Hard News: A Big Idea
92 Responses
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Andrew C, in reply to
But among all those Kiwisaver schemes how much is actually invested back into NZ ? How much is plugged into more inflationary property investments ?
I'm with Gareth Morgan, and as best I can tell - 0%
Disclaimer: some is invested with international index funds, so there is a small possibility that they have invested in some NZ property fund/trust, but I very much doubt it.
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Aidan, in reply to
Because stock market bubbles are so much better than property market bubbles.
Note that Germany has rules about corporate governance that give workers input into the running of the company. Apparently this is a major reason German companies are "valued" less on the stock market. I don't know if this would tend to suppress some bubbly aspects of the stock market, but as it has already depressed values it clearly has some dampening effect.
Note that the firms themselves are no less profitable or valuable in toto, it's just that some of the value is held collectively in the form of employee control.
I'd also point out that capital investment does not equal buying shares on the stock market. Companies issue debt or extra shares to raise money for economically useful purposes. The role of government is to set policy to make it more attractive to socially useful stuff with the money than bid up the price of housing in inner city Auckland.
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And surprise surprise, the lobby group formerly known as the Business Roundtable is still raindancing to John Frum of Wall St.
My 2c in that article:
I see the usual suspects are still waiting for John Frum to fly over from Wall St. Hate to break it to them, but Mr Frum is in Chapter 11 bankruptcy proceedings.
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BenWilson, in reply to
While this is not ‘years’ it will mean that the RB can announce “the OCR goes up today” and it has an immediate effect in some areas (like exchange rates), saying “kiwisaver will go up in 2 months” just wont have the same immediate effect as raising the OCR.
See my entire discussion on comparing the use of a linear lever and a exponential one. The OCR moves in basis points. Hundredths of a percent. They're not even going to bother changing a VSR by 10 basis points, like they do with the OCR. Changing how much people are saving from 7% to 7.1% isn't going to have any impact. The reason the OCR moves in basis points is because it is very low and any move has a very much magnified impact on the real incomes people have. So of course an announcement that the OCR is moving 25 basis points sends a massive movement through the market. To get that from the VSR, you'd have to so something like putting it up by 5%.
It could be implemented in a number of ways, though, so you could be right that changes would take time. Since it's like a tax, I'd hope it wouldn't be getting dicked around with on a monthly basis. But the very moment that the changes came into effect, they would begin having an impact proportional to their magnitude. That is quite different to the OCR, which is buffered by the intermediary mechanisms. Sometimes banks don't even respond to OCR changes. There's no law that says they have to. Sometimes they put their rates up just because they're greedy, or down because they're losing customers. Or up because they did a really successful advertising drive.
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BenWilson, in reply to
Because stock market bubbles are so much better than property market bubbles.
They certainly are. We've lived through many stock market bubbles over the last 50 years, and the effects have not devastated the economy. A property bubble, however, if it actually popped, would be far more catastrophic. And before it pops, the effect is also really negative too, because it's rampant inflation on an unavoidable expense. You don't have to buy any tech stocks, but you do have to live somewhere.
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Rob Stowell, in reply to
25 basis points is the standard OCR move. Not 'massive'. I can't remember any moves of less than .25% but maybe that's common too.
How much effect you'd get from an equivalent "VSR" hike is moot. But I think the 20:1 ratio you use is on the high side. One of the bank economists on MR guessed 10:1. I'd imagine in a compulsory scheme (which might well include the self-employed) it could be considerably more effective. But I don't think we really know.
Surely worth trying, though.
Most of the screeching I've so far read that it's a flat tax, which will impact disproportionately on low incomes, looks like concern trolling to me. It's not designed to help people on low incomes, except maybe to build better jobs here, via a lower dollar and more investment. But I'm expecting Labour to have other plans for that, starting with a raise in the minimum wage. -
BenWilson, in reply to
I agree with cathy – it’s silly to call compulsory retirement savings a tax.
No, it's really not. It will have exactly the same impact on you, until the day you retire. For a young person, that can be 40 years into the future. In other words, the money is benefiting you in 40 years, but right now, you can't pay the bills. That's just like when they take 7% off you so that in 40 years you can get a government pension. The main difference is that you can probably trust the promise that you'll get your super fund more than you can trust the promise that the government will still be paying a generous super.
If you're 60 already, then OK, it's like putting money in the bank in a term deposit for 5 years. Much less like a tax. But the longer that horizon is, the more like a tax it feels, and acts. You won't be spending that money and stimulating the economy with it for 40 years, if you're 25 years old.
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BenWilson, in reply to
How much effect you’d get from an equivalent “VSR” hike is moot. But I think the 20:1 ratio you use is on the high side. One of the bank economists on MR guessed 10:1. I’d imagine in a compulsory scheme (which might well include the self-employed) it could be considerably more effective. But I don’t think we really know.
The thing is, we know the effect of the VSR hike. It would be very straightforward, much like hiking income tax is. But the OCR is a totally different thing. 10:1 might be the case for the OCR at it's current rate. But there is NO guarantee that the OCR stays at this rate. If it goes down, then the ratio would go up. It could bust 20:1. It could even bust 100:1. If the OCR goes up heaps, then each percentage movement becomes less significant.
Just as a straightforward example. If you're paying 20% on your debt and that percentage moves down by 1%, how much more debt can you afford? Much the same amount, right? A little bit more. About 1/20th more. Now, if you're paying 2% on your debt and it goes down by 1%, how much debt can you afford? Twice as much. If it goes down 1% again, how much debt can you afford? All the money in the bank because it costs nothing. Do you see why an economist picking a number out of their arse about how to compare OCR and VSR movements might be starting to annoy me?
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Richard Aston, in reply to
You won’t be spending that money and stimulating the economy with it
Isn't that the point, a overly stimulated economy = inflation ?
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Rob Stowell, in reply to
But the longer that horizon is, the more like a tax it feels, and acts.
I just don't think that's true. Even if the *effect* is the same (and I don't think it is), psychologically it feels different.
Kiwisaver has seriously changed how much we're saving for retirement (and, ahem, first homes.) But by your reckoning, over 2 million NZers have *opted* to pay more tax? -
Richard Aston, in reply to
I’m with Gareth Morgan, and as best I can tell – 0%
Far out ! Zilch kiwisaver funds invested in NZ. Ok I get it - I think- funds invested offshore bring offshore money back in as interest earned. But don't we need investment money in NZ to invest in research, development, new business etc? Otherwise we go offshore for it along with exchange rate risks etc.
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Bart Janssen, in reply to
It will have exactly the same impact on you, until the day you retire.
I can see your point but you are arguing semantics for the sake of it. A tax goes to the govt which spends it for your benefit or saves it for your benefit (Superannuation). Kiwisaver goes to a fund management company that saves it for your benefit.
BUT
There is a key difference. Whereas tax gets spent on a whole range of things, over which you have very little control, Kiwisaver gets invested in a specific set of investments, mostly in NZ and none into the housing market. That money has a real and positive effect on the frequency with which startup companies can develop and their success (or at least it does in other countries too soon to tell in NZ for KS).
I, and many others, believe it is critical for innovation in NZ to have such an investment fund.
So yes in both cases you have money taken from you (tax or KS) but in one case you get to see how it specifically benefits NZ and you personally (if you live that long).
Some people believe the government should leave all such decisions to the individual, trusting that individuals will behave sensibly to the benefit of the country and the individual. The evidence shows that such a belief is the absolute height of stupidity.
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Rob Stowell, in reply to
Do you see why an economist picking a number out of their arse about how to compare OCR and VSR movements might be starting to annoy me?
Well, you did it :)
I agree, the degree to which this would work to control inflation is unknown. But it seems pretty straightforward that it should help. Taking money out of the economy is exactly what raising the OCR is intended to do. Why is enforced saving of some of that money, rather than spending it on higher interest rates, such a crazy idea? -
Andrew C, in reply to
Far out ! Zilch kiwisaver funds invested in NZ.
I want to clarify.
0% in NZ companies. 13% is however invested in NZ cash deposits or bank fixed interest. But I think the question being asked was about investment which I take to mean in companies.
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BenWilson, in reply to
I can see your point but you are arguing semantics for the sake of it.
No more than anyone else is in this. But yes, what a pointless argument. If you don't want to see it as a tax, no one can make you. And you won't be able to stop most people seeing it as one. They will, because that's exactly how it will present in their pay packet.
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Rich of Observationz, in reply to
There's no law that says they have to
The OCR is the rate the Reserve Bank is willing to lend to NZ banks at, (secured against the banks required government bond holdings). It thus sets a ceiling on the rate they will pay on (overnight) retail deposits (as at the margin they could borrow from the RBNZ instead). That in turn also sets a floor on the amount they can profitably lend at.
Normally, the floor is below the ceiling. Sometimes not, if a bank wants to gain business at the expense of profits.
Fixed term lending is different. I'd recommend reading Stigum, all 1200 pages of it.
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I still think the problem is more with compulsory KS. What about the people who are already donkey deep in non KS plans, as well they should be?
Can a government credibly force them to contribute a minimum amount to a non KS plan? Or, can a government credibly force them to make additional payments to a new, obligatory KS plan, even if that payment yields less than it would if put into their existing scheme?
I suppose you could phase it in so that such people have a sunset clause on opting in, but then it would take many years before it was even near ready to work as an economic lever.
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Rob Stowell, in reply to
What about the people who are already donkey deep in non KS plans,
Most plans have (or will develop) some sort of 'Kiwisaver compliant' option. Mine did. Stupid not to, with all the carrots there were for KS. Even stupider if they didn't once it becomes compulsary.
Of course only applies to standard investment funds. Putting money into rental properties, forestry blocks, gold bars, under sofas etc isn't going to qualify. -
BenWilson, in reply to
I agree, the degree to which this would work to control inflation is unknown. But it seems pretty straightforward that it should help.
Yes, I agreed with this when I said as my opening sentence:
Any extra tools are good, really.
And then:
It’s a much more powerful tool than the OCR because it works directly on the people spending the money, rather than indirectly through the banks printing it through debt.
and
Sort of. I think it’s a good idea, I’m just saying it’s not some natural mirror of the OCR. They’re very different beasts. Its primary effect on money supply would be to reduce it, as it increased.
I support this idea. I've supported the idea of compulsory super savings in NZ for years and years, and have said so hundreds upon hundreds of times on this forum. I have a huge fund of my own in Australia, and that convinced me of the worth of the idea, despite initial skepticism as a young man. I have actually lived through this myself, not just imagined it or researched it.
TLDR:
I SUPPORT THE IDEA OF COMPULSORY SUPER SAVINGS IN NZ. -
Rob Stowell, in reply to
If you don’t want to see it as a tax, no one can make you.
No. It just isn’t a tax, by any definition of tax I can think of.
And you won’t be able to stop most people seeing it as one.
Like the 2 million kiwis who have already opted , by your ‘definition’ to pay more tax? You can keep saying it, but that won’t make it true. You may be right. But what makes you so sure?
(I definitely don’t know ‘how people see kiwisaver’. It would seem reasonable that of those currently not enrolled, a significantly higher proportion will regard it as an imposition, cf those who’ve opted for it already. But you’re very ready to disregard the opinion of the many who have opted in.) -
BenWilson, in reply to
I'm pretty bored of this argument. You're just insisting I see it your way, and that everyone else will too. I don't think they will and this discussion can go nowhere. It's entirely semantic, the worst kind of discussion. Fuck it, whatever. It's not a tax. Who fucking cares? It's a schmax then, lets use a different word. It looks and quacks like a tax, has the same effect on disposable incomes as a tax, manifests as the government telling you how to use that money for most of your life, and then hopefully comes back to you in spades, just like a tax. But fuck it, it's a schmax. I'm using that word from now on.
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Imagine what would happen if we introduced a little supply side economics into this.
The biggest problem facing most people is the cost of housing, rent or mortgage.
Say by introducing building sector reforms allowing people more latitude in building their own houses, get rid of some of the knee-jerk reactions to the National Party inspired leaky building debacle.
(The leaky building chaos was caused by bowing to a few companies who wished to increase their profits by allowing unsuitable products, monolithic cladding and untreated timber to name but two. This and the destructuring of local council oversight by allowing private companies to “sign off” buildings as suitable without adhering to accepted best practice, a result of the 1995 building act.)
Now, if we were to return to realistic demands of standards as opposed to the stupid counter productive “Builder” licensing regime and encouraged local councils to adopt a more user friendly “self build” policy we might actually get somewhere.
This would go a long way in restructuring Christchurch, cutting unemployment, increasing tax take ( income, company and gst) and allow us all to save a little too. All the while increasing the supply of housing thus making it more affordable.
Howdya like them “apples”? -
Sofie Bribiesca, in reply to
I have a huge fund of my own in Australia,
Hey Ben, what are the exceptions that you have with the Australian one,as Kiwisaver will be compulsory,with exceptions limited to the Oz scheme.
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By exceptions do you mean objections? I don't have any objections to the Australian system, especially since it became possible to transfer my funds here, which was my only objection before.
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Sofie Bribiesca, in reply to
No David said beneficiaries would not be required to save, and I thought he meant there are other exceptions to the oz scheme ,whether he meant people (like beneficiaries) or whether he meant exceptions to required % of savings or other exceptions, I wasn't sure. Thought you'd know with being in the Oz scheme. It could even be low wage exceptions.... I guess I'll go ask him. :)
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