Poor case for super

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If this is the case for compulsory super, then I guess I better figure out where I’m going to move once it gets introduced – as it is obviously going to be poorly thought through and adhoc.

Lets start:

Prime Minister John Key is setting out a compelling case for compulsory superannuation and says public opinion has shifted since it was rejected in a 1997 referendum.

When a paper tells you the case is compelling – you can tell there is going to be trouble ;-)

Lets get down to what John Key has to say.  In my opinion, this is the worst set of words I’ve ever seen come from him – previously I’ve found that he has been quite level headed (except for the cannibalism call …).

“I want to see national savings rise so we are less reliant on foreign borrowing” … “The global crisis showed that if you rely very heavily on foreign borrowing, as New Zealand is doing, eventually it catches up with you”

So we owe a bunch of people money, who should be more concerned about our outlook – us or the countries waiting for us to pay them back ;-)

Having a high level of debt makes it harder to borrow yes.  And it does put us in a tough spot in some ways, yes.  But shouldn’t we be asking why we are borrowing, and whether this borrowing is excessive.  If we are borrowing 100% of GDP to build something that will give us 100x as much output in the future – then that aint bad.  If we are borrowing because it seems cheap, but it is actually being subsidised by someone else, then this is a bad thing.

We need to sit down and think about savings – not throw a blanket policy on everyone.

“Our total foreign debt is running at around 90 per cent of GDP”

Three things.  This figure is known to be an exaggeration.  Secondly, I think this is the net liability position right, and it has come down a wee bit during the recession.  Also, it tells us that our total net liabilities is equal to a bit under our annual income – not our wealth, it is much much less of our wealth – just our annual income.  Doing it this way makes it sound scarier – by making things sound scary they have more of a reason to “save us from ourselves” you see …

He said he thought there had been a shift in opinion since 92 per cent of voters rejected compulsory superannuation in the 1997 referendum.

“I think New Zealanders have come to realise they’re going to live longer, so even with the retirement age at 65 they’re going to be much more active in their retirement,” he said.

“And relying solely on national super… puts them in a precarious position.”

So they CAN save more – they have a choice.  Why does this mean that they suddenly want the government to FORCE them to save.  Seriously, was there any thought in this statement AT ALL!!! (Yes I am yelling – it adds flavour you see).

“If we identify and are convinced New Zealand has a vulnerability because of its high foreign debt, and also that New Zealanders aren’t as well prepared for their retirement as we might like them to be, then we need to consider our response,” he said.

If the state thinks you are incompetent, they will make you do what they think is right – seriously, CAN HE HEAR WHAT HE IS SAYING.

OK, now others.

Labour leader Phil Goff said his party was working on a superannuation policy and did not rule out a compulsory model.

“We absolutely have to increase our savings as a country,” he said.

So the opposition agrees – this is a RED FLAG for bad policy!!!

United Future leader Peter Dunne, who is Minister of Revenue, said his party had been backing a compulsory KiwiSaver scheme since 2007.

“When I raised it with Labour in the previous Parliament they weren’t keen, when I raised it with the National Party earlier this term, they weren’t keen,” he said.

“I’m delighted to see they may be coming to the table.”

Peter Dunne, the great supporter of the traditional family through Working For Families and trying to drive in income splitting.  I wouldn’t his recommendation at a frikken Burger King, let alone his recommendation for National frikken policy.  In fact, who the frik is going to even attempt to think sense here.

The Prime minister thinks that government has to tell people what to do, the opposition agrees, and their coalition lapdog is throwing them a bunch of dumb ideas on how to do it.

This is why I hate politics.

  • JiveKitty

    Further change the incentives to save if you really want saving to happen?

    If the ageing population is a problem, at the very least change the retirement age. Hell, go further and mess about with government super. Means test it, whatever.

    Or would that be too much like hard work?

  • http://www.tvhe.co.nz Matt Nolan

    @JiveKitty

    I think it is just easier for them to frame this policy as them magically saving the economy – especially when they have fund managers in nice suits supporting it.

    Seriously, this is a policy “solution” without a clear “problem” – people just keep making up little problems to support the solution they already want – which is more $$$ for fund managers.

    Bleh.

  • Seamus Hogan

    Matt,

    I’m with you if the choice is between do nothing–the optimal solution to a non-problem– and adding an additional compulsory savings scheme.

    But I fear that the question is going to be about compulsory savings versus incentives to save. If someone could identify a clear (non-pecuniary) externality from savings, I might buy into the idea of savings incentives as a kind of Pigouvian tax. But if the motivation is paternalistic, I would much rather see the honesty of compulsory savings (“you are stupid, so we are going to force you to act in your own interest”), than incentives which essentially tax the people who, according to the paternalistic judgement, are very stupid in order to nudge the behaviour of those who are only slightly stupid. That is, it takes from those who, despite the nudge, still won’t save more, to give to those whose stupidity is only slight making them susceptible to nudges. Paternalism, if we are to have it at all, should be made of sterner stuff than that.

  • http://www.tvhe.co.nz Matt Nolan

    @Seamus Hogan

    Interesting stuff. I can see where you are coming from – the justification for this policy is largely paternalistic.

    However, I would still prefer a system where the price signals are mildly distorted but there is choice, to a system where choice is completely ripped out – which is what compulsory super does.

    And I wish the government and advocates were being honest that the reason they want to do this is because they think people are stupid – if they heard themselves actually say that, out loud, they might change their mind …

  • Seamus Hogan

    @Matt

    “However, I would still prefer a system where the price signals are mildly distorted but there is choice, to a system where choice is completely ripped out – which is what compulsory super does.”

    The train has already left the station on this one. Take the current national super and calculate the present value (based on the risk-free return on NZ govt securities) of each individual’s expected lifetime entitlement from the age of 65 on. Create a book-entry “fund” of treasury bills equal to the size of the sum over all individuals of these present values and then create an offsetting book entry of government debt. This exercise is nothing other than a relabelling government assets, but it is easily interpreted as a history of compulsory savings funded from tax dollars invested in a mutual fund of govt securities from which one can draw an annuity at age 65 conditional on remaining in NZ. In other words, NZ got into compulsory savings in a big way in 1986.

    “However, I would still prefer a system where the price signals are mildly distorted but there is choice, to a system where choice is completely ripped out – which is what compulsory super does.

    And I wish the government and advocates were being honest that the reason they want to do this is because they think people are stupid – if they heard themselves actually say that, out loud, they might change their mind …”

    This is the trouble with a system where prices are “midly distorted”. We see the same thing with alcohol and tobbaco policy. It enables interventions to be couched in the language of externalities when, in reality, it is naked paternalism that is motivating the intervention.

  • http://www.tvhe.co.nz Matt Nolan

    @Seamus Hogan

    “NZ got into compulsory savings in a big way in 1986.”

    Agreed but …

    I see the justification for national super as providing a welfare payment to people over a certain age – effectively once you reach a certain age you are entitled to a minimum income according to government. This is funded through current taxation.

    I don’t see this as equivalent to a compulsory super scheme that makes you save some of your income for the future. Although both are forced schemes, which I am not particularly a fan of, at least the first one can be seen as some twisted version of a “minimum income” progressive policy, while the second one is simply creating direct credit constraints for people.

    “This is the trouble with a system where prices are “midly distorted”. We see the same thing with alcohol and tobbaco policy. It enables interventions to be couched in the language of externalities when, in reality, it is naked paternalism that is motivating the intervention.”

    I don’t disagree – which is really why we need better policy analysis in the first place. If governments were only allowed to justify externality taxes on the grounds of “measured externalities” – and if these were measured justifiably – any additional policy would have to be couched in the language of paternalism.

    However, I don’t see moving to a strictly compulsory scheme as superior – as it is simply moving to the very extreme of possible outcomes immediately.

  • Miguel Sanchez

    I’m more concerned about the notion that we need compulsory savings to boost the local capital markets – so it’s not forced saving but forced ownership of NZ businesses. Though if you believe the rumours about South Canty Finance, we’re headed there in a matter of weeks anyway…

  • Gregor W

    I agree with you on this one, Matt.

    The compulsive element does not need to be strengthened for Super. Am I correct in thinking that you already have to ‘opt out’ of Kiwisaver?

    “If the state thinks you are incompetent, they will make you do what they think is right – seriously, CAN HE HEAR WHAT HE IS SAYING.”

    Errrm….ever heard of Her Majesty’s Pleasure? ;)

  • http://www.tvhe.co.nz Matt Nolan

    @Miguel Sanchez

    “I’m more concerned about the notion that we need compulsory savings to boost the local capital markets”

    That aspect irritates me no end – along with the whole “we need to invest in Kiwi businesses, not overseas, because …”.

    And this people that act like its an “obvious fact” even though they CAN’T PUT TOGETHER A COHERENT ARGUMENT. Lets just say this issue is the big one for me at the moment – and it makes me very angry.

    @Gregor W

    “The compulsive element does not need to be strengthened for Super. Am I correct in thinking that you already have to ‘opt out’ of Kiwisaver?”

    Indeedy! I don’t mind an opt out scheme – I do find the idea of being forced to save a bit of a pain. Especially when it is in the type of situation that Miguel mentions, when we just have a bunch of fund managers that want cheap funds :(

    “Errrm….ever heard of Her Majesty’s Pleasure? ”

    Hahaha, indeed. Thanks goodness we have the state to protect us from ourselves :P