National's baby bonus demonstrates their ideological rot

You work. 

You earn. 

You're taxed. 

You spend from what's left. 

You save, if you can, from the remainder. 

National leader Christopher Luxon now wants to compel you to save in his chosen politically-connected savings vehicle. You're taxed by coercion, and you'll save by Luxon's compulsion.

And it starts with a Baby Bonus. For which you will be taxed to pay for other people's babies. 

Even Muldoon turned up his nose at that one. In fact, bad as National leader Robert Muldoon was, you can trace the ideological degeneration of the National Party by its reaction to variants on this one policy.

WHEN THE THIRD LABOUR Government went to the 1975 election promising cash payments to families to have children -- the payments supposedly compensating mothers for reduced contributions to Labour's compulsory superannuation scheme due to time out of the workforce -- Muldoon correctly called it a "baby bonus" offered up by the Labour Government as an election bribe.

Not many people, he said, would be fooled into allowing a baby bonus to be put into an account in [Labour's] New Zealand Superannuation Scheme. It was the biggest "con game anyone had seen." It was "just an election bribe." Mr Muldoon said.

That was then.

The National Party today should be explaining without fudging or vapourware how they propose to get the government's accounts into surplus. "But instead," to paraphrase what their former leader said then about Labour's election bribe, "all they can offer is 'Have a baby and we'll give you a couple of thousand dollars'."

Pathetic.

And who is the "we" whose cash will be doled out for this election bribe? Yes, of course, it's you and I, Joe and Josephine Taxpayer.

And as anyone still alive from 1975 might remember, the National Party created an election-winning ad pointing out that to the extent the compulsory savings grew, they would drown out voluntary savings, and their politically-driven investment eventually come to strangle the whole country. It became known as the Dancing Cossacks ad. It became infamous. But it was accurate.

IN 2007, NATIONAL LEADER John Key called Cullen's voluntary Kiwisaver scheme "socialism by stealth." 

And so it was, and is. And Key could have killed it off back then in one sentence, simply by announcing it would be cancelled under his watch. Instead, he oversaw its expansion.

He really didn't care. Muldoon didn't care who disliked him. But Key just liked to be liked.

So now, with the stage set, we see this National Party who want leader wants to introduce compulsion. For which his party give him a standing ovation, and he was granted a few brief moments of warm commentary from the left-leaning commentariat.

The intellectual and ideological rot is complete.

=>Oh, but it will "boost" household savings. 

Bullshit.

People's wont to save is already measured, and measurable. Whether voluntary or by compulsion, their preference to save and/or spend is a measure of their time preference, which is relatively constant over the medium term. Any "boost" by compulsion would undoubtedly see a proportionate decline in voluntary savings, a decline in people making their own choices about their financial future, leaving more capital in politically-driven investment vehicles instead.

=>Oh, but it's "good for the economy." say National Party cheerleaders. It will create a "surge" in investment capital, say investment bankers eager to take your compulsory-acquired savings. 

Bullshit.

As Roger Kerr patiently explained way back in 2007, New Zealand already has access to a whole "vast international pool of capital for investment at a price that is set in world markets." 

KiwiSaver cannot stimulate investment by reducing the world cost of capital. If it increased domestic savings, firms would simply use less foreign savings.

Moreover, much of any additional saving would not be invested in New Zealand. In the interests of prudent diversification, fund managers are likely to place more than 50 percent of the inflows offshore, as the New Zealand Superannuation Fund does. Domestically, they will have to put most of their equity funds into listed companies. The diversion of savings from other vehicles into KiwiSaver might reduce local funding for sectors like small business and farming. These are amongst the most innovative and productive in the economy....

Even if the funds going into KiwiSaver translated fully into additional investment and were manna from heaven, the impact on GDP would be small... The contribution of KiwiSaver to GDP is thus looking very small at best, and could easily be negative, having regard to deadweight losses and distortionary effects on savings and investment decisions. Its contribution is clearly negative compared with equivalent tax reductions. 

Again, and not for the first time, it's necessary to make the point that all the government programmes in the world can't boost productivity -- the only thing they can do help is to get the hell out of the way.

We've already seen the NZ Superannuation Fund (aka the Cullen Fund) invest in every variety of politically-driven alleged investment, from "green" energy" to an Iwi/Māori investment fund -- and as the fund grows by coercion, those calls to divert investment into political vehicles will only increase.

And on the issue of encouraging savings, the basic point to make is this: if you truly want NZers to save, then just stop taking so much of their hard-earned money.