Kiwisaver tool will mostly effect worker’s back pockets

Labour’s proposed Kiwisaver monetary tool has injected something worthwhile into the economic discussion arena. It’s only a ‘proposal’ with more work to be done so it’s far from set in concrete.

5.4 Further tools are desirable to assist the Reserve Bank. Therefore, Labour will ask the Reserve Bank and Treasury to assess in detail the new tool discussed in this section, and to report to the Government on how it could best be implemented.

That makes it more of a discussion document subject to revision and firming up, which is a good approach, but leaves a number of unanswered questions at the moment.

Dominion Post puts forward some of these questions in Editorial: Kiwisaver policy a game-changer?

This last hope is Labour’s most tenuous – that the policy will help exporters by bringing down the dollar. Lower interest rates theoretically turn off overseas speculators, but many factors push and pull at the price of the dollar, and it’s not clear this policy would decisively shift it.

There are other questions, too. What about low-wage workers, who don’t have mortgages and can’t afford unpredictable shifts in income? Labour is considering exceptions for them, but that poses its own problems.

What about the wisdom of constantly mucking around with people’s retirement savings? Isn’t that an odd message to send, that they are subject to the whims of the economic cycle?

And will such adjustments be as effective as interest rate hikes in cooling the housing sector, the most inflationary part of the economy?

So Labour has some more explaining to do. But the questions should not puncture the idea – some might be unanswerable until the policy is tried.

If Labour go ahead with this we will have increased Kiwisaver contributions that will be ‘compulsory’ (but Labour says there could be low income earner exemptions).

Will we get anything else? There has been doubts voiced about whether it would have much if any influence on the exchange rate. NZ Herald in Labour’s KiwiSaver ‘bun fight:

Westpac chief economist Dominick Stephens said: “It can’t hurt but it may not do much. Compulsory KiwiSaver should increase national savings and reduce interest rates but only a little bit.”

Bank of New Zealand head of research Stephen Toplis said: “There is no question that to reduce the current account deficit we have to increase the national (not just household) savings rate. The problem is how do you do that. I’m not entirely convinced that compulsion does it, or that having the ability to move the contribution rate over the economic cycle would be particularly effective.

When it is introduced it may be years before economic conditions allow it to be implemented. If it is used cautiously the effects may be very difficult to detect.

We may end up with little more than a shift to increased and compulsory Kiwisaver contributions. This is all wage earners will notice anyway, and it’s probably what they will judge the policy on – less choice and less money for them unless they have a mortgage.



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