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| Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz | ||||||||||||
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Everyone assumes the scheme is working. But no one can prove it. The only rigorous evaluation of KiwiSaver’s impact on wealth was published in 2017 by Treasury economists David Law and Grant Scobie. Law and Scobie found that KiwiSaver members accumulated no more total wealth than non-members. Two-thirds of contributions had simply been shifted from bank accounts and term deposits into a KiwiSaver account. New Zealanders were not saving more. They were saving differently. Economists have long understood this. In 1954, Franco Modigliani showed that households plan their savings across a lifetime. If forced to save through one account, they save less through others. They pay down less debt or put less into the bank. Modigliani won the Nobel Prize for this work. Evidence from the US, Denmark and the Netherlands has since confirmed the pattern: between 50% and 80% of every mandated retirement dollar is offset by less saving elsewhere. The Law and Scobie study is now nine years old, and no more recent study has shown that the $110 billion programme does what it was designed to do. Regardless, we are about to make it much bigger. When advocates talk about raising “employer contributions,” they imply your boss is giving you something extra. Australia’s Grattan Institute studied 80,000 workplace agreements over three decades and found the opposite: when compulsory super went up, pay went down by almost the same amount. So why does everyone believe KiwiSaver is a success? Because $110 billion in accounts looks like new wealth. Much of it would exist anyway, in other forms. But big numbers are persuasive, and over two decades, KiwiSaver has built a constituency whose livelihoods depend on the scheme growing. There is also another problem. The bigger the pool gets, the more politicians eye it as a potential way to fund their preferred projects. What was sold as your retirement nest egg risks becoming a pool of capital for others to direct. After nearly 20 years and billions in subsidies, no one has shown that KiwiSaver has made New Zealanders wealthier. Still, the instinct across the political spectrum is to make the scheme bigger. Before we do, we might want to ask why we expect KiwiSaver’s next decade to deliver what the first two did not. |
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| Dr Benno Blaschke | Research Fellow | benno.blaschke@nzinitiative.org.nz | ||||||||||||
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“Sure,” our chief economist Eric Crampton replied. “The Ngaio Town Hall, a lovely community effort.” Polite smiles. I added: “The Auckland Harbour Bridge, one of our biggest projects.” Some nodding. Then, for good measure: “The electrification of New Zealand.” Now eyebrows went up. Before 1989, New Zealand had 453 localised governance bodies that built things. If a community needed a harbour or a power line, it could borrow the money, charge beneficiaries and get on with it. If a project failed, neither Councils nor Crown rode to the rescue. Lenders had, by statute, “no claim upon the Government.” These bodies were a finance channel distinct from the state. They delivered over half of all public infrastructure. Locals voted on whether to take on the debt. Nobody asked Cabinet. It worked well for decades. Officials acknowledged these funding vehicles were “critical to the historical supply of New Zealand's infrastructure.” So obviously they had to go. In 1989, the 453 were absorbed into fewer than 100 regional, city and district councils. In 1996, reforms delivered the double tap, killing off project-specific borrowing entirely. The consequences were spectacular. Local government and Crown balance sheets became the only channels for infrastructure finance. Councils hit borrowing limits and found every reason to slow down. Housing affordability collapsed. Today we are among the OECD’s least efficient infrastructure spenders, bleeding money through the only channel left. Mission accomplished. In 2020, Parliament passed a new Act to rebuild what was dismantled. But five years later there are just two projects to show for it, both council-led. Neither was started by a developer. Every project routes through Cabinet. The process is slow, expensive and hostage to the mood of the day. Cabinet can change the rules after investors have committed their money. The Crown guarantees every transaction against itself. The fire exit leads back into the building. The Amendment Bill is another attempt to get it right. It is a good first step to optimise the current model. But it does not relieve taxpayers of the burden of protecting investors from their government. It can do more to initiate rebuilding the second finance channel we once had, one that is independent from the state. We may call this “finance freedom.” |
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| Roger Partridge | Chair and Senior Fellow | roger.partridge@nzinitiative.org.nz | ||||||||||||
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The 1979 restrictions brought coloured windscreen stickers announcing the weekday car owners had promised not to drive. Thursday proved the most popular choice. A thriving black market followed. Forty-three percent of vehicles secured exemptions. The first person prosecuted under the original scheme was caught driving at 3.45 am – after falling asleep in his car following a party. His designated non-driving period had begun at 2 am. Petrol consumption fell by a paltry three per cent. The policy was abandoned. But the story got me thinking. Which of the 1970s’ other good ideas might be worth reviving? They were halcyon times for a teenager growing up in Auckland. If you wanted a holiday job, you first had to join a union. In my case, the Storemen and Packers Union. Card-carrying membership was required before the first box could be packed. The drinking age was 20. If you happened to be 18 in your first year at university, this was a rather obvious design flaw. Telephones came attached to walls by cords long enough to reach the kitchen bench, but rarely the couch. Television remotes had cords as well. Freedom had limits. Imported goods were largely theoretical. If something was branded, stylish or made overseas, it was either unavailable in New Zealand, or cost a year’s wages. Import licences protected New Zealanders from the dilemmas of consumer choice. And foreign appliances. Telethon was the year’s great national spectacle. The country gathered around the television for 24 hours while Selwyn Toogood urged us to give generously. The Osmonds appeared. Lauren Bacall also came and asked what on earth was going on. We understood her confusion. We watched anyway. Wage and price controls. Think Big. Public debt rising from $4 billion to $22 billion in less than a decade. Britain disappearing into Europe just as New Zealand discovered the risk of depending on a single export market. There was also trouble in Iran. Rogernomics eventually rescued us from the 1970s. Yet oddly, the Petroleum Demand Restraint Act still survives. Nearly half a century on, Treasury is again projecting persistent deficits and a debt crisis. The 1970s, it turns out, did not need reviving. We managed that ourselves. Still, it’s comforting to know we can stop people driving on Thursdays. |
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