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As a country we really do seem to be rather rubbish at saving.
The powers that be have been harping on about it for long enough now. I don't mean to sound like the fun police but it's clear we invest too much in housing and we tend to favour instant gratification on a scale that can only be achieved through borrowing to spend.
We are indebted to international creditors up to our eyeballs - or up to about 80 percent of our Gross Domestic Product.
While the vast majority of that is private debt, households and businesses have been lifting their game by paying down debt and ferretting more away for a rainy day.
It's the Government that isn't exactly a paragon of frugality at the moment.
It's about to announce a record deficit of between 15 and 17 billion dollars. We're borrowing more than $300 million dollars a week.
A week.
Admittedly much of the blowout is due to factors the Government could neither predict nor prevent, but it's still not sustainable.
So the Government has been slowly giving us hints about how it's going to fix it. This week the Prime Minister gave us a little more detail about what we could expect from planned cuts to KiwiSaver, all the while emphasising that the Government is committed to improving our dismal savings record and directing more of what we do save towards productive investments.
The rationale the Prime Minister employed for cutting the tax credit, one of the incentives of the KiwiSaver scheme, was: what is the point of borrowing to save?
You don't, he argued, borrow money from one bank only to deposit in another. Between the tax credit and the $1000 kick start - which is going to stay - the KiwiSaver scheme costs the government about a billion dollars a year.
When there's a hole of around $15billion in its books this year, something's got to give.
Tinkering
But should KiwiSaver be the government's first port of call? Does it make sense to tinker with our retirement plan - not for the first time - at the same time as arguing for the need to boost our national savings record?
Is it fair to meddle with the conditions of a contract Kiwis have signed up to for the duration of their working lives?
Because Kiwis have signed up, and they've signed up in their droves - almost 1.7 million people belong to KiwiSaver and some 20,000 more are signing up each month. That's far beyond even the Treasury's wildest projections.
The problem with that is its popularity is the primary reason it's so expensive - and its generosity is undoubtedly the reason it's been so overwhelmingly popular.
Financial commentator Bernard Hickey says it's the wrong place to wield the knife. "You could argue that spending on KiwiSaver is spending on investment and this should be the last thing that the Government cuts," he said on AMP Business .
Hickey says changing the scheme could erode people's confidence in it.
Similarly, commentator Jenni McManus told me this week she believes it sends the wrong message. "They keep telling us that they want us to save for our retirement and then they take away one of the major incentives, I mean, what are they actually trying to say to us?"
Alisdair Thompson from the Employers and Manufacturers Association was more supportive when discussing the topic on Breakfast this week , even though the Prime Minister indicated the shortfall will have to be made up for by greater contributions from businesses and employees as economic conditions allow. Thompson says that will be a little tough, but the scheme remains attractive.
"In some ways I think there's a case for absolutely eliminating the $1040 a year but if they can afford not to eliminate it and, say, bring it down to $520, or five bucks a week, I think it's still an attractive proposition."
We've been told this Budget will be about distinguishing between what we need-to-have and what is simply nice-to-have. I guess the question is whether the tax incentive, or even just stability of our retirement savings scheme, falls into the former or the latter category.
Of course, the fact remains that cuts need to be made to Government spending. So if not KiwiSaver, then where?
There are plenty of options, Jenni McManus argues, they're just all unpalatable. But she says the one they've chosen is the worst they could have picked.
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Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?