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Opinion: John Pagani on what Business NZ should have said about Labour's new savings policy

Opinion: John Pagani on what Business NZ should have said about Labour's new savings policy

By John Pagani*

Of all the reaction to Labour's bold savings policy, the least coherent was Business NZ CEO Phil O'Reilly interviewed by Larry Williams on Newstalk ZB.

Here's what he said:

  • Compulsory employer KiwiSaver contributions might lead to 'over saving' by some low income workers.
  • It might not increase the net savings rate at all.
  • KiwiSaver contrubutions come out of wages.
  • It will cost some jobs.

Meanwhile he supports the move to increase the retirement age. Challenged on whether there will be jobs available for people 65-67, he said that over time we'll need to have more people needed to work longer, so jobs will be there. So that means it undermines the claim the policy costs jobs.

If he thinks there will be 'over saving', he can't also logically hold the policy won't increase the savings rate. 

If the contributions come out of wages, then they can't cost jobs, because if it is coming out of wages it isn't an increased cost.

Likewise, if it's going to come out of wages, then employers wouldn't be so panicked about it. Would they.

What he should have said is:

"We don't like central interference in the process of setting remuneration because it reduces flexibility for business. But if it's going to be imposed then we will be looking for some offsetting restraint in wage settlements. The availability of extra capital for New Zealand business will be good for business, but it should not take the place of restraint in government spending and the need to keep reducing the cost of capital to business."

That would be an entirely predictable and defensible line for a business spokesperson. Instead he just clutches at anything because what he really wants to do is reflexively oppose anything Labour does. It's cynical and ultimately does business a disservice.

His comments about 'oversaving' are really a call for yet more taxpayer subsidies to employers.

Put to one side that the comments are obviously wrong.

If we are oversaving, we wouldn't have had forty years of current account deficits and we wouldn't be so chronically poor. (That he could even state that poor people save too much makes you wonder if he understands what poor implies is the absence of having any money.)

Business NZ now apparently thinks they don't have to pay decent wages because the taxpayer should come along and subsidise really low wages that aren't high enough to allow people to save for retirement.

This is another theme in right-wing commentary: 

The coherent (but wrong-headed) right-wing stance on wages is that working people should be paid less, which will make business more competitive. 

And an incoherent part tries to argue that making working people worse off makes them somehow better off. What they really mean is 'it's class war and we want to scoff every last crumb we can get for ourselves.' That's obviously not an attractive message so they have to find something that makes low wages sound palatable - they settle on a strategy of calling for wage subsidies, meaning they can pay low wages, and the taxpayer then picks up the bill for the social costs. Or, in other words, middle income taxpayers pay more tax to subsidise employers.

They made the same call when they said the minimum wage doesn't need to be increased because people who can't raise a family on $13.50 an hour get a Working for Families subsidy.

The real pro-business strategy would be to call for a higher productivity economy, which would demand higher wages, which in turn calls for larger pools of capital per job. Something like... asking for employers to invest in growth by contributing part of wage settlements to retirement funds, call it "KiwiSaver", which in turn make more capital available to Kiwi businesses, which will therefore be lower cost capital.

That wouldn't be such good class war, but it would help grow wages, businesses and the economy.


* John Pagani is an independent political consultant and writer who has worked as an adviser to Labour Leader Phil Goff. He writes his own blog at Posterous.

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If he thinks there will be 'over saving', he can't also logically hold the policy won't increase the savings rate. 


If 20% of the people "over saved" and 20% of the people "under saved" net savings could quite obviously remain the same.


Is this the same Pagani who suggested NZ needs an economy like the French have.....!


Any suggestions of change that affects the profits of Business is seen as something to be critical of. The short sighted attitudes of O'Reilly & co do not take into account relativity of imposts on business.

i.e. if everybody is in the same boat there is little reason to be critical. If tax imposition helps NZ to balance to overall burden then this could easily have a positive effect on profits. Australia as an example exists with a very large tax burden paid by employers for employee superannuation and survives well.