The Government and its political allies have gone on the
attack over Labour's ground breaking interest rates and savings
policy, after signs the plan was getting traction with
commentators and the public.
Widely regarded as perhaps Labour's strongest policy package
in some time, the Government was initially dismissive but
chose not engage on the specifics of the plan to vary
employees' KiwiSaver contributions within a band of about 8
to 10 per cent as a substitute for some Reserve Bank interest
rate movements when fighting inflation.
Labour argues increasing KiwiSaver contributions to fight
inflation would cool the economy by diverting a portion of
households' cash into savings rather than into higher
interest payments. Avoiding some interest rate hikes when
fighting inflation would help prevent the dollar rising to
levels that damaged export earnings and jobs.
But Economic Development Minister Steven Joyce, one of
National's key political strategists, this morning suggested
the policy was no more than half baked and it would take
massive increases in contributions to have a meaningful
effect on interest rates.
Mr Joyce said Labour's finance spokesman David Parker had
been unable this morning to this morning to "answer a simple
question today on how much KiwiSaver contributions would have
to go up for wage and salary earners in order to stop a 1 per
cent rise in interest rates".
"Surely you must be able to answer that question. If you
can't, it's not a policy, it's not even an idea, it's just a
David Parker thought bubble.
"It's simply not thought through," Mr Joyce said.
Mr Joyce said Mr Parker had indicated a 1 per cent increase
in KiwiSaver contributions would generate about $400 million
of net new savings.
"My estimate is it would take roughly $2.5 billion in extra
savings to keep the OCR 1 per cent lower. Labour would need
to take another 6 per cent of people's pay packets off them
and put it into KiwiSaver to avoid a 1 per cent increase in
interest rates. Given they already want people to save 9 per
cent, that would whack it through to 15 per cent," Mr Joyce
Conservative Leader Colin Craig also joined in, saying that a
central plank in Labour's plan - making KiwiSaver compulsory
- was flawed.
"The problem here is that Labour has missed the obvious, the
best form of saving that any individual can make on average
is to reduce their borrowing, and in most cases this means
paying off credit cards, and then their mortgage as soon as
Making KiwiSaver compulsory would force "many New Zealanders
to make a less than optimal financial choice".
"Government should not dictate the types of investment New
Zealanders hold, particularly when they dictate a sub optimal
choice," Mr Craig said.
Given KiwiSaver was not government guaranteed, Labour would
be forcing financial risk on New Zealanders and had also
overlooked the fact many New Zealanders simply couldn't
afford to save.
"If those struggling financially are forced into Kiwisaver
they are most likely to take on borrowing, and often at a
punitive interest rate. Labour's policy will be putting these
New Zealanders in an impossible position, and in most cases
increasing their personal indebtedness," he said.
Addressing party faithful at National's Northern regional
conference this morning, Finance Minister Bill English also
attacked Labour's policy, saying people preferred simple
rules they could understand and everyone knew what happened
when interest rates went up.
KiwiSaver was a completely different thing.
"KiwiSaver is long-term retirement policy that is designed
for stability over 30 to 50 years.
"You do not want the Minister of Finance messing around with
that every six weeks like the Reserve Bank does with interest
- By Adam Bennett of the NZ Herald