Labour has announced that they would make KiwiSaver compulsory, coupled with progressively increasing the contribution rate, and slowly shifting the age of retirement from 65 to 67. I am on record as opposing compulsion, and the increase in contribution rate is of a piece with compulsion.
These changes reduce individual budget flexibility, weigh on wage settlements, and there are some arguments that they drive savings into managed fund vehicles when they might be better allocated elsewhere, compulsion may is not clearly linked to increasing savings rates.
At the time KiwiSaver was launched my view was that it was a giant tax break offered in a form acceptable both to the Labour Party and the electorate. Those that can afford it and want it have taken it.
Perhaps in the medium term the right policy is to gradually increase use of KiwiSaver, but that is the medium term.
My biggest issue with these proposals is the effect they will have in the short-term. The New Zealand economy stands, perhaps, on a knife edge. Low confidence, battered by a long recession, the two earthquakes, and barely growing. Although the proposals have long, planned, timetables for implementation, there is nevertheless a signalling effect. This is deliberate. Supporters of the proposals say that this is about creating a savings culture. Even if we agree that it does that, increasing savings rates is perhaps not the best thing to do right now. Telling business that their KiwiSaver costs will add 5% to their wage bill is not such a good idea either. Telling people that they will have to work longer, or save more if they still wish to retire at 65, also adds another reason to save. Saving takes money out of the economy in the short term. Sure, in the medium term it should add productive capacity, but in the short term it subtracts from activity.
I think that the retirement age should go up and so should provision for retirement, and for being honest about those key issues I think Labour should be applauded - and I don't think National really believes that the retirement age can stay at 65 until as late as 2050. They merely calculate that they don't need to foist that change on the electorate today. In that, they are right: now is not the time for this signal, and the reasons for that are as much economic as they are political. Taking more money out of the economy is not a good idea in 2011 or 2012.