Savings, KiwiSaver, Tax Changes and Superannuation

Opinion piece by Hon Peter Dunne Leader, United Future

Thursday, February 22nd 2007, 3:43PM

Over the past 30 years, New Zealand has twice tried to implement a compulsory superannuation scheme – on both occasions, the schemes crashed and burned in a spectacular way.

In the mid-1970's Rob Muldoon trashed the Labour-proposed scheme and bought the 1975 election with his promise of pots of dough to anyone who was over 60 and still breathing.

Then in 1997, Winston Peters proposed a compulsory savings scheme that was subjected to a referendum.

Unfortunately, the political mood of the times turned the referendum into one on Peters himself and the whole scheme was voted down by a massive margin of 93%-7%.

With the advent of the KiwiSaver scheme on July 1 this year, I believe the opportunity exists to have a durable national superannuation scheme that will allow New Zealanders to look forward with confidence to a dignified old age. A key feature of the previous failed attempts to have a national super scheme was that they were imposed from above. KiwiSaver is designed so that it will grow organically from below with people making their decisions for themselves.

At the moment, KiwiSaver is compulsory for employers to offer but voluntary for new workers to remain in. They have the option of opting out, but I believe the uptake will be greater than is being anticipated.

Once a critical mass of New Zealanders sign up for KiwiSaver, it will become part of the national culture and those not in the scheme, e.g. the self-employed, will clamour to be allowed in.

At that point, it will be a relatively simple matter to change the rules so that everyone is in, unless they actively decide to opt out.

Faced with the prospect of the mass of the citizenry being in the scheme, no political party would oppose it.

Apart from achieving a long-term national consensus on this matter that affects us all, there are immediate national benefits – there is great potential for trade offs between wage rises and super contributions; or trade offs between tax cuts and super contributions.

Even better, instead of pay rises or tax cuts going into Kiwi pockets and being spent, leading to greater inflation, the alternative of super contributions would be non-inflationary.

Furthermore, the large pools of money that would accumulate would be available for funding major capital works in New Zealand like our roads, public transport and other national projects.

It would also be capital available for use by our businesses trying to compete against the world while remaining in New Zealand, rather than being bought out by the Australian or American private equity funds.

Ideological purists will argue that the State should simply hand tax money back and let people decide how they will use their own money.

But the alternative of a compulsory super scheme that will keep capital in New Zealand; allow home buyers to divert part of their contributions into mortgage payments; and help control inflation is a very attractive idea indeed, and one that deserves serious consideration by all political parties, workers and employers.

« Big hurdles for compulsory superannuation

KiwiSaver default scheme providers announced »

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