If Mallard disagrees with Cullen’s adviser on compulsion, then let’s listen to the adviser

Mallard reckons you'll thank us for this when you retire.

Alf is always attracted to a proposition with which Trevor Mallard disagrees.

Obviously, such a proposition must have a lot going for it, and furthermore there are many such propositions that have a lot going for them, because this Mallard bloke happens to be a disagreeing sort of character. Disagreeable, too.

This explains why Alf tapped eagerly on to an item posted by Mallard on Red Alert this morning, to find out with what he is disagreeing today and then going out to promote it as an idea with the Mallard seal of disapproval, which naturally makes it highly attractive to right-thinking citizens.

Lo and behold, today it relates to savings and whether they should be compulsory.

Mallard – typically for a Labour politician, and a disagreeable one at that – favours compulsory savings.

At least, Alf presumes he favours compulsion on the matter of savings, although he does not spell it out. He simply says he disagrees with someone who has raised a raft of objections to compulsion.

What’s fascinating, in this case, is that the case against compulsion is beng championed by Peter Harris, generally regarded as a bright bugger who has been Economist for the Council of Trade Unions and an economic adviser to Michael Cullen, although Alf has plenty of reservations about describing someone as a bright bugger if they ever worked for Michael Cullen.

But Harris’ CV does show he ought to know a thing or two about savings, because he was chair of the Savings Product Working Group, whose report was the founding document for what evolved into the KiwiSaver scheme.

He has written a piece for the Policy Progress blog headed Why compulsory savings should not be on the agenda, which happens to be where Alf thinks they should not be.

Alf reckons his consituents should take time out and read what Harris has to say so they can see why Mallard must be wrong.

Harris kicks off:

A “Compulsory Kiwisaver” is bubbling up on the agenda, the latest being a call for it at the recent stock exchange AGM. It is easy to see why the NZX wants it. Not only does it add liquidity to the capital market, but somebody else (the government) does all the hard work – and carries all the cost – in raising the capital, collecting it, distributing it to investment agencies and regulating providers. The quintessential “free lunch”!

He proceeds to set out four strong reasons to resist making Kiwisaver compulsory.

* If the government is going to tell people how to allocate a part of their incomes, compulsion would almost certainly have to be backed by some form of compensation and protection, either through extended tax concessions and/or capital guarantees, and intrusive regulation and supervision of providers.

This increases the chances that a larger proportion of Kiwisaver balances will simply be savings transfers (as savers chase the bigger subsidies and extended protection), not net new savings.

* There is a risk that with compulsion, savings levels could actually be artificially capped. The government is telling me to save, therefore it is also by implication telling me how much to save. (It knows better than me).

* With compulsion, rules are required for withdrawal (emigration, hardship, matrimonial property settlements, ill-health etc). These become incredibly complex and arbitrary, and tend to generate resentment, which works against promoting a savings culture.

* Compulsion tends to be inequitable because it captures a portion of savings that some people make reluctantly (otherwise a voluntary system would be sufficient) and transfers it to preferred providers, who are typically quite well paid: it takes money off people who don’t want to use it that way to support the earnings of finance industry employees.

The net effect is a small – or potentially minimalist – increase in savings levels, won at considerable fiscal cost, excessive regulatory prescription on both saver and provider, and much more complexity.

Worse though, it sets up the pre-conditions for ending or scaling back the flat rate, universal New Zealand Superannuation. If people have to save, there is a perception that this is because NZS is on the way out. There can be no other legitimisation of compulsion. If people want to save (to augment NZS) that is entirely a private matter. The perceptions and the politics work to divide opinion and diffuse commitment to defending NZS.

Mallard has drawn attention to those four points at Red Alert but says:

Peter Harris is an old mate who used to work for unions and then Michael Cullen. He is a progressive thinker and I often agree with him. Don’t on this one but his points need to be considered.

That last bit worries Alf. When Mallard says something needs to be considered, it’s odds on it should not be considered.

On the other hand, Mallard does say he does not agree with Harris on this issue, which takes us back to where we kicked off this post.

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