KEY POINTS:
The Budget's KiwiSaver measures address a genuine problem and are likely to be effective - up to a point.
For any major fiscal initiative it is always possible to think of other things the Government might usefully have done with the money. And for some people a bird in the hand is worth more than two in a future bush.
Those of a liberal bent will always have a philosophical objection to the Government interfering in an individual's decisions about whether to spend or to save. They would be more persuasive if myopic spendthrifts (that's most of us) did not rely on future taxpayers to ensure that the standard of living of the elderly did not fall too low.
An individual's choices on spending and saving, in other words, have consequences for everyone.
Michael Cullen has compared those who question whether New Zealand has "a savings problem" to climate change deniers. That is harsh - the evidence in the savings case is scantier and more equivocal.
But the issues are similar: they are long-term issues with long lags between any policy change and its effects.
When making a decision in the face of uncertainty a useful approach is "room-for-regret analysis". You ask: "If we go with this assumption and it turns out we are wrong, how sorry will we be compared with going the other way and being wrong?"
If the sceptics on savings rates or global warming are right and measures to encourage saving or cut emissions prove unnecessary, there will be a cost in lost opportunities. We will end up with bigger nest eggs or more forests and wind farms than might have been optimal from some standpoint like maximising GDP.
If, however, the sceptics are wrong but their complacency prevails, we could end up with a lot of indigent elderly and a cooked planet. And it will be too late to do anything about it.
The obvious conclusion is it is best to err on the side of caution.
Poor data means there is room for argument about whether we are saving enough. Statistics New Zealand's measure, which subtracts its estimate of households' outgoings from its estimate of their income, has been falling for years and now has households spending $1.15 for every $1 they earn.
The Reserve Bank's measure, based on income and spending flows, also shows a declining trend into negative territory, but less so than Statistics NZ's.
On the other hand a Treasury measure based on annual changes in the stock of household wealth, adjusted for house price inflation, shows positive saving and no declining trend.
But averages can mask big disparities.
Treasury and academic researchers looking specifically at those aged 45 to 64 found that about a third were not saving enough to maintain their lifestyle when they retired. They tended to be clustered in the low-to-middle income range, between $15,000 and $50,000 a year.
We also have to consider what the current account deficit is telling us. It measures the gap between investment and national savings (which includes the Government and business sectors as well as households), which has to be filled by importing other people's savings.
Last year the deficit was $14.4 billion, or 9 per cent of GDP. The effect of decades of deficits is that New Zealand is a net debtor to the rest of the world to the extent of $143 billion or 89 per cent of GDP, the third-highest level in the OECD.
Merely to stabilise the debt and stop it from rising would require an annual deficit averaging about half the current one.
But if it could be done it might, just might, reduce the country risk premium built into interest rates.
If the KiwiSaver enhancements boost household savings at the expense of lower government and business savings then it will make no difference to national savings and the current account deficit.
As Treasury advice to Cullen points out, the macro-economic impact of the changes will depend partly on whether the Government funds the subsidy to savings by reining in spending elsewhere or by increasing its borrowing.
And it will depend on whether the compulsory contributions from employers push up their overall costs or are offset by their paying lower wages than they otherwise would or increasing their prices.
Much of the reaction from business representatives has assumed that employers' contributions will be an additional impost, clawing back much of the long-awaited company tax cut. Likewise, Cullen's expectation that wage demands will be moderated smacks of another era, before the largely de-unionised wage-setting process that prevails now.
Employers will continue to calculate how much it is going to cost them, all up, to recruit or retain an employee they want and then whether they can afford it.
And employees will calculate whether the total package is good enough in light of their job options.
How the cost is split between wages and non-wage costs such as superannuation is a secondary issue. The structural shift to a tight labour market is crucial.
How much the subsidies and the employer contributions will cost clearly depends on the level of uptake. Some generously employer-subsidised workplace schemes in the past have encountered surprisingly low uptake.
But the change from having one contributor in the original version of KiwiSaver - the employee - to three in the new version ought to make a difference.
The design of KiwiSaver has always relied on inertia. Savers are much more likely to stay in the scheme if they are automatically enrolled when they change employers and have to go to the trouble of opting out than if they have to opt in and see a dip in their take-home pay.
It is often argued that tax incentives don't increase the total level of savings but just encourage switching from other forms of saving into the tax-advantaged kind.
That is especially true of the tax break, which allows savers to deduct the amount they save from their taxable income. Such measures disproportionately favour those on higher incomes who have higher marginal tax rates and are already more likely to be saving.
The Reserve Bank of Australia has estimated that 35 to 50 per cent of the inflow of money to compulsory superannuation schemes in that country was offset by reducing other saving or by increased borrowing.
The Treasury regards the international evidence on how much tax incentives increase net household savings as contradictory and inconclusive.
But it says that a capped tax subsidy - which is what the Government went for - would tilt the benefit to those on low to middle incomes.
And they are less likely to have alternative savings to switch from, limiting the offsetting effect.
