KiwiSaver Bill

Thank you for the call. Here we are, 4½ hours into this debate, into the last stages, and only two Government members have stood up to take a call in support of this much-vaunted legislation. Mr Jones was the only Government member on the Finance and Expenditure Committee to take a call, and he did that only because he was shamed into it. He did not understand the detail of the bill, but we cannot be too tough on him. I do not think that anyone on the select committee understood the detail, because of the backroom deal that has been perpetrated on the House by Michael Cullen and Gordon Copeland. No one on the select committee was aware of it, and Mr Jones made that abundantly clear by his lack of detail. He just did not recognise the legislation; it has changed so dramatically.

Mr Copeland, in trying to justify his deal, got up and took a call to try to convince the Committee that he took his idea to the select committee and it was voted down. “Me, me, me”—he said—“I took the credit for it. Well, I didn’t initially but now I do.” That is how I recall the sequence of events. He did not tell this Committee that it was the Labour members who did not vote in support of mortgage diversion, yet he would have us believe that that is the proposition he took to the select committee. I say that it is a sad day for our democracy when a select committee can work through this issue—[Interruption] Bopper boy—he should go back to Samoa and complete his corruption apprenticeship.

Gordon Copeland: I raise a point of order, Mr Chairperson. I understand that under the old Standing Orders members could have a wide-ranging discussion on all kinds of matters when they debated the title, but that under the new Standing Orders the debate is confined to the title. The title has not yet been mentioned once by this speaker.

The CHAIRPERSON (Hon Clem Simich): It is in fact the widest debate of the Committee stage.

BRIAN CONNELL: For those who are listening, that was Mr Copeland trying to do another backroom deal. He does not even understand the Standing Orders, but, of course, we are not surprised by that.

This Government would have us believe that this legislation will change the savings habits of New Zealanders. Well, it simply will not do that. We on this side of the Chamber have made it abundantly clear why that will not happen. Mr Woolerton, in his sane moments, even nodded his agreement when we were making some of our fine points in the debate. He knows that this legislation is flawed, and significant changes will be made to it before the next election. Why will the bill not change the savings habits of New Zealanders? The reason is that it will not change their behaviours. There are simply not enough incentives built into this scheme to do that. If we want to change behaviours we have to make it worthwhile. The only way we will increase our savings record in this country is by reducing taxation so that people have more money to invest. How on earth can someone who earns $35,000, or less, be able to afford to make a significant savings contribution to this scheme? It simply will not happen.

The scheme is fundamentally flawed, and the Minister in the chair, Michael Cullen, knows it. That is why he has been acting with such indecent haste to try to turn the bill into something reasonable. It simply fails on that test, as well. There is no doubt in my mind that we will be revisiting this legislation, and Mr Cullen knows it. What is of deeper concern, from an employer’s perspective—and I bet anything one likes in this Chamber that it will happen—is that the union movement will start using this as a negotiating or bargaining chip when it comes to employers’ contributions to the scheme.

One of the things that is pretty obvious about KiwiSaver is that the Government is not confident at all about this legislation. It was not confident when it took it to the Finance and Expenditure Committee, although over the election campaign Michael Cullen tried to tell the people of New Zealand that it would be very successful. But the truth was that the Government was not confident about the scheme at all and knew that it would not work in its existing form, because it had no incentives at all for New Zealanders to change. There was no incentive for a change in behaviour by the overwhelming number of New Zealanders who do not save today. There are lots of reasons why they were not saving—mostly because New Zealanders do not earn enough and they are overtaxed. It is not because of inertia.

About the best thing one could say about KiwiSaver was that people might put in some money, receive $1,000 back, and maybe over 5 years they could pull their money out and have a first home-buyer’s grant—but the scheme was never going to work. It was a load of dormant accounts that were never going to work. Michael Cullen knew that. He knew that it would not work, but the plan was this. It was a pretty simple plan: the Government would tart the thing up and make it look a little bit better, but it would do that during the next election campaign—which could be sooner as opposed to later. But let me assume for the purposes of the debate that it will be in 2008. That was the plan. The plan might still be to do that—to extend the contribution of around $1,000—and the plan might still be to change a few areas. Michael Cullen made it clear in his remarks in his second reading speech that he was far from ruling out compulsion, and that may or may not happen. But basically, the plan was that the scheme was to be tarted up.

The only reason the changes happened—right after we had heard 71 submissions, the committee had voted unanimously against mortgage diversion, and all those things—is that this Government has its back to the wall because it stole $882,000 of taxpayers’ money to pump itself up to steal an election. And the Government has a member it is very embarrassed about. On Monday morning there was so much distance between Taito Phillip Field and the Prime Minister that he could have been on Pluto, which is not even a planet any more. That is how much distance there was.

So Michael Cullen thought that he had to do something, and Gordon Copeland’s mortgage diversion scheme was about the best he could come up with in a rushed period of time. So he agreed to it. But it did not even tally with his question and answer—he knows that. Interestingly enough, if this scheme is to be overwhelmingly successful, then it is an interesting sort of Minister of Finance who rolls it out and says: “I guess we will suck it and see.” He then went on to tell people that despite the fact that the Government collects well over $500 million currently from the contributions made by employers—specified superannuation contribution withholding tax, which employers currently pay on any matched contributions they have—the initial estimates of KiwiSaver are $35 million. So it is hardly going to be an overwhelming success. And yes, I accept that the specified superannuation contribution withholding tax contribution will be larger by 2011 and 2012—it will be up around, I think from memory, $140 million—but the reason will be that more and more schemes will convert over to be in KiwiSaver because why would people want to have their money in an existing scheme that is non - KiwiSaver-compliant if they do not receive the tax benefits? So those schemes will convert over; I have no doubt about that. But will it increase the national pool of savings?

Hon Trevor Mallard: Of course, it will.

JOHN KEY: I say to the Minister and the Labour Government that, no, it will not. In fact, not only is there no agreement between the Government and United Future over mortgage diversion—but Michael Cullen had to do something—there was no agreement between Michael Cullen and his next pretender, Trevor Mallard, who said on Agenda: “I actually kind of favour compulsion.”, and he favours State-owned enterprises being able to do anything they feel like. So that was his sort of tilt at the top job when it comes up for him in a few months’ time, which it will, and that is OK. So there will be lots of changes with KiwiSaver, but we do know that for the overwhelming bulk of New Zealanders who currently do not save in any material form, KiwiSaver will not change that.

One of the fundamental points Michael Cullen, Gordon Copeland, and the Government have missed is that the only way schemes like this one work is when employers buy into them. So we agree on that point, probably, and the change of specified superannuation contribution withholding tax helps the employees. It does nothing for the employers. If Michael Cullen and the Labour Government were really serious about giving a leg-up to young New Zealanders and those who are in the scheme, then they would have made it more attractive for employers to be in the scheme. The only way that will happen is if employees put huge pressure on their businesses, and that will not happen in an overwhelming way. So any New Zealanders who take up this scheme who are not matched by their employer now will not be matched by future employers, either.

What another shallow speech that was from John Key, the supposed finance spokesperson for National—the man who thinks that most New Zealanders have pool boys to come and clean their pools for them. Most New Zealanders do not even have pools, let alone pool boys, and most New Zealanders who do have pools do not have pool boys. But he has a pool boy, a gardener, someone who does the hedges, and God knows what else.

He is so obsessed with me that he mentioned my name 13 times in one 5-minute speech. The real issue is that National, clearly, is going towards a compulsory scheme, and if it wants compulsion, it had better answer some simple questions. Do people have to convert their savings into an annuity when they retire? Will there be an income and asset test, as Australia has, to see the compulsory savings offsetting the cost of New Zealand superannuation? Is that the hidden agenda yet again from National—to introduce an income and asset test, as Australia has, in conjunction with the compulsory superannuation scheme? Because that is the design of its particular scheme.

National members are obsessed with mortgage diversion, which is a small part of the bill, but the amazing thing is, Mr Chairperson—on your behalf, I have to tell you—they voted against a tax cut. Only about 10 or 15 minutes ago the National Party voted against a tax cut. Those members voted against the removal of specified superannuation contribution withholding tax on the first 4 percent of employer contributions to KiwiSaver. So much for the obsession with tax cuts on the part of the National Party! But, of course, those members do tell us that if we have tax cuts we will get more savings. Well, how come savings fell right the way through the 1990s when taxes were cut twice? How come it has never worked in New Zealand—that when people receive a tax cut they actually save the tax cut not spend it? It does not happen.

This bill is the most important change to retirement income provision since the institution of the New Zealand Superannuation Fund. And who did that? We did that. It is the most important change since the change in relativities of New Zealand superannuation to an affordable, long-term basis. Who did that? We did that—I did that in 1989-90. What has National ever done on retirement income provision? Firstly, it promised the unaffordable in 1975 and bankrupted the country as a consequence, and ever since then it has broken every promise it has ever made on superannuation—“no ifs, no buts, no maybes”. And on this bill, which is the most important bill on private retirement income provision in New Zealand for a generation since the third Labour Government scheme, all National members can do is quibble about the mortgage diversion scheme and worry about the effect it might have on Mr Key’s pool boy.

I always think it is pretty interesting when Labour MPs have a chip at John Key. It seems to me a defining difference between the two parties, because the truth is that we in National want people in State houses to grow up, to be successful, and to do well. That side of the House wants people who live in State houses to stay there and to be poor for their whole lives. That Minister in the chair, Michael Cullen, does not like people being rich and he does not like poor people becoming rich, so as a result we can only conclude that he likes poor people to stay poor. Although members on the Government side of the House chip away and talk about ornaments and houses, it is really nothing more than envy and a reflection of their views of where they want the people who vote for them to stay.

I feel sorry for the Finance and Expenditure Committee members who have looked over this bill, because they have worked hard. They looked at this bill, heard submissions, and had members of the public come in and consult on this bill. They reached their conclusions and decided that mortgage diversion would play no part in this bill. And then—hello!—2 weeks later, the bill was dramatically changed to the point that Labour members of the select committee have felt unable to take a call because, in fact, they were unable to recognise parts of the bill. I wonder what that says about parliamentary process. What is the point of select committees working hard on something to nut out the pitfalls and to hear the views of the public, if that work is to be ignored, and the bill comes back to the House where the Government will change it anyway?

If members look at the insertion of a mortgage diversion aspect to this, they will see that it could in fact undermine the validity of the whole scheme, because the whole point of the scheme was to be a savings scheme. By introducing the ability for people to take out large amounts of their money, the Government has made the scheme nothing more than a cheque account. In terms of the ability to withdraw money, people need be in the scheme only 5 years. If someone in his or her 20s goes into the scheme, that person can withdraw most of the money by the time he or she is 25. So much for this being a scheme to help people in their retirement—some 40 years earlier, people are being allowed to take the money out and put it into something else. That is not saving for retirement. That is not teaching people about saving, at all; it is just saying to people that money will be put into a cheque account and they can take it out for a special project.

The other thing is that the bill assumes people will get into their first homes and stay in them. Well, a lot of young homeowners go into that first home and move on to something else within the first couple of years. I do not think that owning one’s own home is the main thing that a person should do for his or her superannuation. Certainly, it is part of what Kiwis do, but this country does have a fascination with property. Retiring, and putting something aside for one’s future, is buying a rental property; it is not putting money aside into other sorts of superannuation as other countries do.

The main thing the Government has done by introducing mortgage diversion and having all sorts of other abilities for people to withdraw funds is to increase the transaction costs of running the scheme. All the default providers are pretending to be excited, but behind the scenes they are very concerned about their ability to provide a service and make any money out of it. Some of them are banking on compulsion being introduced at a later date, but that is not the reason they are interested in it; they do not want to be left behind. But if the number of transactions introduced to this scheme increases dramatically, that increases default providers’ ability to provide a scheme for Kiwis.

So I feel sorry for small-business owners. It will be very hard to work out contributions. I feel sorry for the small-business people who will have to sit down and work out a contribution that might be different every week. Then they will have to work out deductions for student loans, child support payments, PAYE, GST—it is no wonder that small-business people out there are saying that it is getting harder to do business in this country, not easier. This will add to the complexity.

Hon Trevor Mallard: I don’t believe that this member is as silly as that.

KATHERINE RICH: There is the Minister of Finance in waiting. He thinks it will be easy. That man has never run a business; he would not have the first idea of what the pressures are in running a business.

New Zealand First supports the KiwiSaver Bill, because we believe it is a genuine attempt to encourage saving in this country. Previous speakers have acknowledged that savings have fallen over a number of years, and we believe it is appropriate that the Government is taking a lead in this role. We are also happy to see that the Government has had the wisdom, through tax incentives, to make it more encouraging for business people to commit their part of the contributions and to help them in some way.

It is rather sad that National Party members are stonewalling on this issue. I believe they are doing it because of ideology. What I saw in the paper the other day about John Key was absolutely right: if the day ever came when National could take the Treasury benches—I cannot see that happening, to be quite frank—I believe Mr Key would hang on to this KiwiSaver scheme. Even more than that, I believe he would make it easier and just slam in a regime to make the scheme compulsory, because I believe that that is where his heart lies. I believe that Mr Key, having spent a lot of time in New York, having made a lot of money, and having come back to New Zealand with the express purpose of taking over the leadership of the National Party, is in no mood to muck around with voluntary schemes. I believe he is on a path to power that means he will brook no opposition, and I do not believe he would do that in a bill such as this. So I believe that in time this scheme will be compulsory—but perhaps not under the Labour Government, which I applaud for having a voluntary scheme.

We in New Zealand First also believe that if a Government does not take a lead, the generations that follow will be behind the eight ball. What I am saying is that this scheme is not something that can be an instant success tomorrow. Sadly, we have heard National members quote all sorts of sophisticated money schemes in other countries, but this scheme is an attempt to change the psyche of New Zealand to one that is savings friendly. It is about getting mothers to encourage their children to save; it is about getting children to understand that this is something they take on for life—it is not something they can just put aside. That is why what I call the enhancements are important. There is an understanding that a mortgage is to be paid at some stage. There is an understanding that from time to time, sadly, people will need to take a contribution holiday. This bill allows for that. More important, the bill accepts that the time has now come when messages from the Government are again important. I see that as being inherent in this bill and in there being a tax incentive for employers to contribute. So not only does New Zealand First support the KiwiSaver Bill, but it does so enthusiastically.

That was a fine contribution from the new leader of the “Dynamic Party”, Doug Woolerton. He looked calm, but he was quite upset that United Future seemed to want to take the credit for the mortgage diversion scheme. I am afraid that he was a bit too late.

The chairman of the Finance and Expenditure Committee, Mr Shane Jones, took a call earlier. But I am very concerned about the fact that he has already shown no confidence in this bill. In fact, he has already told the Committee that just as the sun rises in the east, so was the bill definitely to change as it went forward. He talked about a lot of fine-tuning. Well, let us talk about fine-tuning. We are quite wary of Labour’s fine-tuning. Six weeks ago, after Dr Ingram’s inquiry, the Prime Minister, the Rt Hon Helen Clark, announced that the honourable Taito Phillip Field had been cleared of a conflict of interest. Six weeks later, the fine-tuning from the Prime Minister is that the member should consider his future. The same fine-tuning applies to this Prime Minister, the Rt Hon Helen Clark, who said the Auditor-General and the Solicitor-General were wrong. The Labour Party stole the election by spending over $800,000 of taxpayers’ money, so why should the New Zealand public be convinced that they will gain under the KiwiSaver scheme?

We know the KiwiSaver scheme will not work, because of some interesting things said by Lianne Dalziel, the only Minister who has taken a call—actually, the Hon Michael Cullen has also taken a call now—on the bill. In her contribution earlier, she said the KiwiSaver Bill is not for those people who cannot afford to save. In fact, an amendment from the Green Party might have actually helped those people who cannot afford to save, by making the contribution a smaller amount—say, 2 percent. The Hon Dr Michael Cullen shakes his head. I would like the Minister of Finance to stand up and say how the Government can assist those people who cannot afford to save. The purpose of this bill is to encourage individual New Zealanders to save so that they can enjoy standards of living after retirement similar to those pre-retirement, which is quite a tall order. If a large number of New Zealanders are not able to save, or cannot afford to save, then surely the purpose of this bill cannot be fulfilled.

We have looked at some research from overseas and found that in Ireland, which has a scheme similar to this one, 92 percent of the accounts are dormant—that is, people are taking a long holiday, a long break, from contributing to the scheme. So I do not know why the Minister thinks that this scheme is the best thing under the sun. The first priority for New Zealanders who cannot afford to save is to increase their income. One of the ways to do that is to reduce the amount of tax they have to pay.

For the people in the group that can afford to save, would they be incentivised to save under this account? My good colleagues, including Katherine Rich, have repeatedly said that some people would save just the amount they can withdraw, then withdraw it to pay off their mortgage. That would not be, I think, the main objective of this bill, which is to encourage them to look beyond property investment. We all know that right now the Governor of the Reserve Bank is always warning people about the overheated property market and saying that New Zealanders should look at other types of savings. But when New Zealanders start to look at other types of savings, such as shares, they see what the Labour Government did to destroy their worth in Telecom.

I move, That the question be now put.

One of the issues I want to lay to rest is the ridiculous assertion by the Minister of Finance, who calls himself the Deputy Prime Minister, that National has a secret plan to somehow gut national superannuation. In case the Deputy Prime Minister is unaware of it, National has accepted the savings scheme, and, as he himself would say, that will actually future-proof national superannuation for about 30 or 40 years. It has a long-run future. So, along with so many other things this Government tries to do, Michael Cullen should not try to tell lies to the public of New Zealand. It is completely false, and those members are doing it all the time.

The CHAIRPERSON (Hon Clem Simich): The member will withdraw, please.

Dr WAYNE MAPP: I withdraw.

The Government has forgotten what its goal was for this whole scheme. Actually, one of the guilty parties is one of the Government’s little helpers of elves, Mr Copeland. Do members know what the Government’s goal was? It was to have a savings scheme. The Government wanted to have a savings scheme, and it has been prepared to spend $400 million of taxpayers’ money in order to have one. A lot of people would say that is a good thing. The Government will even allow people to use some of the money for a first home deposit. A lot of people would say that is a good thing. The bill went through the Finance and Expenditure Committee, and what did Mr Gordon Copeland decide to do? He decided to turn it into a spending scheme.

This Government has absolutely no idea how modern mortgages work any more. It says that people can divert their money to pay off their mortgages. A lot of mortgages have floating levels, so what would happen? A person may divert a bit of money out of the scheme, with a Government incentive, to reduce his or her mortgage. That person may then go back to the bank and essentially use the scheme as a cheque account—as my colleague Katherine Rich has said—and lift the level of the mortgage back up. So a scheme that uses a taxpayer subsidy to boost savings—on the face of it that is perhaps not a bad idea—has now, because of the Government’s foolish acceptance of Mr Copeland’s plan, been turned into some sort of general spending account. Effectively, people will be able to use a tax deduction to pay for ongoing consumption. It has gone from being a savings scheme to one of ordinary consumption, because that is how modern—

Hon Dr Michael Cullen: What tax deduction? You can’t use the employer’s contribution.

Dr WAYNE MAPP: I say to the Minister that the Government is making a contribution for the employees, as well. The truth is that that money is now accessible to people for their mortgages. It is simply ridiculous.

I have to say that what started off as being perhaps a reasonable idea has been totally distorted. It is true that people cannot use the employer’s component, but they can use their component—and there is an incentive around that, as well. So the Government, in furtherance of its manipulation of the main arrangements, will do anything to rort what was perhaps a reasonable idea and basically completely distort the whole intent of the scheme.

What was the purpose of the scheme? Let us go back to that. The purpose was savings. What was the purpose of those savings? It was retirement. What will we do now? We will use that money for normal consumption. That completely distorts the purpose of the scheme, and that is one of the reasons why National is voting against it—not to speak of the compliance issues and all of those other matters, as well.

As my colleague Mr Key has said, the scheme involves a $35 million tax deduction, but it comes at the cost of a $400 million contribution by the Government, in various forms. Where is the balance there, one would have to ask? One of the great things about tax policy should be simplicity. It should be simple to administer, it should have simple rates, and it should be easy to understand. That was achieved some years ago, particularly in the 1980s and early 1990s. This Government has progressively destroyed the simplicity of the tax system, and that is why the scheme will not work.

I move, That the question be now put.