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25
AUG 10

Compulsory Superannuation is a must




News that the Government is considering making Kiwisaver compulsory and that there is some talk of cross-party agreement is positive for many New Zealand businesses in need of capital. Much of the controversy over foreign ownership of New Zealand assets has occurred because of the lack of capital available here. The combination of high interest rates, a bad savings record and asset price inflation has meant that New Zealanders are struggling to afford local assets. Capital has been stripped from our economy; we cannot afford to run deficits forever and there is only one end to this story unless something changes.

Synlait is an excellent example. They tried to raise money in New Zealand without success, but international investors were more than interested. Deeper capital markets here would help companies like this remain in local ownership. It is important that superannuation providers are required to invest a percentage of their funds in New Zealand so that local businesses looking for capital feel the benefit.

Our policy settings have encouraged asset investment through fiscal policy distortions, and the off-shoring of productive firms through monetary policy that creates an overvalued currency. Conversely, the advantages of an enhanced real economy generating activities to invest in, and a compulsory savings scheme generating the investment capital, can be seen in Australia.

There has also been some controversy over the retirement age which the Government has resolutely refused to change. We need a debate on this as we cannot afford universal entitlement. People are living longer and older people will be needed in the workplace; stopping work at 65, for many, is retirement in active middle age – this needs mature debate not political posturing.

The solution to this problem needs to be shared between employers, employees and the Government. If adequate incentives are provided by Government then it is appropriate that both employers and employees contribute.

The 1997 referendum on the Compulsory Retirement Savings Scheme (CRSS) was voted down by 97% of those who cast ballots. Since that time the success of Kiwisaver should make compulsory saving more saleable and therefore politically palatable. It would be good to see broad cross-party agreement on the superannuation and retirement age issues.
 


tags: compulsory superannuation, savings, tax balance
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