• rmacculloch

Labour has attracted a flurry of angry headlines over its just-revealed plans to charge GST on fees paid on KiwiSaver accounts, which could net the government millions a year in additional revenue. Associate Finance Minister Megan Woods told Newstalk ZB's Mike Hosking Breakfast the current legal situation relating to GST on Kiwi Saver fees is a mess that needs to be addressed ... "This is about correcting an anomaly that really has allowed some .. very large managed funds to get away with [paying no GST on fees]".

In this comedy that has become Kiwi economic policy, National couldn't refrain from piling in to take advantage of this opportunity to position the party's brand as being one of "low taxation". According to National Party Leader Chris Luxon, National has started a petition on its website to stop the "KiwiSaver tax". Luxon told Radio NZ that the party would not leave the GST levy on KiwiSaver fees in place if they came into Government. Well of course he wouldn't since it also means more money for National's banking mates.

So what's a good policy on Kiwi Saver that avoids the trouble that has been stirred up by Labour's plans and the shallow response of National? Kiwi Saver fees should be close to zero - yes zero - and the appalling managed funds that have sought to exploit Kiwis by extracting fee income driven out. Research has proved that few managed funds beat the market over long periods of time (i.e., earn "alpha") and, to the extent they do, the beneficiaries are the fund owners & managers, not the savers & investors. After expenses, managed funds yield lower-than-market returns.

Yes, those of us whose savings are in Kiwi Saver should simply only be given a choice of low cost diversified index funds in which to invest. If you want to pick winners or have others try for you, go do it outside the subsidized Kiwi Saver system. With this solution, Kiwis would be able to save more, get better returns and have no money taken away from their Kiwi Saver accounts due to service fees. Furthermore, this GST controversy would disappear.

Instead, Labour's policy has made the scandal of high Kiwi Saver fees worse, whilst National has highlighted how it has little interest in designing a GST / tax system based on principles whilst simultaneously exposing its dubious links with big financial businesses by lobbying for them to be given tax advantages.


Just over a year ago RBNZ Governor Orr was interviewed by Bloomberg Television & said:

"Inflation is a very different beast today than it was in the 1970s, giving central banks the confidence to look through a short-term spike in prices .. The fear of the 70s, the 80s, stagflation, it is such a different world . There is a single global price for so many of the raw materials, the intermediate inputs and the final consumer goods. We google that, we are prepared to wait. We don't go to the shop, we have it imported."

Central banks today are therefore "prepared to wait longer because they're more confident that we have stable inflation expectations, we have a much more flexible set of pricing, we have less of that generalized inflation," he said.

So how well has this far-reaching proclamation about the nature of macroeconomics, of globalization, of price setting behavior, of how inflation now is a different "beast" to the 70s, of how the "fear of stagflation" is a world away from us, not just for NZ, but for all, made such a short while ago, stood the test of time?

Golly, gee whiz. Practically the entire world is awash with headlines like the following from the World Bank to the Hindu in India to The Financial Times in London to the New York Times and more:

Stagflation Fears Surge and ‘Sentiment Is Dire’ in Bank of America Survey (Bloomberg)

Explained | How are fears of stagflation impacting markets? (The Hindu)

What Does Stagflation Mean for the Global Economy? (World Bank Podcast)

Stagflation looms in UK as economic growth grinds to a halt "The UK economic recovery stalled in February & March as inflation surged to its highest level in 30 years, in the worst combination of surging prices & zero growth since the 1970s". (Financial Times)

Bernanke’s Economic Warning"Bernanke, the former Federal Reserve chair who headed the central bank during the 2008 financial crisis, warns that the nation is headed for a situation, much like the 1970s, where Americans were losing their jobs but still facing higher prices at the grocery store and at the pump" (The New York Times)

Say no more.




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Robert MacCulloch