The New Zealand Institute

The New Zealand Institute proposes bold action to help many more New Zealanders get ahead

06 Apr 2005

A report released today proposes bold and creative policy solutions to help many more New Zealanders get ahead financially, and to lift New Zealand’s savings and ownership outcomes in a material way.

The report, called “Opportunity for a Lifetime: Creating an ownership society in New Zealand”, is the fourth and final report to be released by the New Zealand Institute around the theme of ‘Creating an Ownership Society’ in New Zealand. 

The New Zealand Institute’s previous three reports, released since July 2004, described the lack of assets held by many New Zealanders, the difficulties that many New Zealanders face in building wealth over their lifetimes, and the social and economic benefits that are generated by asset ownership and savings.

New Zealand Institute chief executive Dr David Skilling notes that “together, these social and economic arguments create a compelling case for action to raise the level and broaden the distribution of asset ownership by New Zealanders”.

The report released today is focused on solutions that will help many more New Zealanders to get ahead financially and also lift the national level of savings.

The report argues that deliberate policy to promote savings and asset ownership is required.  The international evidence is clear that these policies work, and the absence of such policies in New Zealand over the past decade or so is a key reason that savings and asset ownership outcomes have declined, despite a supportive economic environment. 

Dr Skilling notes that “it is very unlikely to be a coincidence that New Zealand has the most hands-off approach to asset accumulation in the Anglo world and also amongst the worst outcomes in terms of savings and household wealth”.

A significant, sustained policy commitment is required to promote asset ownership - the size of the solution needs to be aligned to the scale of the ownership challenge.  Small-scale initiatives are unlikely to be adequate.

Rather, Dr Skilling argues “the policy solution needs to help many people get ahead, not just a few, to be flexible, addressing challenges from low savings, to student loan debt and declining home ownership, and to promote a savings culture in New Zealand”.

The major recommendation in the report is the establishment of individual savings accounts for all New Zealanders - Kiwi Savings Accounts. 

These accounts will be created automatically at birth, with a series of government endowments and a system of matched savings.  Under conservative assumptions, these accounts could have balances of over $14,000 by the time of the child’s 18th birthday.  For many, this will eliminate the need for a student loan, and it will ensure that everyone starts adult life with a firm financial base.

A two percentage point across the board reduction in the personal marginal tax rate is also proposed, which will be diverted into the individual’s savings account.  And for voluntary contributions into this account of up to $1000 p.a. the government will provide a 1:1 matching contribution.  Employers and others, such as family members, will also be encouraged to make contributions.

Funds can be withdrawn from the account to finance education and the repayment of student loan debt; to finance the deposit on a first home; to finance retirement; and for transfers to the accounts of children.

This will require a major fiscal commitment to promoting asset ownership, and the report proposes that the government commit $4 billion p.a.  This is sufficient to achieve a material improvement in outcomes, benchmarks well against other spending priorities, and is consistent with the government’s fiscal projections.

The report also recommends that substantial financial education initiatives be established in conjunction with these individual accounts, and that policies in a range of areas - from housing, to student loans, to welfare - be changed so as to have more of a focus on asset ownership.

Dr Skilling notes that “these policies will have a substantial effect on broadening the distribution of asset ownership, and will also lead to a material improvement in national savings, perhaps up to 4% of GDP.  This is sufficient to have a significant impact on New Zealand’s external balance”.

New Zealand has a window of opportunity to make a significant investment in its future through the proposed policies, as a result of strong economic growth and a healthy fiscal position - and we ought to make full use of this opportunity.  The report argues that we need to act now.

The New Zealand Institute now looks forward to participating in a constructive debate around these issues, with a view to achieving policy change that leads to a material improvement in ownership outcomes.