Shamubeel Eaqub: Simplicity chief economist on the feasibility of NZ First's proposed KiwiSaver reforms

An economist has raised concerns over NZ First's proposed reform for KiwiSaver contributions - and claimed they're not feasible.

NZ First recently promised to make it compulsory and increase contributions from employers and workers to 10 percent - offset by a tax cut.

Simplicity chief economist Shamubeel Eaqub says he approves of the idea of a compulsory scheme, but warns we can't afford a tax-funded one.

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Episode Transcript

Speaker 1 (00:00):
Now.

Speaker 2 (00:00):
One of the big political stories over the weekend was
the New Zealand First Conference and one of the ideas
that came from that was reforms to Kiwi saver. New
Zealand First is proposing to make key we save a
compulsory raise the minimum contribution to ten percent and then
give a tax cut to offset that extra cost. Shama
Bill Yakup is the chief economist at Simplicity and with us.

Speaker 1 (00:18):
Hey, Shomo, good, he how are I?

Speaker 2 (00:20):
I'm well, thanks man. I was talking to Nichola Willis
just about half an hour ago. She reckons, back of
the envelope at the tax cut will cost about fifteen
billion dollars annually. Does that sound about right?

Speaker 1 (00:30):
It does? And I love the idea of a compulsory
superannation scheme, but I don't love the idea of a
tax cut funded one because I don't think we can
afford it.

Speaker 2 (00:40):
No, how would you even do it? If you could
do it, would you? Is it possible?

Speaker 3 (00:44):
And he suggested absolutely, He suggested target ideas. Okay, but
he suggested, this is Winston right, that you target the
tax cut two people who are going to be contributing
at ten percent, which is everybody because it's compulsory.

Speaker 1 (00:56):
Can you do that, well, that means every wed and
it gets a tax cut, right, and that's our biggest
source of taxes. It doesn't, It doesn't. The numbers don't work.
You can't. We can't afford those kinds of tax cuts, right,
I mean we already can't. We're already running deficeits. So
it's not to diminish the idea because the reality is

(01:17):
that kV server is actually really good policy. Most New
Zealanders are in a three and a half million of us.
We're contributing regularly. It's all good. But we can probably
pick and choose a little bit of how Australia does
it to move us towards the compulsion idea. And I
think therein lies the germ of the idea that Winston's
come up with that is really good, that if we
could make that employer contribution compulsory, not the employee one,

(01:39):
the employer one, and then increase that gradually over time,
it would have the same effect. And the reason for
that is when you increase your kvsilver contributions, essentially it's
the total cost of employing somebody, So it would it's
by and like it's worn worn by the workers anyway,
one way or the other, So it doesn't really matter.
As long as you do gradually over time, it becomes

(02:00):
a non issue. And that's how Australia has done it
in two steps right, And when they first started it,
they increase it gradually over time, and they're doing it
again at the moment and they're going up to twelve
and a half percent. No tax cuts in sight.

Speaker 2 (02:11):
If you do it, do you have to accept that
you will be increasing the super contribution in lieu of
pay rise.

Speaker 1 (02:19):
Absolutely, that is exactly how it works in Australia. So
the incidents, what we talk about as an economist, is
the incidents who bears the cost of that increase in contribution?
By and large, it's borne by the workers, because from
our employer's perspective, essentially the cost of employing you is
the cost of employing you. Whether they're paid into your
bank account or into your accuse of account is much

(02:40):
the same.

Speaker 2 (02:41):
Does it do anything? Will it actually create wage inflation?
Will it make us a higher wage country?

Speaker 3 (02:49):
Not?

Speaker 1 (02:49):
Really, that's not really how increase wages. Like, if you
want to have increased wages, we just need to have
businesses that are far more efficient and far more profitable,
and some of that will be shared with workers, and
that's having workers who are well trained, business places and
workplaces that are efficient and all those other bits and pieces.
So no easy wins. You can't enforce high wage increases

(03:09):
that are sustainable.

Speaker 2 (03:10):
And it's ten percent what we should be roughly aiming at.

Speaker 1 (03:13):
Roughly, I mean Australia's gone for twelve and a half,
so that's probably the benchmark. That's probably where you get
about forty to fifty percent of qwis that will have
enough savings in retirement to not need New Zeon Super.
They'll be independent, now, Shamu.

Speaker 2 (03:26):
When Nikola Willis was talking about it, she was talking
about it as in some way replacing, Like she said,
because we have got the pension, you can't have the
pair of them. You have to take one away for
the other. Would you advocate that? Would you say, yet
you phase out the pension, go for the super instead
over time?

Speaker 1 (03:46):
So over time so because with the QUI server, if
it's high enough that you'll save enough by retirement, then
you can start to pull back on New Zealand Super
as being means tested, But not until you have a
qserver system that's actually giving people enough money to retire comfortably.
At the moment, it's not enough. So our contribution rates

(04:06):
are still far too low to let people retire comfortably.
So I don't think we can even continance reforming new
ze On super until we have made KII sever much stronger.

Speaker 2 (04:16):
Yes, stick heads away probably. Hey, thank you very much,
Shamo appreciate it. Schamovil Yakap Simplicity, chief economist.

Speaker 1 (04:21):
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