Using KiwiSaver to keep mortgage rates lower would take a major chunk out of Kiwis take-home pay, Economic Development Minister Steven Joyce claims.
Last week, the Labour Party announced its policies to extend the tools available to the Reserve Bank to control inflation, including a variable savings rate (VSR) that would alter the level of KiwiSaver contributions to ease the pressure to increase the official cash rate. The rate is the benchmark for almost all borrowing costs.
Joyce is calling on Labour to say how much could be taken from wages, saying that if they could not do that, the policy was just a "thought bubble". He said he had conducted "back of a cigarette packet" calculations which suggested that to replicate a 1 per cent increase in the cash rate, KiwiSaver rates would have to be jacked up 6 cents in the dollar.
This meant "heavy lifting" would be done by wage and salary earners on behalf of farmers and homeowners who would enjoy cheaper borrowing costs.
Joyce said the figures were developed "in a couple of hours with the help of a couple of boffins" and so were not authoritative. "My point is not so much that that's the right number . . my point is that Labour should have a number setting out their estimation of how much KiwiSaver rates would have to climb to reduce borrowing costs."
Yesterday Finance Minister Bill English also took a shot at the policy, saying that Kiwis wanted certainty over their retirement savings. "You do not want the minister of finance messing around with that every six weeks like the Reserve Bank does with interest rates."
Labour's David Parker said Joyce's claims contained fundamental flaws.
Labour's policy had the VSR as one of several measures, including capital gains tax, controls on migration, the transition to compulsory KiwiSaver and gradual increase of contributions to 9 per cent. He said Joyce would have also overestimated the relationship between the cash rate and real interest rates, with many borrowers on fixed interest rates feeling the impact much later.
Increases in KiwiSaver payments were felt in the latest pay cycle. "There's a much less direct relationship between the cash rate and instant interest rate increases [on the one hand] . . . compared with savings [where] there's an absolutely direct relationship with consumption." Parker refused to estimate the direct impact of variable savings rates alone on the cash rate but claimed the new range of tools would mean interest rates would be "substantially" lower than under National.
Labour's plans have been warmly received in a number of sectors, including Federated Farmers, and yesterday former National Party leader and Reserve Bank governor Dr Don Brash also said he saw "some merit" in the policy.
- Fairfax Media
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