Labour's KiwiSaver plan under fire

Wairarapa mortgage holders could have more money in their pocket under a new Labour policy designed to cool inflation and force people to save for their retirement.

But a Masterton budget adviser warns compulsory savings could put pressure on struggling families.

Labour's finance spokesman David Parker unveiled the policy in Auckland last week. It would require the Reserve Bank to use changes to the rate of people's KiwiSaver contributions rather than interest rates to control inflation. It was also designed to cool the overvalued New Zealand dollar, while addressing the country's woeful savings record.

The announcement came just days after the Reserve Bank hiked the official cash rate to 3 per cent.

"Instead of paying more interest on your mortgage, a similar amount of extra savings would go into your KiwiSaver," Mr Parker told an Auckland breakfast briefing.

The tool - called a variable savings rate (VSR) - would be added to the central bank's existing inflation-control powers.

Grant Howard, Wairarapa Free Budget Advice Service advocate, said increased KiwiSaver contributions would take money away from low income families struggling to make ends meet.

Bumping up contributions from minimum wage was "ridiculous".

"Those people need that money in their pocket. They can't wait until they're 65 until they get that money."

It was a "great idea" for some sectors of the population, but beneficiaries and low-income earners would suffer if caught by the policy.

Hiking interest rates to reduce inflation was "not the answer".

"I really need to question why our interest rates are going up. Nowhere [else] in the world they are, so why are ours?"

Getting rid of GST on all food products would be a better alternative, he said.

If elected, Labour would make KiwiSaver compulsory and the current 6 per cent combined employee and employer contribution rate would be lifted to 9 per cent over time.

Finance Minister Bill English labelled the policy a "confusing solution" and said there was no evidence it would work.

"Even if it did, it would require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them."

Business New Zealand chief executive Phil O'Reilly said exporters would appreciate Labour's attempt to bring the dollar down to more sustainable levels, "however they may have concerns about its workability in practice".

Employers and Manufacturers Association chief executive Kim Campbell said the mandatory savings scheme - similar to that used in Singapore and Australia - was a "good idea". But he raised concerns over how the contributions would be determined.

"The policy is not sufficiently clear on whether employers' Kiwisaver contributions would be increased, which would not be helpful, and employers will be seeking reassurances that the variable savings rate would apply only to the employee contribution."

Additional reporting Adam Bennett of the New Zealand Herald