New Zealand is drowning in debt, but we could save our way out.
New Zealand is drowning in debt, but we could save our way out.
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
The cuts made aren’t going to be enough to provide a pathway back to a real surplus.
We’ll have a surplus of sorts in 2029, but only if we exclude the costs of ACC.
Which begs the question, why not just exclude a whole bunch of other stuff and say we’re already back in surplus?
Even achieving that creatively accounted surplus in 2029 will require some luck.
We have to hope interest rates don’t rise to higher levels than the forecast by the Treasury.
But the vagaries of MMP make it politically very hard to slash and burn government spending the way both Labour and National did in the 1980s and early 1990s.
We could look at the other side of the ledger. But how will voters respond to parties that plan to tax them more?
Not well, I suspect. The Green Party isn’t afraid to put serious tax hikes on the table, but it also isn’t at much risk of having to implement them.
Labour may look to raise more tax revenue when it releases its fiscal policy, but it is unlikely to be radical given the risks of spooking its middle-class base.
Labour will also likely spend more, which means it would be surprising to see an increase in tax revenue being rigorously applied to debt reduction.
So what next?
We could, as all major parties advocate, do all the right things to transform into a high-tech, highly skilled, high-wage economy.
We’ve been working on that one for at least 25 years now. It would be unfair to say we haven’t made some progress.
The tech sector is a valuable contributor to the economy, and it continues to grow. However, the growth is not at a pace that will provide a transformational solution to our economic woes.
Supercharging it to do that would cost more than governments have ever been prepared to risk.
You can take your pick on the political prescription – tax cuts or increased investment in R&D. I’m all for it, but it requires a short-term hit to the finances that is not guaranteed to pay off.
Ultimately, I’m sceptical of the notion that New Zealand doesn’t earn enough already to be a wealthy nation.
We look across the Tasman and ask: why is Australia so much richer?
It’s a cop-out to point at mineral resources as if we lack a similar geographic advantage.
New Zealand has 5 million people living on islands the size of the UK or Japan, with populations of 64 million and 124 million, respectively.
We’re blessed with an abundance of natural resources ... so much so that we’re complacent about our agricultural wealth.
When I look at Australia, I just see a country that is richer than New Zealand because it saves and invests more of its money than we do.
From July, Australia has a compulsory superannuation scheme that requires 11.5% employee contributions matched by 12% employer contributions.
The scheme has the equivalent of $4.5 trillion invested, making Australia the fifth-largest holder of pension fund assets in the world, not per capita but in nominal terms.
The trick with saving is to make the leap into it and then forget that you ever had the money in the first place.
That’s why I believe the Aussie system works so well.
They made that leap back in 1992 and have made progressive incremental increases to the savings rate.
I guess there are grumbles every time they lift the rate, but they are at the margin because it is obvious how beneficial the scheme has been.
I understand why the likes of Act and David Seymour oppose compulsory savings.
Act leader David Seymour facing the media at Parliament in Wellington earlier this year. Photo / Mark Mitchell
They argue individuals should be free to invest their money as they like.
If you’re smart and organised, you could do better by investing outside KiwiSaver.
However, this view puts more faith in people to be smart and organised than I have.
I don’t even trust myself to be that smart and organised, and I’ve spent the last 25 years thinking about finance and economics.
It’s dangerous to assume people will behave in an economically rational way when left to their own devices.
If there were no KiwiSaver, perhaps I’d have used the additional income to pay off my mortgage quicker and then moved money into higher-risk, higher-yielding investments.
Perhaps that might have outpaced my KiwiSaver earnings.
Or perhaps I’d have eaten out more, dressed better, bought more records and taken more overseas holidays.
If you’ve got children and a mortgage and hobbies and want to enjoy your life while you live it, then there’s always some excuse not to save or invest more.
It’s also human nature to feel aggrieved when we feel like we’re having something taken away from us.
I suspect that is one of the reasons why business owners tend to lean further to the political right than salaried workers.
It’s more acutely painful to pay tax when you are working for yourself.
That’s because you earn all the money first, and then you have to pay it later.
Salaried workers don’t even think about it. What arrives in your bank account every fortnight is what you earned.
In my mind, saving and KiwiSaver work much the same way.
You have to take a deep breath and commit.
Then you get on with things and let the compound interest work its magic.
Liam Dann is business editor-at-large for the NZ Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.
