Friday 13th of May 2011

National governments seem to have a genetic disorder when it comes to savings schemes. They just don’t seem to get them and always make changes – often to the public’s detriment. Schemes like KiwiSaver need certainty to continue to have investor confidence. KiwiSaver has been one of the most successful products ever launched in New Zealand. It has 1.7 million customers already and has been embraced by citizens. It’s been embraced because of its simplicity, as well as for the $1,000 kick start. To a lesser degree the $20 a week “tax credit” has also been a selling point. People will lose confidence in the scheme if this, or any other government, continues to meddle with it. As member balances grow the reaction to meddling will become stronger. I take a view the government has to think about investing and retirement savings over the long term and has to take account of the economic cycles. We know cycles happen and this should have been thought about at the design stages. What happens when the economy is bottoming out? With the NZ Superannuation Fund National has acted a little like a typical mum and dad investor and done all the wrong things. The best time to be investing in the markets is when they are at the bottom yet they stopped contributing the NZ Super Fund. In the past year it made returns of more than 20%. Now we are told that KiwiSaver in its current format is unaffordable. That isn’t something which has been agreed on. Again the government needs to think long term. KiwiSaver is about building up a pool of capital for the economy. Key’s arguments about the member tax credit not being real savings is incorrect. All this talk of cutting the member tax credit isn’t going to make a huge different to the government’s finances. Currently it costs around $800 million a year. If the MTC is cut by half that only equals about one week of what the government says it has to borrow. The stark reality is that there are far less productive things the government funds which should be cut ahead of KiwiSaver. Overall it’s a ballsy move from the government. In an election year it is taking away money from 1.7 million people and putting more costs onto businesses. Whether it is right or not; it quite possibly will become a circuit breaker for the election.