OnPoint by Keith Ng

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OnPoint: KiwiSaver's dirty secrets - revealed!

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  • sagenz,

    not bad. you are certainly better than the rest of the left but you still dont quite get it. I earn $500,000. I agree with my employer that I will take a 20% pay cut and we will put the $100,000 into kiwisaver tax free at some split between employer and employee contribution that I cannot be bothered working out. It does not cost my employer an extra penny but I save the 40% marginal tax on excess income that I would save anyway.

    all other things being equal other taxpayers will be forced to make up that $40,000 difference. No wait... It wont come from other high earners because they will be doing exactly the same thing.

    I will leave you to guess where it comes from.

    Now with the National tax cuts that benefit would have topped out. But this is Cullens ignorant economics. So he proposes to soak the poorly paid and provide an unlimited subsidy for himself, his wife and all his highly paid colleagues.

    Nice

    uk • Since Nov 2006 • 128 posts Report Reply

  • sagenz,

    oh and btw. you are right about that graph. it sucks :-)

    uk • Since Nov 2006 • 128 posts Report Reply

  • Don Christie,

    But this is Cullens ignorant economics.

    And with that comment you blow any credibility you might have in this debate. He has presided over an economy that has grown by a third in his time, seen unemployment come down to next to nothing and never been into recession. As a business owner I especially like the last bit.

    The point of the policy is to address the savings and investment imbalance in New Zealand. I have yet to read any analysis that suggests it will fail to achieve this and achieve in a manner that does not totally bugger up the rest of the economy.

    I personally think there are flaws with any retirement savings scheme, state or private, and it is worth understanding and debating those flaws. But to suggest that someone with his track record and training is "ignorant" is, well, ignorant.

    Wellington • Since Nov 2006 • 1612 posts Report Reply

  • Juha Saarinen,

    Keith, you can "cheat" by using a screenshot program to snap the chart, and save it as a JPEG/PNG or whatever.

    Since Nov 2006 • 520 posts Report Reply

  • Martin Roberts,

    sagenz, you appear to distance yourself from 'the left', from your dismissive opening sentence. Forgive my stereotyping, but I would have expected 'the non-left' to be pleased about a reduction in the marginal rate on the top tax bracket. Even if it is only available when you place your investments in certain funds.

    Auckland • Since Nov 2006 • 87 posts Report Reply

  • Rob Stowell,

    I earn $500,000. I agree with my employer that I will take a 20% pay cut and we will put the $100,000 into kiwisaver tax free at some split between employer and employee contribution

    My understanding is that the total is capped at 8%. So the max in this case would be $20k from you, $20k from yr employer. (Is this right? I need to know!) OTOH, what line of work are you in? And can I join!

    Whakaraupo • Since Nov 2006 • 1353 posts Report Reply

  • Rich of Observationz,

    You are assuming that wage levels are set in a perfect, isolated market.

    Employer contributions to Kiwisaver are being phased in at 1% annually for four years. How this affects wage increases will be determined by many factors.

    We just had a 1 week increase in statutory holiday, which equates to an hourly wage rise of around 2%. I don't have figures, but it certainly seems that this has not depressed wage rises in NZ measurably.

    There are many, many factors affecting wage increases including:
    - desire of employers to trade negative HR consequences (strikes, staff turnover, unfilled vacancies) against wage increases
    - comparison of wages with Australia and further afield
    - levels of employment in specific sectors
    - ability of competitors to offer better wages through improved efficiency
    - ability of market to absorb wage-driven price rises

    So I think all we can say is that the negative effect on net wage growth will be between zero and 1% annually.

    Back in Wellington • Since Nov 2006 • 4209 posts Report Reply

  • Rob Stowell,

    Keith- some good points, but "dirty secrets" is inflamatory and misleading: no wonder you've got sagenz giving you a high-five. The #1 "dirty secret"

    It will certainly push wages down.
    Employers are going to take KiwiSaver contributions into account when setting wages and in considering wage increases.

    is not exactly "dirty" and in no way "secret" (I've heard Cullen discuss it at least 5 times since the budget!). What the effect will be is certainly open to interpretation; at the moment Cullen's spin sounds more realistic than yours. You could argue that "Drive wages down" and "slow wages growth" (by as pointed out, somewhere between 0 and 1% for up to 4 years) are the same thing. I don't think they are. There IS a big "tax-cut"/injection of govt revenue into the scheme. And a remarkably wide section of NZ (including business) can see clear benefits.
    I'll make a prediction: National will go into the next election promising NOT to scrap "kiwisaver" (but odds-on to "fix" or "improve" it.)
    And in 20 years it'll be considered a watershed. Along with the "Cullen fund" we'll look back on this govt as the one's who finally "fixed" retirement income- as well as running a dynamic economy and paying off govt debt.

    Whakaraupo • Since Nov 2006 • 1353 posts Report Reply

  • Craig Walls,

    The best thing since sliced bread: Zoho!

    It makes those Google spreadsheets look like Quattro Pro...

    Oh, and all the savings stuff was interesting too, btw.

    Brisvegas/Melbourne • Since May 2007 • 12 posts Report Reply

  • Russell Brown,

    I'll make a prediction: National will go into the next election promising NOT to scrap "kiwisaver" (but odds-on to "fix" or "improve" it.)

    Key was refusing to say this morning exactly what National's policy on KiwiSaver would be, but promised they'd have one before the election. And you're right: they'll mess with it at their peril.

    And in 20 years it'll be considered a watershed. Along with the "Cullen fund" we'll look back on this govt as the ones who finally "fixed" retirement income- as well as running a dynamic economy and paying off govt debt.

    Yes. Whatever he'll be seen to have got wrong, I think Cullen will be remembered for having the nerve to address both our savings and retirement issues.

    Auckland • Since Nov 2006 • 17939 posts Report Reply

  • Martin Roberts,

    Rich- good point that there is more to setting wages than the basic numbers. On the down side for low paid workers, this also means that they could be squeezed to compensate for benefits that they don't get, just because better-paid workers are facing slower wage growth.

    This could be particularly bad for part-time workers, doing the same job but getting less pay over the tax year. Not really sure how the government contribution applies to them, however. Anybody?

    Auckland • Since Nov 2006 • 87 posts Report Reply

  • Graeme Edgeler,

    My understanding is that the total is capped at 8%.

    Nope (at least not any more). You can put in 8%, your "employer's" matching contribution only need be 4%, however.

    Keith - at least some of the problem identified by opponents is this:

    Someone employed on $30,000 - three kids, high rent. Don't sign up, don't get any money - from either the employer or from tax. Zero benefit.

    Wellington, New Zealand • Since Nov 2006 • 2968 posts Report Reply

  • Graeme Edgeler,

    Not really sure how the government contribution applies to them, however. Anybody?

    The taxpayer will match their savings up to $20 a week, and their employer'c contribution by up to $20 a week - the same as everyone else.

    Wellington, New Zealand • Since Nov 2006 • 2968 posts Report Reply

  • James Green,

    Keith, you can "cheat" by using a screenshot program to snap the chart, and save it as a JPEG/PNG or whatever.

    Or is you want a really geeky hack, and higher resolution, you print the chart, and check the "print to file" box to save a post-script version. Note, you don't actually have to have a printer for this to work. To enable me to make colour post-script files, I have some ridiculously expensive HP colour laser "installed". Once you have it in postscript, you can use GSView and Ghostscript to make it into a pretty pdf, or into a jpg or whatever.

    Dunedin • Since Nov 2006 • 667 posts Report Reply

  • Danyl Mclauchlan,

    I'll make a prediction: National will go into the next election promising NOT to scrap "kiwisaver" (but odds-on to "fix" or "improve" it.)

    Smart money has got to be on National fixing the employer contribution at 1% or 2% - whatever it happens to be when they get into power.

    Wellington • Since Nov 2006 • 894 posts Report Reply

  • Terence Wood,

    Rich from Observationz makes the key point, Keith's argument assumes perfect competition in labour markets, which is unlikely. What will happen given both union and employer price setting powers is unclear if you ask me.

    Since Nov 2006 • 148 posts Report Reply

  • Martin Roberts,

    Martin: Not really sure how the government contribution applies to [part-time
    workers] however. Anybody?

    Graeme: The taxpayer will match their savings up to $20 a week, and their employer'c contribution by up to $20 a week - the same as everyone else.

    If you have two part time jobs, can your employers each get up to $20 a week? Perhaps more likely for the unlucky sorts pressured into two fulltime jobs, but getting past $10 subsidy in each job seems like it wouldn't be uncommon.

    Auckland • Since Nov 2006 • 87 posts Report Reply

  • Nobody Important,

    He (Cullen) has presided over an economy that has grown by a third in his time, seen unemployment come down to next to nothing and never been into recession. As a business owner I especially like the last bit.

    Yeah, but as that bloke on NZ Dragons Den said, it would be pretty hard not to make money in this economy - ie the global economy has been going so strongly we really should measure our 'success' by how well others have performed. I sold a house for a buckeload of money. I did well, or so I thought. It was only when the guy I sold it to then onsold it for a bucket more that I realised I hadn't done so well.

    I think Cullen will be remembered for having the nerve to address both our savings and retirement issues.

    Yeah, I give him credit for that. And better still, I think he's set the benchmark for other politicians - which is why Key is so 'pragmatic'.

    expat • Since Mar 2007 • 319 posts Report Reply

  • Graeme Edgeler,

    If you have two part time jobs, can your employers each get up to $20 a week?

    Ahh - an intriguing question. I'd say almost certainly yes. But I don't *know*. This isn't to the benefit of the saver (except in so far as it would lower the downward pressure on wage rises), but I can't see much else working.

    Wellington, New Zealand • Since Nov 2006 • 2968 posts Report Reply

  • WH,

    Nice work Keith.

    I suppose a standard economic analysis says that in the long run the employer contribution will be borne by employees. Cullen mentioned he expected the cost of Kiwisaver would be factored into wage bargaining, and I suppose this is what he meant.

    On the other hand, a national savings scheme is designed to increase long run national income by changing long run investment patterns. So although Kiwisaver may reduce disposable income in the short/medium term, changes to investment patterns may mitigate this effect by helping to increase domestic incomes at a faster rate than would otherwise have been the case (through increased domestic investment and via the balance of payments).

    But as you pointed out in an earlier post, our housing market requires urgent attention. Not only is it interfering with our productive sector by distorting our interest and exchange rates, it is transferring money from the poor to the rich and from New Zealanders to the shareholders of overseas banks. This might have been thought to be the more pressing concern.

    Since Nov 2006 • 526 posts Report Reply

  • Nobody Important,

    (the housing market ) is transferring money from the poor to the rich and from New Zealanders to the shareholders of overseas banks.

    Damn straight. Most NZ banks are Aussie owned and yet the bulk of their profits are derrived from NZ, not Australia. They be laughing. Especially when the get a wink and a nod from the Reserve Bank to stop being so competitive on mortgage interest rates.

    expat • Since Mar 2007 • 319 posts Report Reply

  • Don Christie,

    Yeah, but as that bloke on NZ Dragons Den said, it would be pretty hard not to make money in this economy

    Oh please. Spare me the lucky finance minister story.

    As you can see for most of this period NZ's growth has exceeded Australia, USA, UK and Japan. Throw in most of the EU and you would have an even rosier picture.

    The fact is, he could have screwed things up. Politicians have been known to do that. So far, he hasn't and better still, the cycles have been pretty soft (i.e. not many sudden changes in direction).

    I think English and Key are very capable fellows and probably could have done the same. The point was that Cullen has been the person in the driving seat and he was described as economically ignorant. The evidence does not support that claim.

    Wellington • Since Nov 2006 • 1612 posts Report Reply

  • Russell Brown,

    Damn straight. Most NZ banks are Aussie owned and yet the bulk of their profits are derrived from NZ, not Australia. They be laughing.

    Possibly even louder than, say, Fairfax is laughing about the money it sucks out of NZ to prop up the Australian Financial Review.

    Auckland • Since Nov 2006 • 17939 posts Report Reply

  • Don Christie,

    Australian Financial Review

    Woh. A CMS delivering entirely flash content. Now that's something to laugh about.

    Wellington • Since Nov 2006 • 1612 posts Report Reply

  • WH,

    Michael Cullen has proven to be a very capable Minister of Finance. As Keith pointed out, a national saving scheme is sound macro-economic policy, quite apart from the benefits that will accrue to individuals.

    Unfortunately, if the overseas ownership horse has not already bolted, it is certainly running for the gate. Repatriated profits now represent a significant lost opportunity for our economy. This is why we should encourage government to provide SOE competition in key sectors (ala Kiwibank) if outright government ownership is not practical. Boo to Roger Douglas.

    Since Nov 2006 • 526 posts Report Reply

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