Robert MacCulloch
Robert MacCulloch is a native of New Zealand and worked at the Reserve Bank of NZ before he travelled to the UK to complete a PhD in Economics at Oxford University.
What’s the object of KiwiSaver? To build up retirement savings of New Zealanders by giving us the opportunity to earn high returns during our working careers.
On Monday, Finance Minister Willis sabotaged that aim by announcing she would ask KiwiSaver fund providers to invest up to $500 million in Kiwibank to try making it more competitive. The finance minister doesn’t want to use government funds.
The PM doesn’t want headlines saying he’s ‘privatizing’ Kiwibank by floating it and selling shares in it on the open market. So, in a cunning plan of which comedian Rowan Atkinson’s Blackadder character would be proud, the finance minister wants to use your money, in the form of KiwiSaver funds, to better capitalize Kiwibank. Yes, it’s a dirty deal. Since when did the object of KiwiSaver become to address market-failure problems that are giving the government bad headlines, rather than earn three million KiwiSavers the best returns on their own funds? Former Finance Minister Robertson did the same. He imposed sustainability objectives on KiwiSaver default funds in 2020, preventing them from investing in fossil fuels.
Willis is pretending everything about the deal is voluntary. But its not. She has a personal vested interest: to garner favorable front page news that she’s taking on the Big Banks, as she did on Monday. KiwiSaver providers also have a vested interest: fee income from you. The finance minister is using her power over the industry to get what she wants – the government approves KiwiSaver providers and subsidizes the scheme. Kiwibank executives are on for the plan – since they get to tap into private KiwiSaver funds for capital, which pushes up their pay and status. So the dirty deal is complete. The providers will happily oblige to provide a mechanism to dump KiwiSaver funds under their management into better capitalizing Kiwibank, which will end up costing you, but not the government.
Of course, the finance minister would argue it doesn’t cost KiwiSaver account holders. But it does. For example, I hold some Westpac shares. They are up 50 per cent over the past year. NZ is where Westpac makes its highest profit margins. Why buy Westpac shares when they have oligopoly powers? Exactly for that reason.
I’d like to see the industry more competitive, but at the same time don’t want to be poor and can recoup some money that the Big Banks rip us off with their high fees and mortgage rates by getting some back through owning their shares. Why would I invest via KiwiSaver in better capitalizing Kiwibank to sink my Westpac investment?
Willis herself said yesterday she was de-banking her own bank, ANZ, aware of such conflicts. Does she own ANZ shares via KiwiSaver? Stuffing KiwiSaver money into Kiwibank to help the government make banking more competitive is a policy objective that shouldn’t be implemented using the nation’s private KiwiSaver funds. It’s risky investing in tiny Kiwibank to try making it bigger. Why put that risk onto three million KiwiSaver investors? ANZ’s market capitalization is $100 billion. How does increasing Kiwibank’s capitalization by 0.5 per cent of that number – $500 million – make a difference?
My view is that its wrong to do a back-room deal between the government and KiwiSaver providers with money not owned by either of them to get them both out of a fix. One party wants to look like its addressing competition problems. The other’s dependent on its regulator/subsidizer and wants more fee income from KiwiSaver accounts. As for the people whose money will be used to do the deal, you will either lose money on bank shares you already own – to the extent there is more bank competition – or alternatively, lose money on Kiwibank that fails to take on the Big Banks.
Air NZ’s shares, which are majority state owned, are down 70 per cent these past five years. Do you want the finance minister pumping your KiwiSaver money into government outfits to save them and her? Competition issues should be addressed on their own – for example, by criminalizing cartel behavior – and not having former PMs becoming chairmen of ANZ to protect it. Don’t mix politics with KiwiSaver. Don’t politicize it. Don’t force government-of-the-day needs on to account holders, who should be maximizing portfolio returns.
Ever since National PM Muldoon ended Sir Roger Douglas’ super savings scheme in the 1970s – which would’ve meant NZ had no savings problem today – politicians, National and Labour, can’t keep their noses out of our savings – meaning today most folks don’t have any.
This article was originally published by Down to Earth Kiwi.
