OnPoint by Keith Ng

72

There is no depression in New Zealand. Apparently.

The US presidential system is a beautiful thing – when it’s all over, the losing candidates’ first job is to remind their supporters that the campaign is over: Respect democracy, respect the nation, respect the new leadership.

It’s a nice gesture that our crummy Westminster system doesn’t do. The second a government is turfed out, it takes on the sworn duty to say that everything the government does is wrong, and the country is going to hell in a handbasket.

It’s not terribly productive, really.

I don’t trust or distrust John Key. His agenda is pretty straightforward, and he’s made enough commitments to lock himself into a centrist agenda for the first term. He’s shown with his coalition deals that he’s aiming to be there for a while, and if there’s anything I trust, it’s that Key ambition for a second- and third-term will keep anything radical off the agenda.

But there *was* a deep dark secret behind this campaign: that there was no response to the economic downturn.

What about the infrastructure building? The fiscal stimulus package?

Earlier this year, the OECD’s Secretary-General visited New Zealand and laid out a recipe for boosting productivity: More investment in transport, telecommunications, education, innovation, and improving savings.

Essentially, National’s entire programme is about following this recipe. And tax cuts. The big-ticket items – roads, broadband, schools, tax cuts – were all in the works before the beginning of the campaign. They just started calling it fiscal stimulus for tougher times instead of bright ambitious future optimus-prime.

Sure, they do act as fiscal stimulus, even though they weren’t designed as such. But the problem is that the ideological drivers of the recipe became blinders to the real needs of the economy in the short-term, and the opportunities available in the medium-term.

Specifically, the Home Insulation Fund was a billion dollars’ worth of missed opportunities. The construction industry will be one of the hardest hit by the economic downturn, and investment here would protect the most jobs with the least disruption.

Second, it’s was going to generate an instant return in terms of energy efficiency, increased productivity (fewer sick days) and lower health costs. It’s a massive low-hanging fruit, and it’s inexcusable to not grab it.

Not only is the rest of the world doing it, they’re doing it under the guise of stimulating the job market.

We could’ve emerged from the other side of this a leaner and greener economy. It could have reduced household costs, improved health, quality of life, carbon footprint, etc. Economic growth should be a means for us to achieve these things, but instead, we’ve traded them in for growth.

I’m making my sad face.

Kiwisaver was arguably National’s biggest anti-recession programme. The media only focused on the $3b that was getting cut, but that’s literally just half the story. The $3b were government *incentives* for Kiwisavers, sweeteners to get people to save more. Take them away (and reduce the minimum threshold) and savings will drop.

Actually, that was the plan. Page 4 of National’s fiscal policy:

Fiscal stimulus comes because:
Much of the KiwiSaver tax credits that were going into long-term savings accounts will now be redistributed as tax cuts. These tax cuts put money into people’s pockets which can then be spent in the economy.
Similarly, KiwiSaver members will have the opportunity to put a smaller proportion of their salary into their KiwiSaver accounts, and therefore have more in their pockets to spend.”

I was intuitively horrified by this – actively discouraging saving in favour of consumption? Lower saving during a global credit crunch? Breaking barely established saving patterns just because they needed more money for tax cuts?

However, I’m slowly coming around to the idea that the changes to Kiwisaver aren’t all bad. For example, the 4% minimum contribution threshold was probably counterproductive. Namely, because the last IRD report on Kiwisaver said:

The minimum 4% contribution rate is the main feature that is discouraging enrolments.”

More significantly, it showed that a third of all new automatic enrolments chose to opt out of Kiwisaver. Contrary to the headline numbers, a lot of people are staying out of Kiwisaver despite the incentives, and lowering the threshold is probably a good move to bring them back in.

Still, lowering the minimum threshold to 2% has nothing to do with lowering the minimum employer and government contributions. The only reason for cutting them was to free up money for tax cuts.

The assumption is that less savings = more spending, and more spending = economic stimulus. If it works, it might mean a shorter, shallower recession; that would go part-way to making up for the lost savings. If it doesn’t work, it’s a mistake that we’ll have to pay for decades down the line, with compound interest.

On the bright side, it turns out that people’s savings patterns are very responsive to financial incentives. Basically, people will pile on and save if there’s free money in it. So, if we want to ramp savings back up again in a few years, it’s quite possible to do so. And National has signalled:

National will review KiwiSaver once it is bedded in with a view to introducing a “3+3” alternative option in the future, if economic conditions permit.”

That’s cause for some mild optimism.

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As you may have read from Kiwiblog, I spent this election in the heart of Helengrad. The reason was simple: I wanted to peek behind the curtain, and see what goes on in the heart of the machine.

But before I lead you on any further, I’m afraid that I won’t be writing about my time inside. The point was to learn and to understand – and I did – but I also need to respect the degree of trust they placed in me, and to maintain my reputation as a rhetorical mercenary.

All I’ll say is that it was a genuine privilege to be there at the end of the Clark era, and to witness it with such intimacy. But it’s damn good to have my own voice back.

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