Labour’s plan to revamp monetary policy has excited some interest for its apparent creativity in finding a way to control inflation without the single blunt instrument of raising interest rates.
Labour’s Finance Spokesperson David Parker is proposing using Kiwisaver contributions – increasing from 6% to 9% over time – to soak up money and stop household spending when inflationary pressure rises. Parker says Kiwis would prefer to see their money saved rather than pay high interest rates to the big Australian banks – most of which goes offshore in profit by the billion every year. Fair enough.
National’s response has been predictable with the added twist from Finance Minister Bill English to say Labour’s policy will impact most heavily on low and middle income earners.
English says it’s wrong to suggest the benefit of high interest rates goes to the Aussie Banks because much of the benefit goes to kiwis with bank deposits who will get a higher return on their money. He didn’t say how anyone on a low income would benefit because those families simply don’t have deposits on which to expect unearned interest. But using the poor to advance the agenda of the rich is built into National’s DNA.
But English’s claim that those on low and middle incomes will be most at risk from the policy is a fair comment picked up by others.
The New Zealand Federation of Family Budgeting Services for example says the policy to keep interest rates low while forcing everyone to save more is unfair. Chief Executive Raewyn Fox says “the people who don’t have mortgages will be in effect subsidising the economy for the people who are obtaining an asset by buying a house.”
She says Labour’s plan to make KiwiSaver compulsory would be even tougher on those already struggling. “Take another 9 or even 5 per cent away from them, they’ll go under,” she says.
It’s a good point and it comes to the heart of Labour’s policy. Like their housing initiative this monetary policy is focused on middle class concerns rather than the desperate needs of families on low incomes who will never be able to afford a house and for whom Kiwisaver is a sick joke.
In a display of just how innocuous the policy is business groups have given Labour’s policy the thumbs up.
So Labour’s policy has some creativity and imagination but its failing is that it still confines the party to the same economic sandpit as National. There’s nothing bold or innovative here.
I’ve said many times before that Labour is still attached at the hip to the old neoliberal economic settings it introduced in the 1980s which have seen the rich get richer off the backs of the rest of us. Maggie Thatcher or Roger Douglas wouldn’t feel unduly concerned about this policy.
It’s the same old, same old.
So what do you propose John? I think this week so far what has been shown is the old ideological infighting amongst the Left that will bring joy to Key’s heart. Greens slamming bowel screening, now you slamming kiwisaver plans. For god sake lets get the Left in and then work out what can be done to improve on what’s already been mooted. Slagging Labour off at this stage is suicide. You are of course right, but being right and loosing to the full on neo-liberals is hurting us down here on the ground. We need unity of the Left and we need it NOW!
You claim that Labour represents “the Left”. Evidence please? I haven’t seen Labour represent ‘the Left’ since before the 1980s, and the policies John criticizes are evidence this hasn’t changed yet under Cunliffe. From where I’m sitting – on a benefit, searching for paid work, struggling to afford enough food for myself and my partner whose income is a student loan for living costs – a “left” government would be Greens-Mana-Internet.
I’m not holding my breath, but it sure would be nice to see the Labour party representing the concerns of people like John Minto, Mike Treen, or even their own (as of recently) Matt McCarten, who work in the labour movement, organizing some of the most marginalized workers in the country. It would also be nice to see Labour acknowledge that ongoing economic growth depends on ongoing population growth, and increasing energy use, and is impossible on a finite planet, and start working on a post-growth economic plan for Aotearoa, as the Greens are.
“For god sake lets get the Left in and then work out what can be done to improve on what’s already been mooted”
Sensible people have been telling me off in those terms all my working life.
“The left” has got in and stayed in for many of those years.
During which time casualisation, work accidents, poverty and social dislocation have grown.
John Minto is right, the poor are to pay once again.
Don’t you have to take the whole picture into account?
Are Labour playing in the same sandpit on social policy?
Or is economics the only important role for governments?
Isn’t that last sentence I wrote a neoliberalist viewpoint?
From most of the reaction I’ve seen I think your summing up is pretty spot on.
I think one point has been forgotten; unless someone is living in a cardboard box in an alleyway (becoming more and more common now in this country) – low income families also suffer when the RBNZ hikes interest rates.
Landlords will pass increased rates on through the rent they charge their tenants.
So keeping interest rates low should (hopefully) keep rents lower than if the OCR was raised (keeping other factors in mind).
So poorer families will benefit, if indirectly.
However, this is a point that should not be ignored and my suggestion is that that first $30,000 be made tax free and GST taken off all food. Plus, remove GST on rates, which is effectively a tax on tax.
That will go some way to mitigating effects on low/fixed income families.
Or abolish GST altogether? Create a regulated, R18 market for cannabis, and you could pretty much replace the tax take lost.
But it’s not an exact science. Some rental properties are freehold and are unaffected by interest rate rises. These all serve as a minor check on the mortgaged rentals upping their rents significantly. Also, rents hardly ever come down, it would just be a slight decrease in the speed they go up.
Essentially, it’s true that lower interest rates would help -SOME- renters. However, compulsory Kiwisaver and rising contributions will hurt -ALL- renters.
This Labour Party policy will hurt people on lower incomes.
John Minto is absolutely right.
Better still bring in the Ftt tax and ditch get.
Should be ditch gst.
Mana strikes me as the only party with members who actually know any poor people.
You have to wonder if Labour’s front bench knows which way is left and which is right. Parker’s speech about monetary policy begins with words of praise for the third Labour government’s compulsory super scheme. That scheme (the brainchild of Roger Douglas, who in those days wanted to build a fund for public investment) was so inequitable and so badly presented that it was a major factor in Labour’s defeat in 1975. It was replaced by National Super, which Parker dismisses as an ideological blow by the National Party. In fact, Muldoon’s universal scheme was far further to the left than its Labour alternative, and far better designed to alleviate poverty and inequality among the elderly. National’s position on super today is still well to the left of Labour’s. Modern Labour’s approach to KiwiSaver is muddled and far more likely to frighten the voters than inspire them.
John Minto is absolutely right to question this policy. Let me give you a situation:
A single parent with multiple kids, potentially three or four. Maybe the parent is a widow, maybe they receive some support from the other parent, maybe the other parent fled the country. They earn around $50,000. That’s not bad. It’s under the median income but they’re definitely not counted as a person on low income. They even get a bit of Working for Families.
However, they’re a renter. They also have a car they’re still paying off: nothing flash, something to get by which wouldn’t also have to go into repairs often. They have various school fees and uniforms and books and trips to pay for. Electricity bills are always a bit of a concern.
Now, the parent is doing okay. They want the best for their kids. So they budget accordingly. Healthy food over cheap rubbish, so they don’t have any silly gym membership or anything like that. They want their kids to have books and internet so maybe they don’t get Sky TV. It’s a nice life without being affluent. It’s also rather tediously poised. They’ll be some weeks when the parent is scrambling for every cent: unexpected school fee, kid’s shoes have broken, etc. It’s comfortable without ever being safe.
One of the things they have to consider is Kiwisaver. They decide against it. They can’t afford it yet. Once the kids are older, they’ll open one up.
When I say potential situation, I am largely writing about a good friend of mine.
Suddenly, under Labour’s new policy, everything changes. They have to contribute to Kiwisaver. That’s a certain percentage of their income gone. They can’t withstand the unexpected expenses now, school fees and new uniforms are dreaded. And this is someone on a reasonable salary. They’re nearly going under. Furthermore, the rate is variable, how is that person meant to budget? A responsible way of life of budgeting essentials and nice-to-haves is suddenly thrown away with the risk that soon their Kiwisaver contributions might rise. Maybe the kids don’t get their books, maybe they have to downsize the car and cringe with every WOF, maybe they have to downsize a house and have multiple children in each room in a more dangerous part of town.
That’s why I really don’t like this policy. It hurts people. It’s going to really hurt the low income families, but they’re going to be offered protection. I’m worried lower-middle income families are going to be left stranded on the rocks. Even if they can survive without going under, they’re being forced to cut their quality of life to subside people with mortgages. They’ll never buy their own place now.
It’s asking people to ruin their life to save for retirement.
I think Danyl Mclauchlan had it nicely explained when he said:
“Universal KiwiSaver and a tool to adjust KiwiSaver rates to keep mortgage rates low? I think you can do one of these but not both. If you’re going to compel people to save their money because its good for the economy then that’s one thing. But if you’re going to compel people to save money and then modify the rates to benefit a smaller subset of people who have mortgages you’re in the tricky position of higher rates having a disproportionate impact on lower income earners – who are unlikely to own a home – and benefiting higher income people with mortgages. That’s hard to justify.”
I know things are tight and Labour has adjust their policy to meet this concern. But how much do you think will be needed?
The only really good thing about Labour’s annoucement is formal recognition (at last) that prevailing policies have been simply untenable for the last twenty-five years. That ought to provoke a rash of resignations, but of course those responsible are generally unemployable anywhere else.
Labour need to have a policy in place to combat high interest rates, the high dollar hurting exporters. While my husband isn’t poor he does work very hard as a small businessman for limited or no return. And his profits that he does manage to make (sometimes) tend to be whittled away because of the high value of the kiwi dollar. Labour does have policies concerning housing, job creation and this one shouldn’t be looked at in isolation. It has received a lot of publicity because it is innovative and responsive. However I agree that Mana is in the best position to understand what is needed to help the poor. Give their policies prominence. Does it have to be just a one party focus? Why reinvent the wheel? And shouldn’t the left be working together, using party strengths to make a better society for us all? Come on its MMP. Not first past the post. It’s good that people question and advocate and also important to listen.
A couple of points;
Making Kiwisaver compulsory is basically another tax as it will be used to pay for New Zealander’s retirement pensions which they are presently already getting, not additional income in retirement (I think this is the model in Australia).
If Labour was to introduce compulsory Kiwisaver AND raise the age of retirement, people presently in their fifties who are on low incomes will have even less money for saving/spending, will be no better off when they retire, and will have to work for even more years before they retire.
Some way will have to be found to compensate those at the bottom; economic change is always at the middle class sector.
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The solution is to get rid of the Reserve Bank which is no more than an agency of the private banks to guarantee they profit from the printing of money for increasingly speculative purposes.
All talk about the RBNZ ‘independence’ of Government is in effect saying banks and their rich shareholders should rule as parasites over the common people.
What is needed is a single State Bank that is controlled by govt with a monetary policy consistent with a fiscal policy such as a tough CGT that removes the speculation in existing values such as land together with a Robin Hood tax, and of course, consistent with overall economic policy.
A state bank would then print only sufficient money to back the value of the commodities produced and which would be exchanged for the currencies of our trading partners to finance trade. Currency speculation would be stopped.
Of course this would mean electing a government backed by the 99% to overturn the neoliberal policies of the 1%.
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