Lease Our Future

The Labour Party has decided not to have a full election campaign launch this year. I think that's a pretty dumb idea, but what would I know? Instead they're apparently going to focus on policy announcements. The first major one of these (not counting the Capital Gains Tax announcement a while back) came this afternoon when Phil Goff launched Labour's Savings & Retirement Policy.

It's a good policy.

Partnered with the Capital Gains Tax already announced, its by far the more credible plan to get our economy moving and start driving wider improvements in our country for the foreseeable future.

But it's not a great policy.

As with the Capital Gains Tax, I think Labour's on the right track (and certainly doing a lot better than National), but not going quite far enough.

I don't think a Capital Gains Tax is the answer to broadening our tax base and diverting capital investment into productive sectors of the economy. It's better than what we've got now, but I think a Comprehensive Capital Tax would do the job a lot better. The idea of these taxes on capital and/or capital gains is that they're supposed to level the playing field of capital investment so that people are more inclined to invest in things that are actually going to generate returns (for the individual investor and the economy more widely). By only taxing gains you do nothing to discourage investment in unproductive or even loss-making ventures. Exemptions for the family home make no economic sense at all - they're just sweeteners to make an unfavourable policy look a bit less scary.

I think that raising the retirement age to 67 had to happen. My gut feeling is that 68 would be a better number, but that's immaterial. It's only fair that the changes are phased in over time and well signalled in advance. I agree that 2020 is a good time to start the changes; but I think a six month increase per year rather than the two month increase that Labour are proposing would strike a better balance. I heard that something like a third of people already continue working beyond 65 as it is. By 2020, with a well-signalled change to the age, I imagine that'll be up somewhere around 60-80%. For anyone who physically can't work up until the legal retirement age, I'm sure there's some sort of benefit that already caters for them (and if there isn't, then we should create one). Surely the number of people who can work to 65 but not to 66 is very very small.

If that sounds a bit harsh, then consider that Labour have already said that they'll leave KiwiSaver entitlements available at age 65. That's surely going to lessen the blow quite a bit.

And if that still isn't enough, then I think that Peter Dunne's proposal to introduce flexibility into the retirement age deserves more attention. Private retirement plans generally operate this way - the longer you wait to 'cash in' on the policy, the more money you get out of it. You've got a built-in safety net for people who have to stop working earlier, and a built-in incentive to keep people working longer if they can manage it. Makes perfect sense. Dunne's proposal is based on the existing retirement age of 65 and is cost-neutral. All we need to do it scale it to 67 (or 68, or whatever the age is if we're still talking about the transition period) and there we go - extra flexibility for no extra cost.

Restarting contributions to the Cullen Fund is another no-brainer. National can bullshit all they like about how ceasing contributions was necessary because of the economy and all that, but everything in politics is about priorities. I don't have much time for people arguing necessity while their tax cuts for the rich are driving us into debt by another billion dollars. Having said that, borrowing to save is also stupid. So contributions to the Fund need to be met by reprioritising spending or raising additional revenue - not by going further into debt.

Making KiwiSaver compulsory is also a damn good idea. I like that they're going to leave the minimum employee contribution at 2% and gradually increase the minimum employer contribution to 7%. For the record, nobody with any sense at all is arguing that increasing employer contributions isn't going to lower cash-in-hand wages, ceteris paribus. There are a few leftie idiots on twitter today trying to claim that because Australia has higher employer contributions and higher wages there must be no negative correlation between the two, but we can ignore them for what they are: dumb fucks.

I think Labour's ideas could be even better though. At the moment you get around $1,000 just for signing up to KiwiSaver in the first year (that's going to be spread over five years under Labour's plan), and then a tax credit of something like $520 for every year that you make a contribution. Or something like that. My point is, the tax credit should be used as an incentive to get people to contribute more than the minimum 2%. It should increase as your contributions increase. That way people who genuinely can't afford to save aren't forced to miss out on any more than 2% of their income, but those who could perhaps do without their takeaway food three nights a week and 5 packs of cigarettes could increase their contributions and get a bigger tax credit as a reward.

What we need in this country are some serious changes to our tax, transfer and savings system. I think the ideas that Labour have announced so far are heading in the right direction but fall disappointingly short of the more radical overhaul that we really need. I gather their Welfare Policy is still to be announced, but I'm fairly confident that I'll find less to agree about in that one. We need broad structural changes and a massive simplification of the whole apparatus that distributes wealth in our system.

On that note, niggling changes like taking the GST off fresh fruit and vegetables and blocking 50% state asset sales are pretty minor in the whole scheme of things. I'm a bit disappointed that Labour are pinning their flag to the asset sales thing when these issues of tax and savings are ultimately a lot more important.

The "own our future" tagline is an echo of New Zealand's obsession with property ownership. That's exactly the kind of mentality that we need to shake if we're going to prosper in a dynamic globalised economy. We shouldn't be trying to "own" our future; we should be making sure we've balanced the books well enough to "lease" our little segment of it, and then leave the next generation to lease theirs.

Overall though, this is the best we've seen so far out of the major parties. I imagine it's probably the best we're going to see. If savings and retirement are the most important things to you about Government policy then I'd say you should vote for it. I have other priorities though, so the Greens will still be getting my party vote tick. I take a bit of comfort from the fact that a vote for the Greens is at least still a vote for a Labour-led Government.