Savings Working Group says urgent need to lift savings

Photo / The Aucklander

The Savings Working Group says in an interim report there is an urgent need for both the government and household sectors to lift productivity and national savings.

The report by the independent group leaves the option of compulsory superannuation open, spelling out again how New Zealand has built up debt and how this makes its economy vulnerable.

It said the country can progressively address the problem, or do nothing and wait for an inevitable shock later.

"New Zealand has a choice of taking unpleasant but effective medicine now, or rejecting the medicine and taking the risk of life-threatening surgery in the future," the report said.

It canvassed a range of options without making recommendations, urging the Government to increase its savings sooner than signalled in the budget 2010.

Doubling productivity growth in the government sector could halve the level of government debt by 2050 while delivering the same volume of services, it said.

"Real progress will depend on astute and effective leadership," it said.

On the issue of tax, it noted distortion in the system and the choices of taxing income versus taxing spending.

Further shifts away from income taxes to expenditure taxes such as the goods and services tax were favoured because they improved the incentive to save.

"The Savings Working Group also favours at least some inflation-indexation of taxes on savings as well as an extension of tax rates applying to the current PIE regime," the report said.

It said that in many countries earnings on retirement were tax-exempt, but they were not in New Zealand and this should be closely looked at.

On the issue of making KiwiSaver compulsory, it noted evidence from Australia suggested it might increase national savings.

Making savings for superannuation compulsory for those above certain incomes was a possibility or "soft compulsion" such as automatic enrolment with an option to opt out.

The group also encouraged further work in financial literacy, and noted there was a shortage of investment products for people to invest in when they withdraw savings from KiwiSaver.

It said the Government could issue tax-free, inflation-indexed, bonds so that people could inflation-proof their own retirement investments.

"Or should there be an option for individuals to use part of their KiwiSaver funds to buy a higher level of New Zealand Super?"

It concluded New Zealand had a national savings problem and that was linked to a number of other serious problems in the economy and policy choices.

- NZPA