A fresh approach to personal savings is the only way to stop our slide into inequality and low productivity, argues Robert MacCulloch

A fresh approach to personal savings is the only way to stop our slide into inequality and low productivity, argues Robert MacCulloch

By Robert MacCulloch*

Inequality is an issue likely to dominate politics over the next several decades. The bottom 50% own almost nothing: less than 5% of total wealth, both at the world level and within New Zealand. The public are being scandalised by headlines like "NZ's two richest men own more wealth than the poorest 30 per cent".

Worse still, the bottom 50% face threats to their healthcare and living standards when they retire. Why? Because the public system is running out of money. Debt to retired and working Kiwis for health and superannuation exceeds $800 billion, assuming that it is calculated in the way required by law for New Zealand businesses.

What is the solution? The ‘Left’ want higher taxes on the rich. The prospect of new capital taxes looms here. Thomas Picketty, author of the best-selling book, Capital in the 21st Century, favours them, and his book is bedside reading for ministers in our Labour Party.

The ‘Right’ are in denial. They won't admit inequality is a problem. "Who cares?" about Picketty's findings, declared a former chair of President George W. Bush's Council of Economic Advisers. The American dream is open to all, it is argued, if you work hard. We need not stress about the very wealthy. Their fortunes get broken up by high living, and bequests to children and charity. Or so they say.

In New Zealand, the Left have followed the same path of welfare state expansion for 80 years. It hasn't worked. Certainly not for Māori, whom it has patronised. Only now, using the capital received by way of Treaty settlements, is some hope of independence being restored.

The position of the Right is hardly any better. It has become untenable in a modern, just society. The American dream will remain a dream for most at the bottom of the wealth ladder.

Nor will the Cullen tax review solve much. For political reasons, it was made too narrow. It is forbidden from proposing a joint reform of both the tax and welfare systems – a necessary condition to address inequality. The limited scope of the review means the bottom 50% will continue to own practically nothing.

New Zealand has low productivity growth compared with many nations, and we must think of smart ways of doing things, given our limited resources. An alternative to the traditional left- and right-wing positions outlined above is to adopt a new style of reform – one that defies partisan labels, and which will enable low- and middle-income earners to establish their own capital and become independent.

This can be achieved via individual savings accounts. Every Kiwi should have one to help provide for their welfare needs and build personal wealth for retirement. The mandatory and universal nature of these new accounts would stand in contrast to KiwiSaver, which is a voluntary scheme not used by all.

The funding of the savings accounts would come from existing tax revenues. Put another way, there should be no personal income tax until individuals and families can provide for themselves. Employers should also make contributions, offset by a reduction in their corporate tax rate, ACC and other Super levies.

To further help fund the accounts, there should be an end to ‘privilege’. In particular, welfare payments to corporations and students from wealthy families should stop. The loss of such subsidies would be offset by lower tax rates. The wealthy should look after themselves.

This reform would enable each person to build between $500,000 and $1 million of wealth over a 40-45 year working life. As a result, an income of over $30,000 per annum during retirement would become available, on top of the pension. Low-income earners would be able to buy medical insurance using their own savings, and they would gain access to the private healthcare now only available to the wealthy.

More broadly, a shift to savings accounts would help end the class warfare needed by our two main political parties to keep their support base. Wealth would accrue to low-income earners, and the quality of their healthcare would improve. For high earners, the need for new capital taxes would be pre-empted. Choice and efficiencies in the delivery of welfare services would follow.

It could become a practical reality. The numbers add up. A full set of Government budgets incorporating these changes, both for the present year and forecast out to 2050, has been created.

A line must be drawn under the old tinker-here, tinker-there policies. A fresh approach is needed to stop our slide toward becoming both an inequitable and a low-productivity society.

*Robert MacCulloch is a Professor at the University of Auckland Business School’s Graduate School of Management. It was previously published in UABS insights and is used with permission.

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"one that defies partisan labels, and which will enable low- and middle-income earners to establish their own capital and become independent." Probably the most pertinent words in the whole article. As corporatisation of bloody near everything we consume takes over just about everything, so does the ability for an individual to make their own way in the world. Add mechanization and robotics to that and you have the perfect storm, even though the technology that is taking over could actually be of great assistance to us as we reduce our population before we destroy everything.
Growth has to be over, because at the end of the day, the only true growth is more of us, and we can't do that anymore.

We are grossly over-populated according to one prominent English royal and he's right. Planet Earth has far too many human beings alive at the same time. I know you can argue aren't we wonderful to be able to grow all this food and have all these pills to keep us alive and well for longer, but the reality is the planet is really struggling to cope. We can see it everywhere. If you've ever seen the global population curve graph recently you'll know what I'm talking about. It can't last and it won't.
According to one source of the four stages of the end of the age, the white horse age has come and I believe is almost gone. The red horse age is rising and arrogant wants to fight, and it will. It even has permission. Red also suggests a time of bloodshed. The black horse would suggest famine (remember 1919?) while the pale green horse represents death and the grave.
Whilst this topic is somewhat scary for most, it is also written, and has been for a very long time. We like to think we're in control don't we, and many people do. However, what has happened and what is happening and what is about to happen have all been documented. And even though most people will disagree with this, that doesn't mean it isn't happening, because it is. And if you look carefully, it doesn't take much to see that. It is everywhere.
So, to answer the growing population question above, you're right, we can't keep on doing that, and it will not keep on happening I assure you. The trouble is we're only one horse in to the end of this age, and the other three don't sound like much fun, do they? Sadly, they won't be.

At last....the most sensible response in decades.

What's all this nonsense about horses Long John Martin? It's obvious that we are entering into the age of the Kali Yuga. From Wikipedia:

Rulers will become unreasonable: they will levy taxes unfairly.

Rulers will no longer see it as their duty to promote spirituality, or to protect their subjects: they will become a danger to the world.

People will start migrating, seeking countries where wheat and barley form the staple food source.

Avarice and wrath will be common. Humans will openly display animosity towards each other. Ignorance of dharma will occur.

People will have thoughts of murder with no justification and will see nothing wrong in that.

Lust will be viewed as socially acceptable and sexual intercourse will be seen as the central recreation of life.

Sin will increase exponentially, while virtue will fade and cease to flourish.

People will become addicted to intoxicating drinks and drugs.

Women will no longer get married, and when they do they will constantly talk back to their husbands and be very emotional.

Traditional castes will disappear and everyone will belong to a single social class.

So, when do the incentives and support payments for people choosing to have children stop? It's a debate of welfare now vs welfare later. I'm in my late 20s and have committed to not having children as a silent protest about the way humanity is destroying itself. No working for families for me and my partner. No maternity/paternity leave with a nice bonus for returning to work for 3 months. Where's my incentive to not contribute to the biggest problem of the 21st century?

The thing we need to remember about inequality is that the worse we let it become the harder it becomes to fix. A god example is when we let bad areas of a city get bad beyond a certain point. Once an area gets too bad the better enabled do what they have to to get out and the area becomes worse. After a while the only people that live there are the ones that have no other choice.
Of course the key is to intervene before the critical “bad area” moment.

Is this really the writing of a real professor? At a real University?

We're seriously in trouble, then.

I feel sorry for those who go into debt to listen to lectures if they're along these lines. If the Professor is reading this, I challenge him to a debate. We can title it by agreement, but my question would be what will money be worth as energy and physical resource depletion accelerate? What are future dollars expected to buy? And if they're going to be increasingly non-underwritten, why is he advocating people to store them? Is he indeed living off the future himself - given that he gets at least partially paid with debt the students will only be able to repay if the supply of energy continues?


My beef has been with the media - seems we need to tackle academia too.

This is just another neoliberal proposal that won’t address inequality, and perhaps isn’t really intended How will people on benefits manage to pay that much into Kiwisaver. Re not taxing workers until they can pay for themselves - that will need to be funded and I bet the cost would fall on fall on us eg an increase in GST or cuts to national super. Many low income workers with get family support and yet still won’t be able to afford to contribute as suggested. Also many wage earners actually self fund the so called “ employer contribution” - as they are considered part of our total renumeration in many firms. This was a sucker change to wages made by the last government, that benefits employers. What about the self employed - many can’t afford it also.

I would also be very cautious of any proposal to make Kiwisaver compulsory. This may be the first sucker step towards income testing of national super and getting rid of it altogether. We will all end up worse than before. Beware of people advocating income tested benefits, saying there the middle class can afford to pay. Universal benefits cost more but they tend to be universally accepted, and middle income people pay taxes too. A highly targeted approach reduces public acceptance and ends up with the beneficiaries being marginalised, and benefits to be progressively reduced.
Notice how there no real proposal for corporations and the wealthy to pay more tax. It’s us paying mostly and them getting the tax cuts. Do they think we are stupid!!! Oh wait.....

I know the focus is on boosting savings for lower income people l but I actually think the non-housing saving of people with higher incomes is important as well. If people on higher incomes were forced to save more (in non-housing assets) then middle class welfare could be reduced and house prices would be reduced.

Prof MacCulloch describes a problem shared by many countries but it is worse in NZ and I suspect caused by a deliberate policy of badly focussed high immigration.
If you start with well paid and poor paid and want to make the gap smaller then get the well paid to compete with skilled immigrants: lawyers, doctors, journalists, academics, IT specialists, farmers, etc. If you want to increase inequality then bring in 3rd world immigrants to compete for jobs at the bottom: cleaners, bus drivers, fast food cooks, pump attendants, etc.
Although our govts both Labour and National claim they are bringing in skilled immigrants the figures prove only 27% of approved NZ permanent residents are skilled. And then the definition of 'skilled' is deliberately vague - anyone can call themselves an IT professional or a Chef but the difference between top and bottom of those categories is immense.
Solving inequality requires all immigrants to be highly paid and better still just enough to replace the Kiwis who are leaving for a better life elsewhere otherwise they just pump up house prices and rents which also hit the poor hardest.

Right problem, wrong answer. Inequality is good if due to effort and productivity differences however we have a large portion caused by our monetary policy and money creation system. If that was fixed then we would have a much fairer society.

Good comment. Take my own life: comfortable wealth after a working life in IT; those who could produce better code than me deserved better pay and there were always many rubbish coders who cost more fixing their errors than any pay they recieved - so a disparity of income was fair and in practise rather under-estimated relative abilities. The problem is unearned income - I was lucky in buying an investment property almost by accident (I thought my daughters would live in the city apartment while they studied) - the house I live in has tripled in value and so has the apartment; made more money from property while retired than I did doing skilled work for long hours.

The example it sets for the younger people watching is very sad.

Don't bother with study or careers because the well off get there through speculation and rent seeking, not by being industrious or productive.

This is a very narrow view. After property, there WILL be some other stunning investments which creep up. It may not be in NZ. For example it may be in putting savings overseas and the NZ dollar tank. Don't rule out other potential sources of wealth. There is an infinity of things to do with savings.

According to "The Road Less Traveled", life is often difficult and never fair, let alone society. Don't take anything for granted peeps! ^^LOLdgz^^

Wow a professor who cannot understand that with 0 you get 0 savings. With rising living costs (predominantly housing), and far less wage growth the number who end up with 0 discretionary income beyond bare housing & staying alive costs is greater. Give the man a wooden spoon.

Even worse is the guy could not even research the saving acc rates in the past 10 years. Less than inflation means people lose money in a saving acc versus other investments, say like housing, even managed funds & long term investments leap ahead of the inflation amount.

However and this is something one may miss with severe cognitive dysfunction, emergency savings are already used by those in poverty for what should be everyday costs like basic access to a doctor, minimal transport to work, heating, rates etc etc.

Tell you what how about the professor does an experiment. How about he lives on less than 5k for an entire year in NZ with no assets that he cannot fit in a suitcase and then he can come back and tell us how much he saved (while also detailing the cost of items he acquired through good will & public infrastructure), and good luck to him. Let them eat cake.

For an article to show such a lack in basic mathematics being on a financial website it only bears interest for comedic value.

Job equality & access to work & wages even with the same skills is uneven. E.g. you cannot have everyone work in IT. Not only does the IT industry not have enough jobs going so many will miss out, but also the rates & living costs are disparate across the board. Not to mention older workers are made redundant often due to age alone in IT, along with huge discrimination in the industry so many who could work will not be able to find employment in work. See disability stats & law if you need more information on that.

Suggesting everyone has the same opportunities, (and saving potential), when there is not enough housing, work, basic medical needs and even on a genetic basis humans are born unequal, is ludicrous.

I'm struggling to believe that this was written by a Professor. I'd write a reply, but don't want to risk looking like one of those people that comments seriously on an article that is actually satire.

Sounds alot like Winston Churchill's welfare insurance and 'the magic of averages.' Unfortunately it's not a very flexible system as what happens when your needs breech the cap? You start having to make exceptions, which are costly in both money paid out and in administration costs.

The only truely effective way to lift society is to boost productivity AND ensure a fairer distribution of this boost because, without the latter, the former is meaningless to most people.

Great articles today Interest.co.nz! I don't think I have the time to comment on them fully.

Rognlie proved that Piketty's empirical evidence that there was been greater returns to capital than to economic growth leading to rising inequality is a story about property wealth.

That is why it is important to understand the deep underlying drivers of the housing crisis and address them.

Wrt to encouraging savings and investing in the productive economy -perhaps we should decrease taxes on this. Give a tax saving credit up to a certain value. That sort of thing.

Any discussion about savings, productivity, inequality and to be honest anything about the economy and society that does not include how money is created is going no where.

If he really wants to have a new approach to savings and inequality then he really needs to talk about money creation.

Do they ever wonder why the models they use never seem to match with the real world realities?

If you have a reserve bank with a mandate to make inflation run at 2% but then use the model based CPI as their indicator and then use debt mostly based on housing assets to boost the economy all the while paying the workers a wage based on the CPI or worse on a system comparing Indian or Chinese rates (horticulture and tourism) then it is no wonder inequality has increased.

If you want to decrease inequality then stop devaluing the money we use it's that simple. stop using houses and mortgages to create money and put a value on the money with interest rates that actually reflect inflation or risk.

This man is the reason few people see anything but the symptoms. A good reason to rebuild our education system

Politics of envy.
Examples of where the incentives are right and how frugality can translate to wealth: I have not had private medical insurance.(I go for a run every day). I have never had Sky TV. I have never had any drugs or ever smoked. I maintain my own car and house. I mow my own lawn/ cut hedges. I cut firewood from the trees on my property. I make my own breakfast and lunch (always). I could go on but it would become very boring....

I collect firewood from verges and use old pallets for kindling. Put more clothes on and wear a woolen hat and boots instead of putting the heater on. Buy cars that you can service yourself that have engines with cam chains.

One wonders if we are sort of cheating the system. In a society of waste and wanton spending the frugal person can really take advantage of things however if everyone did it the whole commercial system may need to be reordered.

I thought this was quite a good item on Free Trade and tariffs. It seems that many countries subsidize their industries. One country like China, for example, will subsidize making bicycles and then another country like Germany will slap tariffs on the imports to effectively protect their own bicycle manufacturing. Seems fair.

The deceptive promise of free trade | DW Documentary

I would be careful about using firewood that you don't know the history of. You could be exposing yourself, loved ones and neighbours to some pretty nasty chemicals.

Most pallets are heat treated and only used for kindling. Where would the danger be in trees that have been chopped down to clear gardens or have fallen in storms?


So you own property which grants you the freedom to direct & use the produce from a garden, something most tenants do not have. I sincerely doubt though you can grow enough for your entire plant based needs for a year, (where a single wet summer can trash an entire seasons crop like this summer did). You can make sandwiches for lunch but you are not having to skip meals, and can easily buy the bread & condiments for those meals instead of making from scratch from home grown & home kill. You are simply proselytizing without realising your own housing & employment income access, without considering what that housing & employment grants you. You have not considered the difference in affordable housing access over time or the variability in employment access, and by referring to luxurious pastime activities & luxuries like having food for lunch & owning a home you assume
1. everyone has access to a home and garden they can afford (at a time of a housing crisis and 6000+ waiting for access to housing),
2. everyone has access to food to make meals at home (at a time when foodbanks are turning people away when they are so stretched),
3. you assume everyone has access to a car or transport & can afford parts & tools for maintenance (at a time when even public transport is deemed more unaffordable to private and just as inaccessible),
4. everyone requiring assistance must as you put it "had Sky TV. I have never had any drugs or ever smoked" which for most of those receiving benefits are elderly, chronically ill, disabled or breastfeeding who don't have Sky TV, take drugs or smoke, (not demons you can take pot shots at with absolute trollop),
and most dangerously 5. you assume everyone has the same physical ability and access to work which many who are chronically ill, disabled, & elderly plainly do not (I should not need to qualify that to anyone with half a brain).
You are a simpleton for not realising all of that but by demonising those who need assistance you are the demon. An affluent person with the benefit of good health looking down on those struggling to survive with disabilities and severe deadly illnesses. What a piece of humanity you are. Don't worry I will not recycle your views, they rightfully deserve to be trashed.


"Many professors of economics overlook the ecological consequences of the theories and policies they teach. The trans-disciplinary field of ecological economics is gaining a foothold in universities, but mainstream, neoclassical economists control the vast majority of classrooms. We encourage you to ask economists lots of questions — the point is to start discussions that will expose assumption-based doctrine and replace it with science-based facts. The questions below provide a solid “starter” list".

So I ask the question: What is the difference (in impact on readership) between the above op/ed, and purposely peddling porkies? I can't see one.

These are difficult long term issues with no quick fixes.

At the end of the day - Productivity is just about everything. Paul Krugman.

We have to produce higher priced goods and services that others want to purchase at a price that allows a return on capital. The higher the value of our outputs - the wealthier we will all be. This is the ONLY route to longer term wealth creation - end of story !

Let's start with bipartisan approach to long term funding STEM subjects over the arts. Limited university numbers - a much more aggressive apprenticeship system that starts after school for the 2/3 rds that don't have the capability for higher education. Works very well in Germany - we have to do what works - It's all been tried before.

The Google's, Alphabets, Intel's, Apples of this world want these skill's and so that's what they pay for.

We talk of Tourism and yes it has it's place for regional growth with few other options but the facts are that this is the lowest income segment of our work force.

Dairy has grown on the back of tax free capital gains - Operating earnings are low and recent 2016 Dairy Industry stats show a negative return.

We have to wean ourselves off commodities and low value outputs - easier said than done but starting with focused education and training would be the best place to start.