Infratil was one of the world's first listed infrastructure funds and owns a majority stake in Wellington Airport. Photo / Mark Mitchell, File
Infratil was one of the world's first listed infrastructure funds and owns a majority stake in Wellington Airport. Photo / Mark Mitchell, File
OPINION:
Two apparently unconnected topics have recently been newsworthy.
First, AustralianSuper's move to acquire Infratil, and thereby ownership of major New Zealand infrastructure assets. The move has not been welcomed, including by Fran O'Sullivan, in her piece "Giant Aussie predator should be sent packing".
If (despite this opposition)Infratil does pass into Australian ownership, this would simply continue the last 50-plus years, during which NZ has sold the family silver, as major sections of NZ commerce have passed into overseas ownership.
Secondly, media have continued reporting increasing NZ house prices. Correspondence between the Minister of Finance and the Reserve Bank shows even the Government worries these are too high.
These two issues of NZ commercial assets falling into overseas ownership, and overly high house prices, actually stem from a common cause. The NZ economy is badly unbalanced.
The country has far too much of its wealth invested in housing, and far too little invested in financial assets - especially businesses.
Why is this? A number of specific factors can be listed. A banking system skewed towards house lending; a limited supply of housing land; high immigration in recent years, causing a housing shortage; a tax system which favours capital gains; and an ingrained expectation among NZers that most of their wealth will be in their house have all helped get us to this unbalanced position.
How the Herald's cartoonist viewed the AustralianSuper interest in Infratil. Image / Rod Emmerson
But central to both issues is NZ's lack of institutional saving. The NZ Super Fund ($43 billion) and Kiwisaver ($60b) are both relatively recent innovations, whereby the country has belatedly begun institutional saving.
Compare our 5 million population and $100b savings pool, with Norway (population 5.4m) NZ$1976b in savings, Hong Kong (7.4m people) NZ$760b savings, Singapore (5.8m people) NZ$625b savings, and it is obvious we are still in our saving infancy.
Australia (25.5 million people) has around NZ$170b in its Sovereign Wealth Fund, and around NZ $3000 billion in private superannuation funds. The employer rate of compulsory contributions in Australia is currently 9 per cent, rising to 12 per cent by 2025 (with tax incentivised employee savings on top or that).
In NZ, the employer contribution is 3 per cent, and tax is then taken from that. We are 100 miles behind all these countries with our superannuation savings, and falling behind further every day.
These major savings discrepancies cost us significantly as a country, imperil the standard of living and wellbeing of future retirees, and risk more NZ businesses falling into overseas ownership.
What have NZers done if they have not saved as a society? Answer: they have bought a house when they marry, and paid it off over their working lifetime. Then they sell the house when they retire, downsize to a retirement home or similar, and use what is left over from their house sale as their retirement nest egg.
Home ownership has been "the investment" for many NZers, by which they provide for their old age.
What happens when a country has pools of savings? Answer: fund managers invest those savings into commerce - such as Australian Super trying to buy Infratil. If more funds were saved within NZ, they would be recycled, partly to NZ business. But we have never had a pool of savings.
So when NZ businesses have been sold or raised capital, needed funds have often come from offshore.
Much of our commercial sector - banks, insurance, breweries - is directly offshore-owned.
Much of the NZ share market is owned from offshore. Many NZ-listed companies are migrating out of New Zealand. In 2014, there were 17 NZ companies listed on the Australian Stock Exchange. At latest count, 56 NZ companies are listed in Australia.
Companies migrate to where the deepest pools of capital are.
How to reverse this? Primarily, increase local institutional saving as soon as possible. Make Kiwisaver compulsory, and steadily increase the rates of contribution from both employers and employees over the next 10 years, to match Australian contribution levels.
David Schnauer. Photo / Supplied
Allow tax deductions on funds paid into Kiwisaver; and stop taxing the earnings of both NZ Super Fund and Kiwisaver funds, so funds grow quicker, and the pool of capital the country needs builds up quicker.
With more of income going into Kiwisaver, people would have less money to pay mortgages, taking heat out of the housing market.
And with more local capital as our saving pool builds up, we could slow or even reverse our commercial sector (such as Infratil) passing into overseas hands.
• Economist and retired lawyer David Schnauer's book Covid, Catalyst for Change is found at rethinkingpolicynz.com.
