Opinion: Jens Meder details 10 reasons why a compulsory, tax-based savings system would boost wealth

By Jens Meder

While a capital gains tax is an sound and fair extension of our tax system, it is too limited to have any meaningful impact on the one big thing we sorely need - more wealth creation.

We need serious wealth creation to tackle debt reduction and to invest in infrastructure and productivity.

But to create more wealth, we have to save.

This is because wealth creation without someone's voluntatry or enforced savings at the expense of hand-to-mouth consumption is just not possible.

The modern reality is that the combination of welfare redistributions, along with persuasive advertising to 'consume more', there is little incentive to save.

We clearly need something simple, direct, fair and universal, or it is never going to happen.

I propose that the existing NZ Superannuation system be converted into a national, compulsory savings scheme, with individual 'Personal Accounts', and that compulsory contributions are made via the tax system.

These would be the benefits:

1. Because it would cover everybody, no matter what their spending habits, it will be equal and fair. Because everyone is 'in', it will generate seriously large volumes of savings.

2. There will be no savings subsidies as we have with KiwiSaver. Subsidies result in lower saving nationally, in times of budget deficits, when the  money for them has to be borrowed. At surplus times they would raise the national savings rate to the personal advantage of those receiving them. Subsidies disadvantage goverments and taxpayers, and are  unfair to non-participating lower income earners who with their taxes subsidise participating higher income earning KiwiSavers.

3. Personal Accounts are a fairer way to create wealth. They can be used to fund a first-home purchase, and they can become part of your estate.

4. Collecting the [compulsory] contributions through the tax system, and investing them 'in bulk' through the NZSF would result in minimum operating costs, and no opportunity for fund managers to churn-and-burn. Everyone would benefit from day one.

5. Because of the huge diversity of investments managed professionally and shared by each Personal Account, this is the safest arrangement and avoids dodgy 'consumption'-type investment.

6. The NZSF can afford up to a point, to invest in lower interest, needed infrastructure construction bonds, creating jobs and taxable income - and their eventual repayment by taxes-, rates-, and user payers will be to our own NZ Super cash flow, not to some foreign or domestic interest group.

7. Because a substantial proportion of NZSF assets need never be sold on the open market, it could guarantee NZ ownership of nationally sensitive assets - and be a welcome contributor of new capital to SOEs (State Owned Enterprises).

8. Personal Accounts would deliver noticeable deficit relief from their first year of introduction. When its owner retires NZ Super releases the fund to be consumed - in turn avoiding the general income tax being needed for retirement support.

9. Means testing of NZ Super will not then be required, as the Personal Accounts of higher income earners will finance more of their own NZ Super - and all of it eventually - the  bigger  their Personal Accounts. (It is recognised that this probably won't cover everyone and continuing public provision may be needed to suppliment the incomes of very low earners.)

10. Annual Personal Account account reports would be a very effective educational tool encouraging a wider savings culture in NZ.