Editorial: Kiwisaver policy a game-changer?
Unlike its recent pronouncements on trucks in highway fast lanes, or the flagging national demand for wood, Labour's ambitious new monetary policy has real heft.
The idea is first to make KiwiSaver compulsory, with payment levels about 9 per cent of income. That's not monetary policy per se, but it's a good idea – our savings are chronically low, which pushes up our interest rates.
Compulsory savings are also necessary for Labour's next big idea – making KiwiSaver payment rates adjustable. Under the plan, the Reserve Bank could recommend increasing savings rates as a way of slowing the economy – or, conversely, lowering them to heat things up.
If that sounds like a hole in the wallet, Labour says it won't be. Finance spokesman David Parker says the tool will be used instead of interest rate hikes. So when the economy overcooks, people pay more into their retirement plans instead – in theory – of copping higher interest rates on their mortgages.
If this works, there would be plenty of positives – higher national savings, healthier government balance sheets, lower interest rates, perhaps even some effect on the overvalued kiwi.
This last hope is Labour's most tenuous – that the policy will help exporters by bringing down the dollar. Lower interest rates theoretically turn off overseas speculators, but many factors push and pull at the price of the dollar, and it's not clear this policy would decisively shift it.
There are other questions, too. What about low-wage workers, who don't have mortgages and can't afford unpredictable shifts in income? Labour is considering exceptions for them, but that poses its own problems.
What about the wisdom of constantly mucking around with people's retirement savings? Isn't that an odd message to send, that they are subject to the whims of the economic cycle?
And will such adjustments be as effective as interest rate hikes in cooling the housing sector, the most inflationary part of the economy?
So Labour has some more explaining to do. But the questions should not puncture the idea – some might be unanswerable until the policy is tried.
Monetary policy, like much of economics, is hardly a settled science. New Zealand's relentless focus on controlling inflation over the past 25 years has been matched internationally, but there is a new sense that the lens should be widened.
It's clear, for instance, that inflation and unemployment are sometimes in tension – that fighting one can encourage the other. Yet our Reserve Bank, unlike, say, the United States', has no scope to weigh this balance. Labour gestures at this by widening the bank's ambit, though it stresses current account problems more.
Will any of this change Labour's fortunes in the polls? It's hard to see it – monetary policy is rarefied stuff that sends most people to sleep.
But it has a powerful impact on people's income and the economy. We ought to question the current settings more. Maybe Labour's greatest service here has been pointing that out
The Dominion Post