Council of Trade Unions media release
16 December 2010
Failed prescription no medicine for savings ills
The Savings Working Group lumps too much blame on New Zealand households without addressing other causes of low savings, said CTU Economist Bill Rosenberg in response to the Group’s interim report published today.
Bill Rosenberg said: “The report fails to analyse the role of the big four Australian banks in stimulating the housing price bubble and household debt by their risky overseas borrowing. It does not address the low quality of much foreign investment in New Zealand which has increased private international liabilities by high dividends and asset-stripping without increasing the country’s productivity.”
“It calls for more cuts in government funding at a time of continuing high unemployment and for a country which has relatively low levels of government expenditure and consumption compared to other OECD countries. It also calls for higher GST when New Zealand already has one of the highest rates in the OECD.”
“The Savings Working Group does not appear to be aware of evidence that increasing income inequalities in other countries such as the US have been significant drivers of increasing household debt and an underlying cause of the global financial crisis,” continued Rosenberg. “Low and middle income people have been borrowing to maintain their standards of living as their incomes stagnated while the gap with top incomes has accelerated.”
The CTU has made a submission which proposes compulsory superannuation primarily through a phased increase in employer contributions, government contributions for those of working age who are not earning for a period, and a focus on retirement income adequacy.
It asks whether in fact New Zealand’s problem is with investment rather than savings.
It calls for greater controls on foreign investment to improve its quality and prevent inflationary overseas borrowing by the banks. It suggests we should look at ways to increase the investment by New Zealand Superannuation, Kiwisaver and other investment funds in New Zealand and in start-up firms.
“The old and failed prescriptions of cuts in government expenditure and regressive taxation are not going to work. We need some new thinking,” Rosenberg concluded.
The CTU submission is available at http://union.org.nz/savings