A little risk would pay off for KiwiSaver

The NZ Herald Editorial today is on KiwiSaver. It looks at number of aspects starting with the deferral of auto-enrolment:

A boost to New Zealand's savings culture has been put on hold with the Budget announcement that automatic enrolment in KiwiSaver in 2014-15 is no longer possible .... The deferral is unfortunate. Auto enrolment, which would place all employees, not just the newly hired, in KiwiSaver, has been strongly recommended by the OECD. Now, it will not be considered until there are sufficient surpluses to pay for it.

I mentioned this in my Budget blogpost yesterday and I feel it will keep cropping over the next wee while. The poor personal savings rate of New Zealanders is of real concern to the Credit Rating Agencies and I can't help but feel that the government has missed a trick in deferring auto-enrolment in its quest for a budget surplus.

The KiwiSaver default-provider arrangements have proved even more a bone of contention, and more damaging to the creation of a significant national savings pool that would propel economic growth. This is because they are not working in the best interests of young and young-ish KiwiSaver members .... Within those default schemes, their money is, by default, put into conservative funds. These are comprised mainly of low-risk, low-return assets, such as fixed interest .... But it makes no sense now for 25-year-olds with 40 years of KiwiSaver ahead of them to be in a conservative fund. History shows that, over time, growth assets provide by far the better returns, whatever the short-term fluctuations.

Four or so years ago when first signing up to KiwiSaver I was going to let my money go to one of the default scheme providers and not worry about it. Luckily enough my father, who is much more financially literate than I am, advised me to put it into a growth fund. When the market went down it lost money, but it was also able to buy plenty of shares at these low rates and when the market rebounded it made back what it lost and them some to the point where it now has a lot more in it than I have invested.

A lot of other young New Zealanders will not be as lucky as I was so it is fantastic to see the Herald arguing for a change in the default-provider scheme to more pro-growth funds.

"It's clearly a budget. It's got a lot of numbers in it."

"It's clearly a budget. It's got a lot of numbers in it."
      - George W. Bush

The news this week has been dominated by Bill English's second Zero Budget.

The Budget's main aim is to get the government's books back in surplus by 2014/15, which has taken on something of a holy grail importance in the government's eyes and that of the public, whether it actually is or not. See Low hanging rotten fruit for some potential alternative aims.

Unfortunately that means it is not a particularly inspiring budget and anyone hoping for news to encourage economic growth will be sorely disappointed.

Stuff.co.nz has a summary of the main points here, but I would like to focus on a few of them.

Closing a tax loophole for those who rent out their bach and boat, saving $109m over four years

This appears to be the Government's vaunted plan to broaden the tax base and while you can't rarely argue against it, it is a pretty week effort at broadening the tax base (Anyone for a capital gains tax?).

Three tax credits abolished, saving $117 million over four years.

This appears to be part of the broader tax base as well and while I'm not opposed to the removal of any of them, it suggests a government really scraping the barrel, devoid of any big ideas.

An excise tax hike on tobacco, taking the price of a pack of 20 cigarettes to more than $20 by 2016

My only problem with this is that it should have been more. A 10% increase each year seems like nothing, 25% would have really said something.

Deferring KiwiSaver auto enrolment

This policy would have cost a lot of money so it does make some sense to defer until the government is running a surplus. However on the other hand the Credit Rating Agencies have been a lot more concerned with our low rate of personal savings than Government debt or deficits, so wouldn't the benefits of increased KiwiSaver participation have outweighed the negatives?

Increasing student loan repayment rate to 12 per cent

I have already blogged that I don't have a problem with this policy. The changes to the Student Allowance entitlements are concerning however, especially the potential impact on post graduate students.

The aim of the Government is to ensure a return to surplus in 2014/15 on that level it succeeds. Unfortunately New Zealand needs something more than that, a budget that encourages economic growth and adresses the major issues facing it, the ticking time bomb of superannuation and interest free student loans.

Unfortunately for New Zealand this Government doesn't want to face it and I have serious doubts that the alternative have the ability to face them.