A dystopia of a more familiar stripe was on view at the Museum of Modern Art on Monday night, for the premiere of Lynn Hershman Leeson’s documentary hybrid and Sundance entry “Strange Culture”. The film concerns conceptual artist Steve Kurtz , who w…

cheers, Booth
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Chris:

I agree – there are definite issues with the study, and the data isn’t exactly the best data in the world to work with.

“The other question is whether all national savings are created equal? I see KiwiSaver moving savings out of housing (fine), but also moving savings out of NZ, which may or may not be a bad thing.”

Very true – the movement out of housing is likely to be beneficial – as there is a true productive return on these other assets. If NZ funds are buying firms overseas that can only be a good thing – as the belief must be that the rate of return on those assets is higher than on domestic assets. In this case any investment issues have more to do with the quality of domestic investments then the rate of national savings.

Greg:

“In the long run savings are of less importance than investment (increase in the stock of productive capital)”

In the long run savings=investment, where investment is both productive and “unproductive” (such as housing). So the issues are equally important.

“The fact that different countries can prosper to the same degree despite markedly different tax rates shows that taxes are not fundamental”

There is actually a growing stream of panel data coming out that indicates that tax rates do have a significant impact on productivity growth. However, you are right that the funding of these tax cuts is essential – if it comes out of productive government schemes then we end up where we started. Also if it comes out of “unproductive” schemes, we may be giving up an equity effect that we cared about more than the efficiency effect.

Fred:

It is true that there are distributional impacts from Kiwisaver – however the overall question I am interested in at the moment is the impact on aggregate savings.

Fundamentally, someone might say that Kiwisaver should increase aggregate savings, as the “effective interest rate” on the scheme is miles higher than in other savings instruments. However, that high effective interest rate is the result of government spending – which in itself is a full scale reduction in aggregate savings.

As a result, my impression is that Kiwisaver will reduce national savings – although it will increase private savings, and maybe lead to further diversification.

Is savings; a) foregone consumption or b) an individual’s capital accumulation? (you need to answer this before you start your analysis) Is everyone in a position to forego consumption (and the answer to that is obviously no), and will they do so voluntarily or do they need encouragement (tax break or compulsion). Well, everyone (who is prudent and rational) who can forego consumption will take up kiwisaver (a bet you can’t afford to pass by), so almost by definition kiwisaver is an automatic subsidy for the better off. Will there be an increase in savings because of kiwisaver? Decisions will happen at annual increment time, no reduction in pay (high performers still get an increment in the hand), employer contribution taken into account, etc. so no visible reduction in income, and still a transfer in wealth from the less fortunate.

None of the articles ‘bleat’ about taxes.

Kiwisaver may wean people off the idea that property ownership is the only way to save for your old age, which is good. It also helps to slow consumption a tiny bit. It may act as another tiny spur to the country’s business community to attempt to lift labour productivity (amount produced per hour). That’d be a real benefit.

I would tend to ignore the article in general. It appears to be part of the long-running campaign by the world’s wealthy to cut their taxes. The fact that different countries can prosper to the same degree despite markedly different tax rates shows that taxes are not fundamental.

Any article that bleats about taxes, without talking about the services they provide, is wasting your time.