largest firms, and the value of the investment in those firms, simply for a political positioning exercise.
This is why the exchange caught by TV3 between Green energy spokesman Gareth Hughes and party spin zambuck Clint Smith was so telling.
For those who missed it, Mr Hughes was asked if the party was pleased at the reaction: Mr Hughes paused, turned to Mr Smith and asked “Hey, Clint – are we pleased?”
It was telling that he even had to ask.
But the almost palpable glee coming out of the Green and Labour camps at the destructive impact of their policy is highly revealing.
It underlines – not for the first time – the problem with the makeup of both parties. They are dominated at the MP and the staff level by the sub-genus homo politicus.
That is, they are full of people who have done nothing in their lives apart from politics. All parties have a complement of this group, but with Labour and the Greens the group has reached critical mass.
This group has been involved in politics at university, moved from there to various political/union offices and then into parliament.
There is little real world experience and everything is viewed through a very narrow prism of political advantage.
It’s the sort of attitude which means the value destruction seen this week can be just laughed off.
There will, unless we are careful, be more such frivolous policies to come.
I would use a far stronger word than frivolous and the business community certainly isn’t taking it lightly.
In an open letter to LabourGreen they say the policy would harm jobs, growth and investment, causing interest rates to rise, reducing KiwiSaver retirement savings and making people less well off.
. . .Business shares your concerns about constantly rising power prices and their impact on our global competitiveness. Businesses and consumers work hard every day to minimise their spending on electricity in order to stay in business and
John Scandrett Chief Executive Officer Otago Southland Employers’ Association
Raewyn Bleakley Chief Executive Business Central–Wellington
Kim Campbell Chief Executive EMA
Peter Townsend Chief Executive CECC
Michael Barnett Director New Zealand Chambers of Commerce
These people represent people who employ people, the ones who need certainty and confidence to make investment that creates jobs, earn export income and pay taxes.
These are people who work in the real world.
They know there’s nothing funny about bad policy that would take the country backwards, cost jobs and make us all poorer.
They know that Green isn’t for growth and it doesn’t mean go.
Green economic policy is bright red and it will mean stop to economic growth and job creation.
Ever since National came to power it has concentrated on making the economy stronger.
It is succeeding but more than a year away from the next election the spectre of a LabourGreen government is providing a hurricane force headwind.
The government has put a lot of effort into policies which encourage savings, investment and export-led growth and LabourGreen are sabotaging that.
The façade behind the Labour-Greens power plan is crumbling as it becomes clear their electricity nationalisation ‘plan’ is nothing more than deliberate economic sabotage for attempted political gain, Economic Development Minister Steven Joyce says.
“Comments made in recent days by Grant Robertson, David Parker, and Russel Norman show they don’t care about the damage to KiwiSaver accounts, mum and dad investors and the wider New Zealand economy,” Mr Joyce says.
“Financial analysts including JB Were, Woodward Partners, Milford Asset Management, First NZ Capital, Devon Funds Management and Forsyth Barr are unanimous in their condemnation. One has labelled it a ‘hand grenade’ to the New Zealand economy, while others have said it will cut the value of every New Zealanders’ KiwiSaver account and lead to rolling blackouts.
“Investment in new power generation would suffer as would wider investment in the New Zealand economy. The National-led Government is focused on attracting investment in new business and jobs for New Zealanders. Labour and the Greens would do the exact opposite.
“Kiwis are deeply suspicious about the Labour-Greens announcement and its timing. It’s simply economic sabotage.
“The great irony is that it’s clear the policy is not worth it for anybody. The last time that we had central planning of the power industry, prices went up faster. Labour’s own Cabinet paper in 2006 said it would push costs up.
“New Zealanders will see it for what it is: a cynical and selfish attempt by left-wing parties to play politics with the value of New Zealand’s economic assets.”
The market isn’t perfect but I’d rather put my faith in it than an army of expensive bureaucrats.
And I’d feel much happier investing in companies that weren’t going to be at risk from government interference.
JB Were says the LabourGreen power plan will sap energy from the local market:
The Labour/Greens announcement on electricity sector reform concerns us on two fronts: firstly, the move to a state buyer of power risks being a retrograde step for the New Zealand economy. Secondly, we believe it will prove damaging for New Zealand capital markets, and comes at an unfortunate time given the significant progress made here since 2010. We detail these two concerns below: . . .
The damage to capital markets has already started.
Share prices in energy companies fell yesterday in the wake of the LabourGreen plan to power us back to the socialist seventies.
TrustPower, which is 50.7 percent owned by Infratil, fell 5 percent to $7.18, leading decliners as fallout from the opposition parties’ plan to centralise buying of electricity and split generators from their retail arms weighed on utilities.
Contact Energy fell 2.8 percent to $5.31 and lines company Vector slid 2.1 percent to $2.82. Infratil dropped 1.3 percent to $2.30. . .
Those shares aren’t just owned by the wealthy the left hate.
They’re also owned by people of modest means who have worked hard and put something away for a rainy day.
They’re also owned by community trusts and other philanthropic organisations which fund charitable projects.
They’re also owned by insurance companies, including ACC.
They’re also owned by Kiwisaver and the Superannuation Fund.
The LabourGreen power plan is in sabotaging the value of investments is stealing from us all.
Almost three out of four New Zealanders agree now that it was a mistake to scrap the 1975 scheme, according to research that was commissioned by the Financial Services Council and run during December.
A Horizon Research Survey of 2107 respondents and matched to the adult population, asked whether all New Zealander employees should be required to belong to KiwiSaver and whether it was a mistake for New Zealand to abolish its compulsory super scheme in 1976.
“This was once an issue that bitterly divided New Zealanders, but there has been a huge turnaround and now supporters of all parties agree that cancelling the 1975 Superannuation Scheme was a mistake and that universal coverage by KiwiSaver is supported,” the chief executive of the Financial Services Council Mr Peter Neilson said. . .
The scheme that was scrapped in 1975 wasn’t Kiwisaver.
Saving for retirement is in general benefits individuals and the economy.
It is good to encourage people to save for their own retirement and that it should be as easy as possible for them to do so.
I can see a problem in a few decades when there’s a huge divide between retirees who have the safety net of a Kiwisaver account to make retirement easier and those who don’t.
But I am very wary of making it compulsory.
Most people are capable of making their own judgement about what’s the best use of their own money and investing in their own business or paying off a mortgage might be better for them than a Kiwisaver account.
When National announced its policy to automatically enrol people for KiwiSaver but allow them to opt out, Finance Minister Bill English was asked why not go the whole way and make the scheme compulsory.
He replied that some people would not have enough money and others would have better things to do with it.
The really poor already find too much week left at the end of their pay packets. Reducing their take home pay be taking more, albeit for savings for their own retirements, will cause real hardship.
Other people would have higher priorities for spare money such as paying off mortgages or other debt or investing in their education or business.
Labour’s policy of compulsory KiwiSaver would make life more difficult for the poor and take choice away for those with better ways to invest in their futures.
The other part of the policy – increasing employer contributions to 8%, will result in lower wages.
Few if any employers would be able to absorb the increased cost of higher contributions. The choices are increasing the price for the goods and services they produce or reducing costs elsewhere and the obvious place to do that is in the wages of workers whose superannuation they are subsidising.
They can do that by having fewer staff or paying those they do have, less.
Wages might not come down but they either won’t go up or will increase much more slowly if employer subsidies increase under Labour’s policy.
This policy in isolation will make employers more hesitant to take on extra staff. Combining it with increasing the minimum wage to $15 will increase the hesitation.
Lowering wages and threatening jobs is not the policy of a worker-friendly party.
Finance Minister Bill English has announced that National will introduce automatic enrolment for KiwiSaver in 2014/15, subject to returning to surplus.
“In the current environment, we need to be mindful of the fiscal costs of all programmes. So we will proceed with KiwiSaver auto-enrolment in the same fiscal year in which we return to surplus and start to repay debt,” he says.
“As signalled in the Budget, we believe there is merit in a one-off KiwiSaver auto-enrolment exercise, where people in the workforce not already in the scheme would be signed up with the ability to opt out.”
If National returns to government it will finalise details after considering submissions to a public discussion paper to be issued early next year.
This policy is part of the government’s plan to build genuine national savings. It complements other measures including a return to budget surplus by 2014/51; last year’s tax reductions on work and savings and the plan to provide investment opportunities through the mixed ownership model for state assets.
“These measures are pushing in the same direction households are already moving,” Mr English says.
“Having spent more than $1.10 for every dollar they earned three years ago, households will this year have a positive savings rate for the first time in more than a decade.”
The Government decided against introducing auto-enrolment before 2014/15 because its immediate focus remains on returning to budget surplus.
“While we’re running deficits in the next two years, that’s money the Government would have to borrow. Borrowing more money to put into KiwiSaver accounts is not real savings – we are applying the same approach to resuming contributions to the Super Fund,” Mr English says.
Reduction of debt is real saving. Borrowing to invest isn’t just not real savings, it’s stupid.
“Depending on the uptake and design, officials estimate a KiwiSaver auto-enrolment could cost the Government up to $550 million over four years – including the one-off $1,000 kick start payments to new members and ongoing annual member tax credits. We intend to fund this from within existing budget allowances.”
This measure will catch people who haven’t got round to enrolling but stops short of compulsion.
The Government agrees with the Savings Working Group that a compulsory savings regime is not warranted, Mr English says.
“Many New Zealanders have already opted out of KiwiSaver because they have valid reasons for not saving for retirement right now – including paying off their mortgage or being members of private savings schemes.”
KiwiSaver is a very generous scheme. If you’re not enrolled now you either don’t need it, don’t understand it, haven’t got round to it or can’t afford it.
Auto-enrolment will catch all of these groups. Those who have better use for their money or cant’ afford it will opt out, but most of those who can’t understand the scheme or haven’t got around to joining will stay in which will help build national savings and ensure more people are providing for their own retirement.
If you’re not in Kiwisaver you probably don’t need it, don’t understand it or can’t afford it.
To put it more bluntly – you’re too rich, too stupid or too poor.
Kiwisaver is a generous scheme and anyone who isn’t making good provision for their retirement and has even a little spare money each week is by-passing a relatively painless way to be much better-off in their later years.
The scheme has had a better than expected take-up but there are still a good number of people who either didn’t enrol, or who were enrolled and opted out.
All new workers are automatically enrolled and have to opt-out if they don’t want to stay in. National is considering extending automatic enrolment to all workers.
The idea behind this is that if people had to opt-out inertia would capture a good number of those who hadn’t got round to enrolling.
It’s not compulsory saving because people could choose to leave, but just as many haven’t got round to opting in, at least some wouldn’t get round to opting out.
State Services Minister Tony Ryall is correct when he says there can be no guarantee that shares in state assets will remain in the hands of New Zealanders.
It might be possible to control who makes the initial purchase and to ensure a certain percentage of shares remain in local hands – although that will have to be done very carefully if it’s not to lower their value.
But in a free market with an open economy, onerous restrictions on who people could sell their shares to would be at best problematic.
That won’t stop opponents to even a partial sale of some state ownership playing politics over the prospect of foreign investment.
What those people will gloss over or ignore is that National’s policy is for a mixed-ownership model where no more than 49% is sold. The state would retain at least 51% of any SOE offered for partial sale so even if all the shares sold went overseas, the majority share of the company would still be New Zealand owned.
Even then it is most unlikely that all or even most of the minority shareholding sold would end up in foreign hands. Even if individual shareholders didn’t hold on to their shares for long, institutions like the New Zealand Superannuation Fund, ACC, community trusts, Iwi and the various companies with KiwiSaver accounts would.
Instead of complaining about the potential for foreign money to come into New Zealand, we should be celebrating the opportunity for these big local institutions to keep more of their funds at home.
One of the reasons the government is determined to get back into surplus quickly is the risk to the economy from an over reliance on foreign borrowings.
This is one of the factors sited by Moody’s for its decision to downgrade the credit ratings of four major banks.
The bank was concerned about a lack of domestic savings and high debt levels:
Moody’s analyst Marina Ip says an over-reliance on foreign borrowings was also a negative for the banks.
She says funding loans from overseas increases the risks banks face of a credit crunch if the world economy worsens.
Part of the government’s strategy to return to surplus is reducing its contribution to Kiwisaver. The reason it’s done that is simple – borrowing by the government to give people money to save isn’t really saving because the money eventually has to be paid back.
The public contribution to Kiwisaver is still very generous – $1000 when a Kiwisaver account is opened and on-going contributions. This is the easiest money most of us will ever get.
The tax credit will be halved and the tax-free status of employer contributions will go if National is returned to power but we’re still getting something for nothing more than deferring a small proportion of our own spending.
We’re being asked to contribute more of our own money – 3% rather than the current 2% but that’s what saving should be – setting aside some of our current earnings to secure a better income in the future. There’s no virtue in saving other people’s money, especially if it’s borrowed.
Employers’ contributions will rise to match those of employees and some are concerned about what that will cost. The answer to that is to build the employer contribution into the salary package. That reinforces the message that savings require the deferral of expenditure , having less now so we’ve got more later.
Savings matter to individuals and the country. The more we save ourselves the more we have to lend. For too many years we haven’t saved enough so individuals, businesses and governments have had to borrow from overseas.
The institutions we borrow money from also lend to the economic PIGS – Portugal, Ireland, Greece and Spain. The less we have to rely on them the more secure our economy is.
But real savings use our own money not that borrowed from other people.
People are planning to march up Queen Street today in support of wealthy beneficiaries and foreign banks.
They’re not saying that. They think they’re opposing Budget announcements:
Groups opposed to the Government’s planned changes to KiwiSaver, family tax credits and public services and state asset sales, announced in last week’s Budget, will march along Auckland’s Queen Street . . .
If the changes to family tax credits can be criticised for anything it’s not going far enough. Giving public money to high income earners, regardless of how big their families are, is not what the welfare state was designed to do.
People in Kiwisaver will still get $1,000when they join and any further subsidy from the government is generous, even if it isn’t quite as generous as it’s been.
Changes to public services are designed to shift costs from the backroom to the front line. How can anyone protest about that?
The alternative to the partial sale of state assets is to cut spending severely or add to already heavy borrowing from overseas banks which would add to our already precarious financial situation.
Given the parlous state of the nation’s books the government could have been forgiven for a slash and burn Budget. Instead it went for what Rob Hosking described as a trim and singe.
Today’s protest is for the privileged and will say a lot more about the politics of the participants than the Budget which delivered moderate measures to solve some very serious problems.