Mandatory savings supported

Waikato businesses would embrace the compulsory workplace saving required to bridge the economic gap with Australia as long as it was affordable.

In submissions to Don Brash's 2025 task force, compulsory superannuation has been touted as one of the changes New Zealand must embrace to bridge the economic gulf with Australia.

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

Given that Australia has avoided recession, based on the two countries' Treasury forecasts for 2013, New Zealand's economy will need to grow 3.2 per cent each year if it is to match it by 2025.

ABN AMRO Craigs Hamilton branch manager and senior advisor Jon Tanner said some large companies such as Fonterra offered superannuation schemes but many had "disappeared over the years". The introduction of KiwiSaver had been a "a big success" although the size of the contributions were far less than in Australia. Mr Tanner said he agreed with insurance and wealth management company Tower's submission that compulsory workplace saving must be considered as a way of diverting money from the housing market and into financial assets.

"Higher Australian average household income from financial assets could be a contributing factor in the evident income gap between the two countries," Tower Investments chief executive Sam Stubbs said.

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 up to 2 per cent of GDP and without compulsory super, the Australian economy "would not have weathered the global financial crisis".

Mr Tanner said New Zealanders did have an ethos of saving and investment but it was "channelled into the housing market".

"Compulsory superannuation would have a huge impact," he said. However, there would have to be debate over whether government or employers topped up contributions.

Mr Stubbs said savings would help moderate the 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," he 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.

Among recommendations was one for 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 per cent of the reason for higher labour productivity in Australia is a higher level of capital intensity in the Australian economy."

- © Fairfax NZ News