OnPoint by Keith Ng

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OnPoint: KiwiSaver's dirty secrets - revealed!

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  • Rob Stowell,

    Keith I presume these are the stats sagenz is refering to- both tables (capital and labour) show higher growth in the 'bad years' for the economy as a whole, of 1993-2000. Lots of reasons for this, but a tight economy and high interest rates would have encouraged efficient use of capital and labour. Conversely, the "easy" growth, and "easy" credit have been a factor in the slide in productivity growth- which isn't good, but is still far from the whole picture.

    Does anyone really think, intentionally or not, there's going to be the political expectation that if enough KiwiSaver accounts go boink that the Government - of whatever partisan tint - is going to bail them out?

    Nope, we don't get a bail-out if the financial sector turns to custard. Any govt in such times will have other pressing problems...
    Kiwisaver is the govt pushing, supporting, promoting and contributing to private super savings schemes. They're regulated and tied in til we hit 65, but they're ours. We pass them on to our kids or spend them in retirement or- whatever. We own the funds, we also own the risk.
    But it's NOT like Bush's attempt to privatise Social Security. The "Cullen Fund" - which is doing pretty well- is about Govt saving/investing now to pay for National Super (in a way, the govt's own "kiwisaver" fund.)
    Nat Super is the "social security" backstop/baseline that govt does gaurantee. And one of the "other pressing problems" a govt will have in the case of financial sector melt-down, is paying national super- the "cullen fund" is vulnerable to the same sort of risks as our kiwisaver funds- albeit spread even wider.

    Whakaraupo • Since Nov 2006 • 2120 posts Report

  • Don Christie,

    Productivity stats are also affected by employment rates. High employment likely to reduce productivity.

    Despite this, it is something worth watching, like many indicators there are trade-offs. France for example, has a 30 hour week high unemployment but wins the productivity race.

    Wellington • Since Nov 2006 • 1645 posts Report

  • Rich of Observationz,

    What they've done in the UK with stakeholder pensions is to set up approval criteria limiting management charges. I think NZ should do the same.

    Possibly it should also be possible to invest into the Cullen Fund (maybe using Kiwibank as a retailer) allowing individuals to take advantage of the scale and low management costs (< 1%) of this.

    Back in Wellington • Since Nov 2006 • 5550 posts Report

  • Juha Saarinen,

    Touché, Joe... :)

    Since Nov 2006 • 529 posts Report

  • Angus Robertson,

    Re: lowest tax bracket.

    For anyone with kids, tax is negative up to a much higher level than this. Working for Families benefits more than outweigh tax.

    Whilst anyone without (or yet to have) kids is inherently more mobile and on a short flight to Sydney.

    Auckland • Since May 2007 • 984 posts Report

  • Kyle Matthews,

    For anyone with kids, tax is negative up to a much higher level than this. Working for Families benefits more than outweigh tax.

    There is, as far as I know, no problem with doing both these things. Personally I like the simplicity of a lower income tax cut, possibly matched by a similar increase at the top level to stop rich people benefiting.

    WfF is good, but there's a bureauracy behind it which wouldn't be required if the tax %s just changed. I guess that trades off against WfF which is more targeted.

    Since Nov 2006 • 6243 posts Report

  • WH,

    Real National Income per capita has declined. by more than 1% with nothing to suggest things will change for the better


    While its true that too much of New Zealand's GDP leaves our economy in the form of repatriated profits and interest, Cullen's record in this respect (RGNDI) appears to be an improvement on what happened under National. Perhaps Cullen could have done more to lower our interest and exchange rates and make NZ less vulnerable to the effects of foreign investment. Be that as it may, he has still been better than the alternative.

    There is only so much that a government can do to directly control private sector productivity growth. One would have thought that firms facing a booming labour market would look to increase their long run capital productivity - at least before the effect of Reserve Bank policy is taken into account.

    Since Nov 2006 • 797 posts Report

  • Rich of Observationz,

    Whilst anyone without (or yet to have) kids is inherently more mobile and on a short flight to Sydney

    Actually I think Kiwis with kids go and live on the Gold Coast, those without skip Aus altogether and go live in London. Incidentally, nobody I ever met in London ever cited tax as a reason not to come home. Low wages yes, along with expensive drugs, whanau/kiwi men/kiwi women being dickheads, lack of quality dance parties... But never tax..

    I do agree that there is nothing inherently noble about breeding that the state should subsidise, but on the other hand there is a public interest in kids growing up in reasonable surroundings.

    Back in Wellington • Since Nov 2006 • 5550 posts Report

  • jon_knox,

    The stuff from Morgan is interesting, but he is also hardly a disinterested party. He is slagging off an entire industry with which he is directly competing. Wise he might be but independent he is not.

    He's far from hiding this from what I saw. Whilst cleaning up the industry may provide a bit of a windfall for his organisation (and/or other's that are less dubious), I'd suggest Gareth is more interested in seeing people heading down one of the right paths to financial security. To me his philophanthropic efforts are a good indicator of just how much making a buck off kiwisaver personally means to him. He could care less, but doesn't.

    Belgium • Since Nov 2006 • 464 posts Report

  • sagenz,

    oooh keith I feel bitchslapped. thanks to others for supporting the statements with links. Keith you will recall my previous blogging on productivity stats. I was lazy and in a hurry and did not support it. My bad and I humbly apologise if you admit my knowledge of obscure economic stats is clearly superior to yours :-)

    check out the definition and then look in the . GDP alltables Excel at tab 6.1

    The table shows Real gross national disposable income per capita
    2004 28,279 3.4%
    2005 28,842 2.0%
    2006 28,774 -0.2%

    I based my RNIPC statement on some research I did after a Brian Gaynor column that drew my attention to it but I can find neither now. -1% was memory. It reflects the fact that more of our country is owned by foriegners and investment income is being transferred overseas. It does not matter if the economy is growing if that growth is not benefiting NZers.

    On productivity the link has bene given. i repeat it here

    March year Labour(3) Capital(4) Multifactor(5)
    1993 917 895 908
    2000 1139 1031 1093
    2004 1189 1045 1127
    2005 1214 1042 1138
    2006 1222 1012 1127
    2006 v 2005 0.7% -2.9% -1.0%
    2006 v 2000 1.2% -0.3% 0.5%
    2000 v 1993 3.5% 2.2% 2.9%

    Funnily enough, after the comments Labour productivity is positive while capital and multifactor are negative. But the trend of the labour government is towards worsening productivity statistics after a positive trend established 1993 through 2000.

    I repeat my comment about Cullen's ignorant economics.
    over to you

    uk • Since Nov 2006 • 128 posts Report

  • sagenz,

    forgot to mention the % are compound annual growth. and to relitigate. it is the trend that is important. national had to make some hard choices in the early nineties that laid a good platform. Labour have broken that trend and it is getting worse in 2006.

    Cullen has no idea how to grow personal wealth, company wealth or the wealth of a country. It is growth that is the issue. And individuals can only earn more in aggregate through improvements in productivity.

    Keith - how about you follow up with a post on getting decent growth. we the bloggers coming up with a program to save teh country :) once you recognise that I am right and cullen has wasted the last 7 years

    uk • Since Nov 2006 • 128 posts Report

  • Rob Stowell,

    The nineties were blimmin BOOM years for much of the world- look at oz and the states; cheap energy, rapid growth. We stagnated. (In 1990 our per capita was only 5% below Aust, by 1999 it was 40% below- where do these figures come from? a speech by Don Brash.)
    National made some hard choices... and made them hardest for those who could least afford it (and were unlikely to vote for them.) They also made a mess of most of the industries they deregulated, tertiary education, public health and- I could go on.
    But worst in terms of economic mis-management, they let the Don get his fingers round the wind-pipe of the economy, and any sign of life, they encouraged him to squeeze. It was painful to watch.
    One of the first things Cullen did was ditch Don and change the RBA target from 0-2% inflation (Don always thought he'd get an "A+" only if he could get it down to 0) to 1-3%. It was like the brakes came off. Not always pretty, not always completely under control. But we've caught up bit of the ground lost....
    Ignorant economics?
    Yes, selling off NZ has been disasterous. But hardly a trend Cullen started. With kiwisaver, there's a chance NZers will start buying a bit back. You obviously have a 'better' plan... but this will work.

    Whakaraupo • Since Nov 2006 • 2120 posts Report

  • Rob Stowell,

    Here's Dr Brash again:

    On balance, I would probably be a supporter of some kind of mandatory savings scheme as one contribution to improving our growth performance.


    Whakaraupo • Since Nov 2006 • 2120 posts Report

  • Graeme Edgeler,

    Rob - are you using Brash' support for mandatory saving to bolster the case for or the case against an expanded kiwisaver regime?

    Wellington, New Zealand • Since Nov 2006 • 3215 posts Report

  • Rob Stowell,

    sagenz talks of cullen's "ignorant economics", and sez stuff like:

    Cullen has no idea how to grow personal wealth, company wealth or the wealth of a country. It is growth that is the issue. And individuals can only earn more in aggregate through improvements in productivity.

    I quoted Brash to indicate that while kiwisaver is no guarantor of increased productivity, it ain't like that's off Cullen's radar, and it ain't some wierd leftie cult to suggest kiwisaver might have a positive impact on productivity.

    Whakaraupo • Since Nov 2006 • 2120 posts Report

  • Kyle Matthews,

    I'm normally one for lots of government intervention in society, but in some economic areas I get very tired with it. Particularly a bunch of right wingers who winge about the nanny state, but then want the government to dip its oar into the economy to tweak it every which way to fix the dollar and interest rates and manufacturers and whatnot.

    It's a big economy in an even bigger global pond. I personally don't feel the need to blame Cullen for how it is or isn't going, than anyone else in the world. If we're going to accept this fairly capitalist model of how economics works, you lump the good with the bad.

    And don't get me started on MPs and senior economists and whatnot you rave on about NZer's fascination with owning their own home. And who all go home to their houses worth at least half a million, and their investment properties.

    Since Nov 2006 • 6243 posts Report

  • Andrew Jull,

    While clearly KiwiSaver is targeting new savers, the issue of most interest to me, as one already contributing 4% of income to a private locked in retirement plan, is what action would most benefit those in my position?

    I could just hope that the private plan sees sense and tries to become KiwiSaver compliant, but that will be a very slow train coming. So the remaining options would seem to be:

    1. Continue contributing to the private plan and take advantage of the government and employer contributions by joining KiwiSaver. Best option, but very dependent on disposable income levels.

    2. To stop contributing to the private plan and start a KiwiSaver plan. Seems like a risky strategy until KiwiSaver is really bedded in (and the National Party makes some policy). Additionally no-one appears to be working the numbers to show how long it would take for KiwiSaver would overtake what could be earnt from the nestegg already in the private plan.

    3.To ignore KiwiSaver altogether and lose the possible advantages of third party contributions.

    Anybody given any thought to the above?

    Since May 2007 • 3 posts Report

  • Nobody Important,

    is this how the govt will fund the launch of Kiwisaver?

    All KiwiSaver contributions need to be paid through Inland Revenue from 1 July 2007 to 1 October 2007. We will send your contributions on to your scheme provider three months after we receive the first contribution from your employer. We will pay interest on these contributions at the current interest rate of 6.66%

    source . (6.66% eh? I wonder what BT will make of that?)

    Compared with current call rates:
    RaboPlus Savings Account 7.60%
    ASB Bank 7.40% SBS 7.00%
    Bank Direct 7.00%
    Westpac 6.90%
    (3 month deposit rates are higher too)

    I'm pleased to see from the govt site I sourced above that you can change/switch Kiwisaver providers at any time, so if you feel you enrolled in a lemon you can go to where the grass seems greener. More info on that bit here

    expat • Since Mar 2007 • 319 posts Report

  • Keith Ng,

    My bad and I humbly apologise if you admit my knowledge of obscure economic stats is clearly superior to yours :-)

    Aye. I apologise unreservedly. Will endeavour not to rant at 5am in the future.

    Re: Capital productivity, the StatsNZ report suggests a lag effect - capital invested but not yet yielded productivity growth. But perhaps exploding property prices and high cost of capital plays a role, too? I'm not sure about the latter, as I'm unfamiliar with their aggregation methods and whether capital costs are factored in.

    Re: Growth, wouldn't lowering the interest rate, generating more NZ capital, and lowering the dollar for our exporters be good places to start?

    Auckland • Since Nov 2006 • 543 posts Report

  • WH,

    Its good to see the Reserve Bank recommend a capital gains tax on investment housing, just as Tax Review panel did before it. Surely its past time to address the interest rate and exchange rate problems that our housing market is causing.

    It transpires that property investors and Bill English are not so keen, though. Who would have guessed?


    Has anyone got any thoughts?

    Since Nov 2006 • 797 posts Report

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