Parker unfazed by criticism

Opposition continues to gather to Labour's plan to allow the Reserve Bank to use KiwiSaver contribution rates to help control domestic inflation.

But Labour Party finance spokesman David Parker is not fazed, saying he is receiving overwhelming positive feedback from a wide variety of people.

''The breakthrough for us is people are now linking universal KiwiSaver, jobs and interest rates.''

Universal KiwiSaver, along with linking the proposed variable savings rate for the superannuation scheme, was the ''once in a lifetime chance'' to bring New Zealand's interest rates back to a global norm, he said in an interview yesterday.

BNZ chief economist Tony Alexander said yesterday long-term KiwiSaver returns would be reduced as savers were forced to buy more shares when prices were high and fewer when they were low.

A Massey University KiwiSaver expert, Claire Matthews, believes Labour's proposal to introduce a variable contribution rate to compulsory KiwiSaver would have negative impacts for small businesses and those on low incomes.

''I would love to see KiwiSaver rates increase - but not this way. The spectre of the Government meddling with KiwiSaver is not welcome.''

It was the realisation of the fears of many Kiwis, especially those who had not signed up to the scheme, Dr Matthews said.

This week, Mr Parker released the party's monetary policy upgrade, which called for compulsory KiwiSaver with contributions increasing to 9% from the current 6% (3% employers and 3% workers).

Also, a Labour-led government would allow the Reserve Bank to increase or decrease contributions to the scheme to control domestic demand, instead of using only the raising or lowering of mortgage interest rates. Beneficiaries would be excluded from the regime.

Dr Matthews said each time KiwiSaver contribution rates changed, businesses would need to update their payroll systems, requiring additional, non-productive compliance activities.

Mr Alexander said the policy, as proposed, would probably act as an incentive to raise one's debt level, boosting New Zealand's external debt rather than lowering it as Labour would like.

That was because the explicit reduction in the heights to which interest rates would go over the monetary policy cycle meant the income shock from the tightening would be less.

''Borrowing money would become safer as interest rate variability would be reduced and the incentive to fix one's mortgage interest rate reduced.''

While some of the commentary from Labour and others had been negative towards banks, the proposed monetary policy would boost bank profits because more people would stay on floating rates than going fixed and margins were greater on the former than the latter, Mr Alexander said.

Mr Parker said banks would make a margin on interest rates, no matter what regime was in place.

He dismissed concerns raised by the Otago Daily Times that KiwiSaver members could find themselves paying more into the scheme while banks kept their interest rates high, just because they could.

Overseas lenders into New Zealand would be penalised because they would not be able to access recently high interest rates and New Zealanders would benefit from having lower interest rates, Mr Parker said.

Universal KiwiSaver was a much larger part of the proposal than the variable savings rates.

New Zealand had higher interest rates than its trading partners and the higher currency was a major factor in driving higher interest rates.

''That's why the Balclutha timber plant can't make a dollar and closes.

"If we don't reduce interest rates, and the currency, we hobble not only people with credit cards, car repayments and mortgages, but also businesses. Businesses face a high exchange rate and higher interest rates.''

- dene.mackenzie@odt.co.nz

 

Fears

At last the latent riches in KiwiSaver have tempted the pollies, who've gone from eyeing them from afar to actively circling in anticipation of a meal. Labour can almost taste the beautiful funds sitting unguarded in their schemes.

Kiwisaver is merely a giant volume knob that government can turn up or down to control the economy: Labour used to do it with family tax credits, modifying the payments on a weekly basis to control the cash flow.

It would be better if government simply invented a liquidity tool, and varied it openly, rather than these de facto, sleight of hand methods. 

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