Labour’s big Kiwisaver challenge

Labour have a very big challenge to overcome if they want to successfully sell their compulsory Kiwisaver policy proposal. A comment by Disraeli Gladstone at The Standard illustrates a potential problem.

I wanted to bring up a potential situation which is probably reasonably common across the country:

A single parent with multiple kids, potentially three or four. Maybe the parent is a widow, maybe they receive some support from the other parent, maybe the other parent fled the country. They earn around $50,000. That’s not bad. It’s under the median income but they’re definitely not counted as a person on low income. They even get a bit of Working for Families.

However, they’re a renter. They also have a car they’re still paying off: nothing flash, something to get by which wouldn’t also have to go into repairs often. They have various school fees and uniforms and books and trips to pay for. Electricity bills are always a bit of a concern.

Now, the parent is doing okay. They want the best for their kids. So they budget accordingly. Healthy food over cheap rubbish, so they don’t have any silly gym membership or anything like that. They want their kids to have books and internet so maybe they don’t get Sky TV.

It’s a nice life without being affluent. It’s also rather tediously poised. They’ll be some weeks when the parent is scrambling for every cent: unexpected school fee, kid’s shoes have broken, etc. It’s comfortable without ever being safe.

One of the things they have to consider is Kiwisaver. They decide against it. They can’t afford it yet. Once the kids are older, they’ll open one up.

When I say potential situation, I am largely writing about a good friend of mine.

Suddenly, under Labour’s new policy, everything changes. They have to contribute to Kiwisaver. That’s a certain percentage of their income gone. They can’t withstand the unexpected expenses now, school fees and new uniforms are dreaded. And this is someone on a reasonable salary. They’re nearly going under.

Furthermore, the rate is variable, how is that person meant to budget? A responsible way of life of budgeting essentials and nice-to-haves is suddenly thrown away with the risk that soon their Kiwisaver contributions might rise. Maybe the kids don’t get their books, maybe they have to downsize the car and cringe with every WOF, maybe they have to downsize a house and have multiple children in each room in a more dangerous part of town.

For someone earning $50,000 would have $4,500 per year ($86.54 per week)  contribution with Labour’s compulsory Kiwisaver and increase to 9% total contribution (that’s a total of employee plus employer contribution).

Now Labour just needs to provide a really good policy to make sure low-income and renters don’t get punished by this. (geoff)

That’s Labour’s biggest challenge.

At 9% (Labour’s suggested Kiwisaver rate):
$30,000 is $2,700
$40,000 is $3,600
$50,000 is $4,500

How can they “not punish” people earning those amounts? If they have children their effective PAYE less WFF credit means they are pay little or no income tax.

And how can they ‘not punish’ them without being unfair to those who already contribute to Kiwisaver?

David Parker has talked about increasing the minimum wage and using a living wage but these are substantial compulsory contributions, and it will be very difficult to be fair to all.

What about a solo parent who works 30 hours a week on $25 per hour ($39,000 pa with $3,510 Kiwisaver)? They won’t be affected by any increase in the minimum wage and are unlikely to be affected by any living wage.

It will be difficult for Labour to explain the possible benefits some time in the future of some possible effects on Official Cash Rates and exchange rates – especially when a lowered exchange rate will increase the cost of living for many people due to more expensive imports, and most people won’t noticed anything from improved export prices.

It could be even more difficult for Labour to explain to and ‘not punish’ low income earners and people who aren’t yet on Kiwisaver.

Low and average earners would potentially see $50-$100 per week less in their pay packet.

Making Kiwisaver compulsory, an up front $50-$100 per week less in the hand and rising petrol prices versus tweaks that might affect the OCR, Forex and Fonterra payouts. Selling the benefits of their policy will be a big challenge for Labour.