Sam Stubbs: KiwiSaver changes come as no surprise

Photo / NZ Herald

John Key has cautiously signalled changes to some Government schemes that are favourites with the public: KiwiSaver, Working for Families and interest-free student loans.

Caution is no doubt the watchword for a Budget to be delivered just six months before a general election.

In one way or another, so many Kiwis are beneficiaries of these three schemes that it might be wise to not scare the horses.

As the Prime Minister pointed out, 1.7 million New Zealanders are enrolled in KiwiSaver and 20,000 more join each month. Not all of them are old enough to vote of course, but enough of them are and he reassured us that KiwiSaver would survive and thrive.

KiwiSaver has been a huge hit and has increased the savings of many Kiwis.

For many members it is the first time they have saved regularly in a vehicle which is reliable, low-cost and well-regulated. However, the Government borrowing from overseas to pay for KiwiSaver subsidies simply increases our growing national debt.

Thus, the trimming of subsidies should come as no surprise.

It's our national debt - the combined total of our public and private debt - that has New Zealand looking warily at the example of the "Piigs" (Portugal, Ireland, Italy, Greece and Spain) which are frantically trying to stave off bankruptcy.

The Government - just like Kiwi individuals, households and businesses - needs to trim consumption, borrow less, pay down debt and save more.

It's on the national balance sheet that these positive changes to our financial habits will show up.

From the announcements this week it looks like KiwiSaver subsidy cuts will be compensated for by increasing contribution rates for individuals and employers, making KiwiSaver more like Australia's compulsory workplace super. Compulsory KiwiSaver may draw a step nearer as a result.

Australia is a great example of how a large national savings pool can be transformational for the economy.

The Government signalling that it wants to get savings up in the long term, in a way that employees and employers can plan for, is ultimately more important than any short-term trimming of subsidies.

It's amazing what we can do when we have time to plan for it.

It is heartening to learn from the Prime Minister's figures that after the proposed contribution re-jig, KiwiSaver will represent a $25 billion pool of capital by 2015 and $60 billion by 2021.

That sort of money will surely aid investment in New Zealand by New Zealanders.

But it is sobering to also learn that our country's net international liabilities (what New Zealand owes foreigners on balance) will be reduced by only 2 per cent of GDP through having this amount of KiwiSaver investment piled up in 2021.

Kiwis need to keep maturing in their saving habits and accept that may mean letting go of some of the Government-provided apron strings.

sam.stubbs@tower.co.nz