Compulsory saving touted to help close gap

Fairfax Media

HOW TO GROW: Compulsory workplace saving and a move away from international regulatory standards are two of the changes New Zealand must embrace to bridge the economic gulf with Australia, according to submissions to a task force.

Relevant offers

Money

ACC levies may climb again Consumer confidence up, but caution urged Gold bullion dealer's victims want information Student debt myths debunked Damages claims key to Hibernian funds recovery Loan sharks cruising poorest areas - report Auckland, Wellington expensive for expats SFO launches investigation into gold trader World Cup prompts shoppers to open wallets House sales rise, median price stable

Compulsory workplace saving and a move away from international regulatory standards are two of the changes New Zealand must embrace to bridge the economic gulf with Australia, according to submissions to the task force charged with figuring out how to make the leap.

Recommendations have been flooding in to the Don Brash-chaired 2025 task force, which is due to issue its first report at the end of the month.

One theme has remained consistent - there will be no easy fix.

Based on numbers crunched by Treasury economist Michael Reddell, the New Zealand economy must grow 1.8 per ent faster than Australia's every year to close the income gap which had opened up by 2008, measured in gross domestic product per capita.

And given that Australia has avoided recession, based on the two countries' Treasury forecasts for 2013, New Zealand will need to grow its economy by 3.2 percent each year if we are to match our wealthier cousins by 2025.

The figures make for sobering reading, but so do most submissions received by the task force and published on its website 2025taskforce.govt.nz

Insurance and wealth management company Tower says the Government must consider phasing in compulsory workplace saving. "Higher Australian average household income from financial assets could be a contributing factor in the evident income gap between the two countries," said Tower Investments chief executive Sam Stubbs.

Supporting this claim is research from the Association of Superannuation Funds of Australia which showed that without Australia's compulsory superannuation system, households would have been worse off in 2008 by NZ$3000.

The same report indicated that superannuation may have increased the household saving rate by up to 2 percent of GDP and without compulsory super, the Australian economy "would not have weathered the global financial crisis".

According to Stubbs, compulsory workplace savings would create a host of additional benefits, including assisting with the moderation of the part of inflation cycle that is driven by the housing market cycle.

"Household income would be channelled into the accumulation of financial assets and away from fuelling residential property booms," Stubbs said.

Furthermore, the cost of capital could be lowered as workplace savings became a source of increased funding. Workplace savings schemes are logical buyers of longer-dated government bonds, which would help with fiscal deficit financing.

A well-beaten drum among recommendations was the need for greater investment in skills and education; the Council of Trade Unions says capital investment is crucial.

"The International Monetary Fund argues that, compared with New Zealand, 75 percent of the reason for higher labour productivity in Australia is a higher level of capital intensity in the Australian economy.

"Capital per worker needs to rise," said the CTU.

Professor Roger Field, chairman of the New Zealand Vice-Chancellors' Committee, called for improved academic salaries, more postgraduate scholarships and the provision of research infrastructure by the government, rather than by individual institutions.

- © Fairfax NZ News