Thursday, 13 May 2010

How to kill saving [updated]

I see that in a desperate attempt to get noticed, the Labour Party now contemplate making Kiwisaver compulsory should they ever get back in power, and allowing the Reserve Bank the power to inflate.

Are they insane?

The latest Morningstar figures on Kiwisaver providers (released yesterday) show that the Kiwisaver scheme is little more than welfare for paper shufflers—a mechanism whereby your money and taxpayers’ money is given to suits for them to make smaller than the rate of price inflation.  (And the funds “managed” by our old mate Gareth Morgan is still doing worse  than most, appearing near the tail end of all them—worst result 24th our of 24th for his ill-named “Growth” fund, which has lost 2.1%pa over the last two years. )

Inflation will only make these losses first.  And frankly, as we should all know by now, inflation is just another word for stealing from savers: stealing from small savers, and giving it to suits to piss up against a wall.  Get rid of monetary inflation, and ipso facto you get rid of the desperate need for fancy schemes that purport to address the superannuation problem.

A comment at Ron Manners’ blog makes this point perfectly:

    “If the Reserve Bank hadn’t presided over such an enormous rise in the money supply, maybe there wouldn’t be such a pressing need for superannuation in the first place. In my grandparents’ day, money in a savings account could be counted on to maintain its value to such an extent that it was perfectly possible for the lay person to budget for retirement just looking at the account balance.”

So the power to inflate is just the power to steal from savers. Nice, huh.

Mind you, with tax rates as they are now, one person in every couple is going out to work just to pay their tax bill, so that hardly leaves them much to save with, does it.

So forgive me, then, if I consider anyone talking “compulsion” when it comes to saving, when every incentive is there at present to discourage it—and nothing is being done or proposed to be done that would change that. 

Not to mention the implicit government guarantee that comes when you make the scheme compulsory, and all the waste and moral hazard that comes with it.

Let’s face it: the Labour Party really cares as much about saving as the other team.  All they’re doing here is politicking.

But you know the best plan a political party could recommend if it truly did want to encourage saving? Here’s a start:

  1. Stop taxing everyone to hell so they’ve got some money left over to save;
  2. Stop taxing interest on savings so they’ve got some real incentive to save; and
  3. Stop inflating the currency so the money that is saved isn’t diluted by every new note flying off the Reserve Bank’s printing press.

That’s what a responsible party would encourage. 

Pity there are none in this parliament then, eh.

UPDATED:  “Are we seriously going to start writing quadratic loss functions into the Reserve Bank Act, with parliamentary debate on the exact weight to put on to each term in the function” asks Eric Crampton Seamus Hogan, in a way that only a born economist could.

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