Jeremy Tauri: Scheme looks better on paper

By Jeremy Tauri

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I can only imagine the headaches they would be in for if KiwiSaver contribution rates were to change frequently, writes Tauri. Photo / APN
I can only imagine the headaches they would be in for if KiwiSaver contribution rates were to change frequently, writes Tauri. Photo / APN

When politicians come out with a new policy, it can be easy to be drawn in by the headline and not look too closely at the detail.

Take Labour's monetary policy proposals last week - instead of higher interest rates, we'd be forced to pay more into our KiwiSaver accounts when the Reserve Bank wanted to slow the economy.

Sounds good on the face of it, right? Who wouldn't rather their money went to their own savings account, rather than off into the ether as a higher interest payment?

But I don't know if this policy is ever going to be workable in practice. I spend a lot of time helping people make sure they are structuring payments properly. I can already see how this might backfire.

It would be tempting, if you were being forced to save more during a particular period, to pay off less of your mortgage.

You might restructure it, perhaps to an interest-only situation, counting on using your extra KiwiSaver savings to pay off the loan when you became eligible to withdraw the money.

Would that slow consumer spending?

We also spend a lot of time talking about home loans but we need to remember that there is a sizeable chunk of the population that actually wants interest rates to rise.

Retired couples who've dutifully done as they're told and saved for their retirements won't be pleased if the money they have is now only ever going to earn them a low interest rate because the Reserve Bank is switching tack and now forcing people to save instead.

You'd also have the unusual situation of millions of New Zealanders pumping more money into their KiwiSaver accounts, and those KiwiSaver managers buying more and more shares, just when the economy was booming and share prices were at their highest, pumping them up further.

But when they started to fall, those contributions would ease and share purchases would slow, leading to a dramatic fall in prices. Is that what Labour intends?

I deal with a lot of small businesses and I can only imagine the headaches they would be in for if KiwiSaver contribution rates were to change frequently. It's not something that should be taken lightly - it could be hours of work for some and fraught with the potential to go wrong.

I understand the desire for lower, less volatile interest rates but I think this policy, like many we'll hear this election year, is better on paper than in practice.

Jeremy Tauri is an associate at Plus Chartered Accountants.

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