Finance Minister Bill English says Labour's plan to
overhaul the rules on compulsory Kiwisaver contributions is
However, employers have backed the plan, saying it "has
merit" and warrants "careful consideration".
Labour finance spokesman David Parker announced this morning
that a Labour-led government will require the Reserve Bank to
use changes to the rate of people's compulsory KiwiSaver
contributions rather than interest rates to control inflation
while taking pressure off the over-valued kiwi dollar.
Mr English said the variable savings rate idea was "nothing
"You can increase the KiwiSaver contribution rate and we did
just 12 months ago. If you want to dampen consumption you can
also put up tax rates or the Government can spend less."
Mr English said Labour and the Greens were fighting the
perception that in Government they would tax and spend more
which would push up interest rates.
"So they've floated something they might investigate which
they say would fix everything but the end result is you have
to save more. It will hit low and middle income households
particularly hard. He's not committing the Government to
saving more and it would allow a Labour Greens Government to
spend a lot more if it worked."
However he was sceptical it would work.
"KiwiSaver is a long term scheme where people need as much
certainty and security as you can get... monetary policy
focuses on the price of credit. They are both designed for
their own specific purpose both have been successful. They
both create challenges but there's no evidence that mixing
the two of them up is going to somehow give us a magic
pudding we've never seen before."
Plan has merit - employers
However the Employers and Manufacturers Assocation said
Labour's proposals "have merit and warrant careful
consideration, particularly as the Reserve Bank's
independence would be preserved".
"Apart from our investment in housing, we're constantly told
we're poor savers, and our exporters certainly deserve a
better priced dollar - this policy prescription addresses
both of these fundamental issues," EMA chief executive Kim
"What's more, New Zealanders would keep their added savings
rather than see them disappear when interest rates rise. It
could work out well in the longer term."
But while the variable savings rate was a good idea, "it
would not be a good idea to allow politicians to determine
what it should be".
Furthermore, Mr Campbell said the proposal rested on
KiwiSaver being made compulsory, "an idea whose costs may
fall unfairly on small businesses".
Labour unveils Kiwisaver plan
Parker unveiled the policy at an Auckland breakfast briefing
"Instead of paying more interest on your mortgage, under the
new rules a similar amount of extra savings would go into
your KiwiSaver," he said.
"Overall interest rates will be lower and so will our
exchange rate" through use of the Variable Savings Rate(VSR),
which a policy paper published this morning says will be
"investigated" and from which low income earners may be
"The policy targets agreement will request that the Reserve
Bank use this once in a lifetime opportunity to attempt to
get underlying (as opposed to cyclical) New Zealand interest
rates back to the lower levels charged in our competitor
countries," said Parker.
"The PTA would state whether or not it was the government's
expectation that over the economic cycle the Reserve Bank
variations to the KiwiSaver rate would be neutral."
Labour would also shift the RBNZ's inflation targeting to
include achieving current account surpluses to reverse 40
years of the country living beyond its means.
"If New Zealand is to decrease its net international
liabilities and do better in growing per capita incomes
(particularly for low and middle deciles), greater priority
will need to be given to achieving growth in its foreign
exchange earnings or saving sectors."
Parker said "nowhere currently" used a VSR system, but that
moving all New Zealanders into compulsory KiwiSaver at an
increased rate of contribution would reduce inflationary
pressure during the transition phase anyway.
"This is the perfect time to do this," he said.
Labour would raise the current 6 per cent contribution rate
to 9 per cent (paid 50/50 by employee and employer) over
time. The rates at which a VSR might be set are not
discussed, although limits to the extent of variation in
savings rates might be part of the PTA.
The RBNZ would not have the ability to deploy the VSR
unilaterally. It would have to recommend its use to the
government and require agreement on a case by case basis.
"Higher interest rate payments are lost to the lender, with
much of it heading overseas, whereas savings would belong to
the saver," Parker said.
To reflect a new emphasis on improving the country's external
accounts, the Reserve Bank Act would be amended to "maintain
stability in the general level of prices in a manner which
best assists in achieving a positive external balance over
the economic cycle."