Thursday, May 17, 2007

Budget Bites the Bullet

This was a bolder budget than anticipated by anyone, and bites the bullet on several important long-term issues for New Zealand.

Saving – Partial compulsion

My feeling for quite a long time has been that as good an idea as Kiwisaver was, it was simply too light. It was a purely optional scheme and offered a maximum $5000 subsidy for any participating individual. A useful scheme to make it easier and more attractive to save, but not really significant enough to tackle our low savings record head on.

Today’s budget testosterone injection means that Kiwisaver will sit alongside the Cullen Fund as a centerpiece of a national savings strategy, The Cullen Fund ensures that the state will be in a position to fund NZ Super over the long run, while Kiwisaver will provide the vast majority of New Zealanders with a genuine opportunity to supplement NZ Super with retirement savings of their own.

People contributing to the scheme will receive a matching government tax credit of up to $20 per week to supplement their own savings (around $1000 per year), while critically, employers are being required to contribute (1% next year rising to 4% by 2001/12), after twenty years of on the whole shunning their responsibilities in this area.

There will no doubt be much carping about this from business lobby groups, but it is fundamentally a question of whether business wants to consider itself a part of society or not. Faced with long-term economic imbalances in our economy, all sectors of society have a duty (and in fact a self-interest) in resolving the problem by building our national savings.

Cullen’s move in this area has been bold and impressive. Budgets are best when they plan for long-term prosperity and cohesion. By biting the bullet on savings, Cullen is acting to ensure that our economy is on a more stable footing for the next couple of generations.

Transport

The announcement of $500m in capital funding for rail electrification in Auckland and other major transport initiatives is also about our long term economic and social health. This spending is non-inflationary as it actually builds economic infrastructure that will raise productivity, and it targets money to exactly where it is needed – critical projects that will make Auckland in particular a more livable city.

There is of course a lot more, which I will write on soon.

6 comments:

Cheezy said...

Hi Michael, yes, please do write some more on the budget - I'm out of the loop at the moment. The only thing I've read on the Herald lately is the David Bain stuff... (personally, to all of that business I say - "Free Scott Watson!")... and poor old SirHumphrey (formally an infallible "If you say it's x then it must be y" source of information for me) appears to have banned my IP...

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