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Home / Hawkes Bay Today

New policy targets Kiwi homeowners

By Cassandra Mason and Adam Bennettnews@hbtoday co nz
Hawkes Bay Today·
1 May, 2014 07:43 AM3 mins to read

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MUST SAVE: If elected, Labour could make KiwiSaver compulsory.

MUST SAVE: If elected, Labour could make KiwiSaver compulsory.

Hawke's Bay mortgage holders could have more money in their pocket, under a new Labour policy designed to cool inflation and force people to save for their retirement.

A local mortgage broker says the proposed changes could be good for the property market, but business and finance leaders warn compulsory savings could put pressure on struggling families.

Labour's finance spokesman David Parker unveiled the policy in Auckland this week. It would require the Reserve Bank to use changes to the rate of people's KiwiSaver contributions rather than interest rates to control inflation. It was also designed to cool the overvalued New Zealand dollar, while addressing the country's woeful savings record.

The announcement comes just days after the Reserve Bank hiked the official cash rate to 3 per cent.

"Instead of paying more interest on your mortgage, a similar amount of extra savings would go into your KiwiSaver," Mr Parker told an Auckland breakfast briefing.

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The tool - called a Variable Savings Rate (VSR) - would be added to the central bank's existing inflation-control powers.

Hawke's Bay mortgage broker Stuart Dowie said the proposed changes could be hugely positive for local mortgage holders.

"It sounds a bit draconian forcing people into KiwiSaver, but from a straight mortgage perspective, in the longer run - as long as they don't tamper with people's ability to withdraw funds for a first home - it could actually do quite positive things for the market."

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However, Mr Dowie didn't see the "direct correlation" between the policy and controlling interest rates.

"We're at the beck and call of the rest of the world so how can they be confident that just because we change our KiwiSaver policy, that will restrain interest rates?"

If elected, Labour would make KiwiSaver compulsory and the current 6 per cent combined employee and employer contribution rate would be lifted to 9 per cent over time.

Finance Minister Bill English labelled the policy a "confusing solution" and said there was no evidence it would work.

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"Even if it did, it would require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them."

Business New Zealand chief executive Phil O'Reilly said exporters would appreciate Labour's attempt to bring the dollar down to more sustainable levels, "however they may have concerns about its workability in practice".

Employers and Manufacturers Association chief executive Kim Campbell said the mandatory savings scheme - similar to that used in Singapore and Australia - was a "good idea". But he raised concerns over how the contributions would be determined.

"The policy is not sufficiently clear on whether employers' Kiwisaver contributions would be increased, which would not be helpful, and employers will be seeking reassurances that the variable savings rate would apply only to the employee contribution."

According to Inland Revenue Department, there were 80,223 KiwiSaver accounts held in Hawke's Bay as of March 31 this year. APNZ

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