Alex's politico-economic blogroll: Will wages be hit by employer KiwiSaver contribution hike?; Labour's gutter politics; Happy birthday National

Here's my blogroll for the week. Some exciting happenings finaally in the area of economic policy (although not too much mind you) in the lead up to the budget. Looking forward to the Blogosphere's reaction to Thursday's Budget next week.

From the left

1. Govt undermining KiwiSaver confidence. Labour has expectedly attacked the government over its proposed KiwiSaver changes to cut the government's member tax credit contributions and for that to be made up through higher employee and employer contributions.

The government has responded by saying it's silly to 'borrow in order to save' - ie. They are borrowing money which they have to pay interest on in order to pump it in to private savings vehicles.

If they think this is so bad for NZ then why don't they immediately cut all govt KiwiSaver contributions while it runs deficits (which they haven't done and aren't going to do)?

Labour's finance spokesman David Cunliffe wrote on Red Alert that National's move was a confusing policy u-turn for KiwiSavers that would undermine confidence in the scheme. Cunliffe also noted the savings and debt problem in New Zealand was dominated by the private sector, not government:

So above and beyond all this, the most critical failure of this penny pinching tinkering is that it starts from the wrong presumption – that public debt reduction at any cost is always good - even though in this case it leads NZ nowhere.

The inescapable big picture is this: NZ has to get its private savings rate up, sharply up, NOW.  90% of our huge (80% of GDP) international debt is private debt.  No amount of short sighted penny pinching will change that.  The Govt mathematically cannot cut the 10% that is public debt enough to turn that picture around.  Logically, it must act to increase private savings and reduce private debt. 

The duty of a Minister of Finance does not stop with his own balance sheet – the Crown is a pivot upon which the nation’s balance sheet turns.

In short, Kiwisaver must not be undermined, it must be built upon.  It is a loved and trusted base to work from.  But even as it stands it is not enough at present to lift savings rates as much as we need.

NZ’s lack of savings is even more acute now because of National’s failure to continue pre-funding the NZ Superannuation Fund, which has risen in value 32% over the last year and earned 8%, well above Crown cost of capital, since inception.

Labour will carefully consider the Budget and later release our own policy on savings, which will build on the best features of Kiwisaver and lift savings rates to the benefit of all New Zealanders.

2. Increase in employer contributions will just come from workers' wages. Irishbill at The Standard picks up on the fact that when employers are forced to pay more in KiwiSaver contributions, they can opt to just take that out of workers' wages. Will National close this loophole again after opening it up?

The thing is there was a loophole in the original Kiwisaver scheme that allowed employers to deduct the employer share of Kiwisaver from the worker’s pay-packet. Which means any employer that didn’t want to pay would simply push the cost onto the worker involved.

That was closed by Labour in 2008 (and they got heavily attacked for it by the Employers and Manufacturer Association). But here’s the thing. One of the first things National did when they got into power was reopen that loophole. Consequently many employers went right back to taking their contribution out of their workers’ pay.

Meaning many workers are effectively paying 4% into Kiwisaver while the boss pays nothing and that means the only incentive for being in Kiwisaver for these workers is the government contribution. Which is now being taken away.

Add to that the fact that, because of the loophole, a 1% increase in both worker and so called “employer contributions” will mean many Kiwi workers will end up with 6% of their wages being deducted into Kiwisaver instead of 4%. On top of losing the government contribution.

3. Targeted tax increase needed to pay for Canterbury quakes. The debate over a temporary levy to pay for earthquake costs (brought up by the Greens) has been dropped for now, but Labour candidate Jordan Carter brought up the option again on his blog, Just Left, on Sunday.

To pay for Canterbury, which was an expensive wealth-destroying event that has effects on the whole economy, a targeted time-limited tax increase has to be on the agenda: we can't stifle the economy or lift unemployment by cutting public services and infrastructure investment to meet the costs, and we can't afford to keep going down the route of 'borrow and hope' which now seems to be National's default option.

4. Flashmob to show govt needs to get serious on Auckland city rail loop. Greens MP Gareth Hughes is organising a flashmob on Saturday (details below if you'd like to go) to try and show how inadequate Auckland's rail system is. The flashmob will be a walking train going around the route where a rail loop would go.

The first question that jumped out at me was, if you're able to walk the route, then why need a train?...It doesn't take that long to get from K-Road to Britomart Gareth.

Meanwhile, it’s just been announced that yet another Auckland public transport project (the Manukau Spur) has been delayed and won’t open till next year. Auckland trains and buses arepacked to bursting. And another survey (PDF) has just come out which confirms that Aucklanders think their public transport sucks.

Well, ok, that might be over-stating it but the latest Quality of Life survey does show that Aucklanders have a significantly lower opinion of the quality of their public transport system than residents of any other major city in NZ.

What’s the government’s solution? To spend $2 billion on a highway from Puhoi to Wellsford that most Aucklanders only use 5 times a year.

Aucklanders are fed up with a government that won’t listen to them and so am I. I’m organizing a flash mob this weekend to promote the need for the government to stop pouring billions into crazy motorways and instead fund urgently needed public transport projects like the CBD rail loop.

I hope you can join me – it’s our last chance to promote the need for more funding for public transport before the budget.

Walking Train to Promote CBD rail loop

When: 11 am, Saturday the 14th of May

Where: meet at corner of K Road and Pitt Street, then follow the route of the loop down Queen Street to Aotea Square and then Britomart

From the right

5. Cut KiwiSaver subsidies for the rich? He doesn't say it in these words, but David Farrar at Kiwiblog says the government' should be focussing its scarce tax dollars on those who need it, and not the likes of himself.

For most employees, they will still be getting a massive subsidy. Someone on $28,000 will still get around $2.50 into their KiwiSaver account for every $1 they put in. That’s a 150% return on investment compared to 10% most funds deliver. I doubt too many people will dump KiwiSaver becuase their return on investment is 150% instead of 200%.

Those who get most hard done by the Government’s changes are self-employed like me. As I pay both my employer and employee contribution, then I’ll personally be quite a bit worse off by the Government’s proposed changes. But I had been saving plenty anyway, prior to KiwiSaver, so to some degree the KiwiSaver subsidies were just a way to maximise my return. And the Government should be focusing its scarce tax dollars on those who most need it, not people like me.

6. Labour should get out of the gutter. Homepaddock says Labour's 'small issues' campaign is gutter politics. Not a good look in an election year that should be dominated by economic policy.

I think she's right. Labour's latest desparate effort on the BMWs was painful. They tried to draw a comparison between some guy who owns a BMW franchise in Auckland and who donates to the National Party, with the government's agreement to purchase its BMW fleet, which was signed by the previous Labour government.

That's rocks-in-head kind of stuff that only moon-landing deniers would even consider thinking was a conflict of interest.

And on Tuesday in Question Time, Labour didn't even ask any primary questions about the government's intentions for KiwiSaver, even though Key said he'd be making a speech about it the next day.

On the day John Key announced proposed changes to policies Labour holds dear – Kiwisaver, Working for Families and interest free student loans - you’d expect the party to be on the attack.

It was but not on policy.Instead it made a silly attempt to link the agreement to replace the fleet of BMWs used for VIP transport with a donation to National from a BMW dealership.

The gutter isn’t a good place to be at any time, and it’s even worse in election year because they won’t find any policy there. And that’s the big point in this story – Labour’s attacking the PM rather than policy because it’s got no viable ideas to put to the public.

7. Happy birthday National. The National Party was formed on the 13th and 14th of May 1936, making it 75 today, Keeping Stock points out. 

So we pass on our best wishes to National today on this momentous occasion. What better way would there be to celebrate a significant anniversary than for John Key to lead National to a resounding electoral victory in November?

And we can't resist a little dig. Between them, Phil Goff (27 years), Annette King (27 years) and Trevor Mallard (24 years) have been in Parliament for longer than the National Party has been in existence! Perhaps Labour may have rejuvenated before the National Party celebrates its centenary!

8. Brash should campaign on cutting social security (welfare) spending because National's too afraid to. Former ACT candidate and welfare commentator Lindsay Mitchell thinks Brash can jump into a space National seems too scared to jump into.

Just heard on Radio Live News that the PM has announced National's election platforms for 2011 - the economy, education, health and law and order. And indeed, that is the case.

So why not the biggest chunk of government spending - social security? Leaving it for ACT?

But in this term and the last, ACT also abandoned welfare as a central issue. Roy was spokesperson from 2005-08 and Douglas thereafter. Neither raised public conciousness about welfare the way Newman had before.

The greatest potential area for NZ to reduce spending, as well as improve outcomes, is in welfare. But that market research stuff they do tells parties to avoid the issue as too electorally sensitive.

Back yourself Brash and go after it. In the early 2000s, while still Reserve Bank Governor, you were publicly critical of welfare. Your outspokeness in that role laid the base for much of your current support. National has done next to nothing in this term and NZ now trails other developed countries in the reform stakes. We cannot afford to.

Economics blogs

Note to the guys at TVHE: There's been no blogging since April 21. What's happening fellas?

9. Good news for Christchurch? Anti-Dismal doesn't think Christchurch needs CERA, but seeing as it's in place, Brownlee could have done a lot worse than appointing Roger Sutton to lead the department.

Good news? The news would be better if we were being told that they have done away with CERA. I have never really seen any justification for it. Rebuilding the city should be a bottom up process not top down. Let the property owners rebuild their property their way, not the government's way.

Let the people with the best information and incentives make the decisions, that is, the property owners.

But given we live in a second (or third) best world may be this is good news. They could have appointed someone a lot worse.

10. Don't increase employer KiwiSaver contributions too quickly. Eric Crampton at Offsetting Behaviour says government should not hike employer contributions too fast. 

The Prime Minister signals cuts to come in government spending on KiwiSaver, the tax-preferred retirement savings vehicle. The government currently subsidises KiwiSaver contribution with a one-off $1000 deposit into new KiwiSaver accounts and matches employee KiwiSaver contributions up to about $1040 per year. Employers are required to kick in contributions equivalent to 2% of your pay if you're eligible to join. 

This has proven somewhat expensive for the government; consequently, John Key's signalled a halving of the government's contribution, with minimum employer and employee contributions to rise.

I hope that Key doesn't go for any large or quick increases in mandatory employer contributions. Tax incidence says it doesn't matter whether the employer or the employee bears the statutory cost, but if nominal wages are downwards sticky - and I can't believe that wage cuts consequent to mandated employer side contribution increases wouldn't get the employer into hot water - employers will react similarly to other payroll taxes. If it's done through a slow ratchet, employers can more easily compensate by varying the proportion of the total compensation bundle going to employees via cash and retirement funds.

Video

From Clarke and Dawe on the BP oil spill. I sent this off to the Greens co-leaders too :)