Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Advance Australia Fair and Make New Zealand Fairer

A time to Reflect on What Might Have Been
Advance Australia Fair and Make New Zealand Fairer

by Peter Neilson | Chief Executive, Financial Services Council
26 January 2014

This year we expect that the New Zealand economy will grow faster than Australia’s. That is good news for us but cannot mask the fact that for most of the last 40 years the Australian economy has out-performed ours year after year. As a result Australian incomes are now 30% higher than our own.

There is no one magic bullet to close that gap and, as the Hon Bill English likes to say, economic success comes from doing a lot of little things right for a very long time.

One of the big things the Australians have got right over the past 20 years is getting most working Australians contributing into a superannuation scheme to give them a comfortable income in retirement.

Australian employees started contributing into their Superannuation Guarantee Scheme in 1992, more than 20 years ago, and the total funds in their Scheme now equal $A1.7 trillion, that is $A1,700,000,000,000. As a result, Australians own a considerable proportion of their mining industry through their superannuation savings. They are therefore not just benefitting from the mineral royalties; they are also getting a significant share of the profits. In contrast, the majority of NZ based corporates are owned by foreigners.

We could have been in a similar position. Forty years ago, back in 1974, the New Zealand Parliament passed legislation to create our own compulsory superannuation scheme that would have seen us contributing 8% of our salaries, 4% from the employee and 4% from the employer.

A few years ago Brian Gaynor, the columnist and Executive Director of Milford Asset Management, estimated that if the 1974 scheme was still in place we would have more than $NZ240 billion in superannuation funds now. He also said the New Zealand economy would have been transformed into a world-beater.

Unfortunately, the next Government abolished the scheme, having campaigned to do so, promising future pensioners that NZ Super would be increased by 30%. In a recent poll almost 3 out of 4 New Zealanders felt that abolishing the 1974 superannuation scheme was a mistake.

A person entering into a job in Australia this year at the average wage can expect to retire on a pension of $A69,000 pa in 40 years time. The average New Zealander, without a superannuation scheme, will rely on NZ Super which is expected to provide $NZ31,000 pa in 40 years time. So the average Australian at retirement will be on a pension much more than two times what someone in New Zealand will receive from NZ Super alone.

You may think what Australia does with its Superannuation Guarantee Scheme does not matter but it is another benefit for young New Zealanders moving to Australia for work. Last year, polling we commissioned revealed that 47% of New Zealanders aged 18 to 26 felt that knowing about the Australian scheme made them more inclined to work in Australia. If younger New Zealanders move to Australia to work it will make funding NZ Super even more difficult as our population ages and lives longer, so tax rates will need to rise.

KiwiSaver has been a positive change but New Zealanders in KiwiSaver default schemes are put into conservative assets which earn less and are subject to the heaviest effective income taxation. In contrast, a typical Australian default investor is mainly invested in growth assets which are more volatile year by year but, over the long haul, tend to out-perform conservative assets.

The Australians started off with a low contribution rate and now contribute 9.25% of their salaries into their super accounts. There is cross-party support for that number to grow in the future to 12%. If we don’t expand the coverage of and contributions into KiwiSaver we may find ourselves still working after 70, picking up the bags of much more wealthy Australian retirees.

This year we will have the opportunity to consider how we might close the emerging pension gap with Australia. We will have a general election where the option of making KiwiSaver universal or compulsory for employees will be the subject of debate. New Zealanders believe that we should be able to save to have the comfortable retirements enjoyed by most people in other OECD countries.

A comfortable retirement should not just be for former long serving MPs or public servants or members of the now rare private sector defined benefit schemes.

This is the debate whose time has come. Most New Zealanders now support making KiwiSaver compulsory so finding out where each party stands on the issue this year will be interesting.

We send our best wishes to Australians on their national day and hope this year sees us on the way to catching them up.

The FSC has not taken a position on whether KiwiSaver should be compulsory or remain voluntary.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>

Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>


BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

TDDA: State-Of-The-Art Drug Testing Laboratory To Open In Auckland

World leading drug testing agencies, The Drug Detection Agency (TDDA) and Omega Laboratories, open New Zealand laboratory More>>

Network: Bigpipe Launches Ultra-Fast Broadband Into Wellington

Bigpipe Launches Ultra-Fast Broadband into Wellington Naked broadband provider Bigpipe has extended its national reach, announcing today, the launch of its unlimited UFB offering into Wellington. The Spark Venture business is giving Wellingtonians the ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news