KEY POINTS:
The authors of two research papers do not believe KiwiSaver needs to be made compulsory to ensure there is enough growth in our financial markets.
The papers, which were a joint project by staff in the Treasury and the Ministry of Economic Development, looked at poor investor protection as a cause of underdevelop-ment of the stock market and the link between savings and investments in the development of our financial systems.
Both found one of the key reasons behind the underdevelopment had been a lack of savings, an issue which they say has now begun to be addressed through KiwiSaver.
They say that a sustained increase in national saving over the next 10 to 15 years could significantly enlarge and deepen the New Zealand financial system with knock-on effects for firm growth and productivity.
The concept has been seized upon by United Future leader Peter Dunne as further reason to make KiwiSaver compulsory.
Dunne said that if more savings and investment meant more growth and opportunity for New Zealanders, it was the next logical step to make saving compulsory.
But lead author Geoff Lewis said just because Australian and Chile had taken this route towards boosting savings and it had resulted in stronger financial markets did not mean New Zealand should do the same.
"Compulsion was just the means they employed to boost savings. The [New Zealand] Government has chosen to use incentives. We believe this is likely to be sufficient to lead to pretty big development of our financial systems."
The first paper found that while New Zealand's banking system was highly developed, its equity, venture capital and debt markets were relatively under-developed in size, depth, liquidity and skill base.
The second aimed to discover whether poor investor protection was an underlying factor in the small size of the New Zealand stock market but came to the conclusion that this was not the case.
Lewis said New Zealand had become too reliant on foreign investment because of our low savings rate.
"If there is a boost to domestic saving, the hope is over time as funds under management and KiwiSaver grow, to some extent that money will flow back into New Zealand companies."
He said now was the time to wait and see what would happen to the markets.
