By Gareth Vaughan
ANZ New Zealand, the country's biggest bank, says employer KiwiSaver contributions should be increased and state owned enterprises should be partially floated on the sharemarket in moves to help boost savings.
ANZ makes these points in a submission to the Government's Savings Working Group.
ANZ's submission, carrying the name of its private bank managing director John Body, throws its support behind the recommendations of the Capital Markets Development Taskforce, a group put together by the Government to come up with ways to breathe life into New Zealand's struggling capital markets.
The Taskforce's recommendations included the partial sharemarket listing of central and local government companies in areas including energy, transport, water, land, infrastructure and telecommunications.
"We support all of these (Capital Markets Development Taskforce) recommendations," says ANZ.
"We also suggest that more opportunities be given for New Zealanders to invest and save at central and local government level through greater use of Public Private Partnerships (PPP) and the issuing of Infrastructure Bonds. We believe that PPPs and long-term bonds, or Infrastructure Bonds, offer real opportunities for investors in areas such as roading, public transport, irrigation, health, education and housing."
ANZ's submission was released before Prime Minister John Key's speech today in which he said he had asked Treasury for advice on the viability of part sales of Mighty River Power, Meridian Energy, Genesis Energy and Solid Energy. Key said the Government would also look at selling down its Air New Zealand stake.
'Don't make KiwiSaver compulsory but lift employer contributions'
ANZ notes that it's the biggest KiwiSaver provider via subsidiary OnePath, formerly ING, which has NZ$1.6 billion of funds under management and about 380,000 members. ANZ says the success of KiwiSaver will depend on a 40 year commitment to a set of guiding principles rather than on piece-meal changes brought about by individual governments and short-term withdrawals.
The bank argues there is "little evidence" that compulsion would increase national savings, although it might affect the composition of total national savings.
"Compulsion also raises complex distributional and equity issues, such as affordability for lower income earners and the need to consider those who do not take part in the workforce at all, or whose workforce participation is intermittent," says ANZ.
Compulsion should be considered only as a last resort, the bank adds, but the Government's NZ$1,000 incentive for people to join KiwiSaver should be kept. Also a lifetime approach to investment should be established so contributors are initially enrolled in less conservative investment options and moved to more conservative options as they get near retirement.
However, ANZ - which has about 9,000 staff - does suggest employer KiwiSaver contribution levels should be increased in "small but consistent incremental steps", such as half a percent per annum. This would lift them to a level more comparable with schemes operating in other countries, the bank says. Compulsory employer KiwiSaver contributions are currently set at 2%.
"For example, Australia has reached a 9% minimum contribution rate and the Government has proposed increasing contribution rates to 12% with small incremental increases from 2013 to 2020," ANZ notes.
ANZ is the third bank to make a submission to the Savings Working Group after ASB and Kiwibank. ASB advocated for a targeted capital gains tax and state owned Kiwibank argued for KiwiSaver to be made compulsory and suggested setting a minimum amount of the New Zealand Superannuation Fund's capital that should be invested domestically.
Chaired by former BNZ chairman Kerry McDonald, the Savings Working Group has said it's looking into the possibility of automatic KiwiSaver enrollment and a more wholesale approach to KiwiSaver's retail structure, possibly with fewer providers. It also released an interim report to English which says high foreign debt puts New Zealand in a difficult economic situation with the country vulnerable, and warns continued increases in debt are unsustainable.
The Savings Working Group's final report is due out next Tuesday, February 1.
'Boost financial literacy'
ANZ also suggests that a review of government-funded financial literacy education in needed with objective of consolidating under one agency the task of developing comprehensive, well-designed, well-directed and well-delivered financial and investment literacy programmes for all New Zealanders.
The bank also throws its weight behind a Savings Working Group suggestion that the Government should review the tax treatment of annuities. This would include the consideration of a lower marginal tax rate on income from capital, deposits and Portfolio Investment Entity (PIE) vehicles as part of the development of a "more savings sympathetic" taxation model, including looking at the concept of the taxation of income earned on capital being taxed at a lower rate than taxation on labour income.
This is sometimes known as the "Nordic dual income tax system."
Meanwhile, the bank is critical of Finance Minister Bill English's exclusion of Government Superannuation from the Savings Working Group's terms of reference saying inclusion of national super should be integral to any discussion about retirement income policy.
"We note the views of the Retirement Commission and others that the age of entitlement should be moved from 65 to 67 over a long time-frame."
'Good time to review savings'
ANZ suggests the it's an opportune time to be reviewing how New Zealanders' can increase their savings given an "unintended consequence" of the Global Financial Crisis (GFC) has been an improvement in national saving. ANZ says there are signs a culture shift is already taking place with the GFC bringing home to New Zealanders the importance of better financial management, including the need to save and take part in a broader range of investment opportunities.
"In short, people are moving from a spending mentality to a saving mentality and moving beyond investment opportunities in residential housing," ANZ argues.
"Households and businesses are paying down debt, and curtailing their borrowing. We consider this environment offers an ideal opportunity to reinforce the value of saving and investment and direct people away from the consumption-driven behaviour of the past. We are now at the point where households are deciding that they are unable or unwilling to take on more debt and/or that current debt levels are too burdensome to service."
ANZ points to Statistics New Zealand figures showing national saving for the entire New Zealand economy was NZ$3.173 billion in the year to March 2010, as national disposable income rose more than consumption spending.
National disposable income, which measures income available to New Zealand residents for current consumption or saving, rose 4.3% over the same period. ANZ says this increase was bigger than the increase in spending - as measured in final consumption figures - resulting in higher national saving with household indebtedness, as a percentage of disposable income, falling from 159.3% in 2008 to 153.5% in 2010.
"It is important to note the role the Australian owned banks (ANZ, ASB, BNZ, The National Bank and Westpac) have played in assisting New Zealand weather the Global Financial Crisis. Their influence on the financial sector and their continued support of New Zealand businesses and households is providing a stable platform for New Zealanders to save and invest. In so doing, the banks contribute considerably to the country’s economic wellbeing," ANZ maintains.
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