Editorial: Best course is a general savings plan

Home ownership, long regarded as the key to personal security and a stake in New Zealand society, has become a distant dream for many young people newly in the workforce.

A long boom in residential real estate, particularly in the main population centres, has lifted house prices well ahead of income growth and many young people are paying off tertiary education loans into the bargain.

Their plight has been highlighted lately by successive reports from a newly formed "think tank", the New Zealand Institute, and adopted by the Labour Party leadership as the Government's next big mission.

Late last year, at Labour's annual conference, the Prime Minister outlined what she called a "bold agenda" for a third term. It involved some sort of state assistance for private saving for three purposes: home ownership, children's tertiary education and personal retirement.

Besides the benefits these might bring the individual they were said to offer the social gains of boosting the country's household savings pool and thereby reducing its reliance on foreign capital and the interest payments and dividends that went offshore.

The Prime Minister returned to her theme in her first parliamentary address of the new year. "This year we will announce further incentives to encourage families to participate in workforce savings schemes," she said. "That will help build a more broadly based ownership society in which more New Zealanders can enjoy the security of their own home, afford higher education for their children and have a good standard of living in retirement." Fine words, but they are proving difficult to turn into practical policy.

Last week, under questioning by Parliament's finance and expenditure committee, Finance Minister Michael Cullen deliberately dampened expectations on the home ownership front. He said, "The level of assistance required to help many modest-income people into home ownership, especially in the Auckland area, would be high indeed and probably beyond what was affordable or wise". The Government was wary, he said, of pushing up house prices even further.

That, of course, is always the likelihood when any sort of housing subsidy is provided. The previous Government's rental accommodation grants are reckoned to have raised the rents that landlords demanded, and a subsidy tagged to house purchases would quickly bid up the market.

The Government's better course might be to concentrate on personal savings overall and not attempt to subsidise savings for specific purposes. That, indeed, may be its intention, hence the Prime Minister's reference to a workforce savings scheme through which families might better afford home ownership, tertiary education or an extra nest egg for retirement if they chose.

Last September, a task force headed by a former adviser to Dr Cullen delivered a well-received proposal for automatic employee superannuation. Under the scheme, employers would hold back a little of each worker's pay and pass it to Inland Revenue which would forward the contributions to an approved superannuation provider. Employees would be automatically enrolled in the scheme unless they took steps to opt out.

The proposal offers employed people an effortless savings plan at very little compliance cost for employers, who have generally welcomed it. There would seem no great difficulty in broadening the plan so that people could draw on the savings for investment in a home deposit or children's tertiary education if the Government regards those needs as important as retirement savings.

Indeed, what the Government regards as important should not be decisive. It is better that individuals and households decide the form in which they want their wealth to accumulate. Better for them and better ultimately for the functioning of the economy. This year's Budget could bring just such a scheme.