that ollow it, cannot be conducted through a “New Zealandonly” lens.Superannuation savings represented by unds undermanagement in Australia are estimated to be between25 to 30 times larger than in New Zealand, despite theAustralian population being only about ve times as large.To provide additional context or the rapid divergence o thetwo economies in this area: the increase in superannuationunds in Australia in 2005 was about our times the sizeo the total superannuation unds in New Zealand. Thesize and acceleration o this imbalance in the savings pool,and hence overall capital market development, and rateso business investment, is the single biggest threat to NewZealand’s uture as anything but a branch economy. Therate and scale o ownership transer is increasing.This is not the time to be timid. These issues have beendiscussed or a long time, and we have not taken advantageo previous opportunities to address them. In this century,wealth, and standards o living, will fow to ownership, notproduction or service centres. Without a deep savings andinvestment pool, New Zealanders will not achieve or retaina meaningul ownership stake in the New Zealand economy,and our standard o living and global competitiveness willnever rise in any sustainable way. There is a clear needor bipartisan support to turn the current situation around.This is appropriate because savings is a long-term policyarea, and needs to be addressed as such.In this context, KiwiSaver is a very welcome addition tothe New Zealand policy landscape. The introduction o the KiwiSaver legislation marks a very important shit roma 100% passive approach to household savings. It’s a longoverdue step toward changing our nation’s “direction o travel”in the area o savings policy. The recent changes announced,including incentives, are very welcome and good policy.However, although KiwiSaver is a step in the right direction, itis unlikely to generate an increase in the savings rate that issucient to address the challenges described above.The general policy statement that preaces the KiwiSaver Billstates that “The purpose o KiwiSaver is to encourage a long-term savings habit and asset accumulation by individualswho are not currently saving enough, with the aim o increasing individual well-being and nancial independence,particularly in retirement”.
Retirement outcomes
Another strange and bad eature o KiwiSaver, however, is theability to withdraw or a deposit on a rst home. While thismay increase the attractiveness o the scheme to youngerNew Zealanders who may not have participated had it beensimply a retirement savings vehicle, it is likely to prove adouble-edged sword. The risk here is that many people willcontribute solely or the purposes o home ownership andthen may not contribute thereater. Given the unhealthyskewedness in New Zealander’s asset allocation in avouro the (non-productive) real estate sector, KiwiSaver could,under current parameters, simply become a means o urtherincenting home purchase over other asset investments thatare more appropriate than housing to provide income streamsupon retirement.Taking out a reverse mortgage over a amily home, or sellingit and moving into a smaller residence, is not the answer.However, repeated surveys have dened this as the singlegreatest expectation or retirement provision outsidegovernment superannuation. This scenario will see a lot o hungry elderly New Zealanders. As the pundits have said,you can’t eat the house.
Capital markets and growth vs.hollowing out
I New Zealand’s saving policy and record were aShakespearean tragedy, the refecting pool would be ourattendant, and ragile, capital markets. Our savings pool issmall, and with many cracks. So is our capital market. It isa act that, along with savings, capital markets have neverbeen a policy priority, nor o national or political importancethe way they are in many top quartile OECD countries. Whilea chorus is starting to gather around our capital markets,KiwiSaver represents the most meaningul policy platormthat can make a dierence. Healthy capital markets areundamental to economic perormance, the ability or thebenets o ownership to stay resident, and are directlyrelated to GDP and standard o living outcomes. There isa demonstrated link between the strength and vitality o acountry’s capital markets and economic perormance. Strongcapital markets enable growing companies to ecientlyaccess the capital they need to grow.Indeed, Australia’s capital market strength is widelyrecognised to have been one o the most important drivers o its strong economic perormance over the past decade. NewZealand’s long-term cycle o spending acilitated by oreigncredit will, unless addressed, soon become very vicious.New Zealand’s policies are in sharp contrast to those inAustralia. Again, make no mistake – New Zealand is in anaccelerating competition with Australia or ownership o productive assets and companies – and we are losing. A boldmove in this area is, along with taxation policy, one o only twopossible ways in which our policy settings can meaningullyimpact these outcomes. Because o the importance o our settings relative to Australia, the Australian example isdiscussed in detail below.Where there is a large and growing pool o capital as aconsequence o its compulsory superannuation scheme, thegreater savings in Australia, together with the associatedeects o larger and more liquid capital markets, haveresulted in a lower cost o capital. As is obvious, thehigher the cost o capital, the lower the level o businessinvestment that occurs. This makes it harder or NewZealand companies to compete in international markets,and in turn, reinorces the tendency or New Zealandcompanies to relocate to markets like Australia, hollowingout our skill, productivity and tax base.Ownership, and hence the fow o wealth, will thus inexorablybe rom New Zealand to Australia, unless meaningulintervention via savings policy is made.“Hollowing out”, where New Zealand companies aresystematically purchased by Australian companies, and theirlisting and top people transerred to Australia, is alreadyhappening at pace. Hollowing out means that the NewZealand economy will be gutted o the skilled proessionalswho provide companies with capital market services (e.g.,bankers, brokers, and lawyers), as well as top qualitymanagement, and less obviously, marketers and othercreatives, who will also locate to where the real decisionsare made.Conversely, a signicant New Zealand savings scheme willresult in an increased weight o New Zealand capital, whichwill in turn allow companies to use New Zealand as the baserom which to take on the world, and will help to counteractthe pressure to move to markets like Australia.New Zealand deserves to triumph. For that to happen,KiwiSaver needs to be ramped up to a level where oursettings are competitive with Australia.
“As New Zealand is in an intensiyingcompetition with Australia or peopleand commerce, our relativities to ournearest neighbour cannot be ignored. I this saving dierential is not addressed,our destiny is as a ull branch economy.”
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Our savings pool is small, and with manycracks. So is our capital market. It isa act that, along with savings, capitalmarkets have never been a policy priority,nor o national or political importance
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