$4bn savings plan too costly, says Government

A compulsory savings scheme costing $4 billion a year has been floated by a think-tank led by a former Treasury official, but the Government has called it unaffordable.

The New Zealand Institute proposes individual accounts for everyone to lift savings rates and asset ownership in a report released today.

The plan outlined in "Opportunity for a lifetime: Creating an ownership society in New Zealand" involves a 2 per cent across-the-board income tax cut, but instead of going into take-home pay it would go into individual savings accounts.

The accounts could be accessed only for finance education or to repay a student loan, a first-home deposit or retirement.

Newborn babies would automatically get an account with a $500 Government endowment followed by another $500 when they turn 5 and 10.

The plan also includes modest matched savings where the Government would contribute on a 50c to $1 basis for voluntary contributions of up to $1000 a year, or $1 for $1 for those earning less than $38,000.

Institute chief executive David Skilling said the size of the solution needed to be aligned to the scale of the ownership challenge and small-scale initiatives were unlikely to be adequate.

New Zealand had a "window of opportunity" and needed to act now.

Median household wealth was just $68,300 in New Zealand and more than 800,000 people had less than $20,000. More than 400,000 had student loan debt and home ownership rates had fallen from 74 per cent in 1991 to 68 per cent in 2001.

Finance Minister Michael Cullen welcomed the report as a useful contribution to the debate, but "such a level of support would be totally unaffordable".

The Government was working on a savings package for the Budget.

National finance spokesman John Key said the proposal was too expensive.

The plan

NZ Institute's Kiwi Savings Account proposal:

* A 2 per cent income tax cut diverted to individuals' savings accounts.

* Accounts established automatically at birth with a $500 endowment followed by repeat endowments at age 5 and 10.

* Government matches voluntary contributions up to a modest level.

* Withdrawals only allowed for retirement, to finance education or repay student loans, or first-home deposit.