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Labour engages in schoolyard behavior

David Cunliffe and his Labour Party colleagues remind me of some of the bullies at my old high school. They would grab the forearms of weaker children and then force them to slap themselves in the face with their own hands. That is the effect of Labour’s policy of making KiwiSaver compulsory, which they announced today.

Suppose you are an employed 35-year-old with a mortgage charging 6% interest. You would be well advised to use any money you can save to repay your mortgage. That is a better way of saving for your old age than investing in a pension fund, such as KiwiSaver. No pension fund can produce an annual risk-free return of 6%.

But Mr Cunliffe won’t let you. He will force you instead to invest in KiwiSaver, despite the fact that such investments can provide a risk-free return of only 3% or thereabouts.  He will use his superior strength – that is, the government’s power to confiscate your money – to force you to slap yourself in the face (financially speaking).

Or suppose you are 25-years-old and starting out on a career in which your pay will rise sharply over the coming years. It would be foolish to save $2000 this year. That would materially damage your standard of living while you are earning only $35,000. In 15 years’ time, when you are earning maybe $150,000, you will be able to save much more at less cost to your quality of life. Any sensible person would delay saving until their income was higher, especially since consumption can be so much more enjoyable when you are young.

But no, if Mr Cunliffe becomes prime minister, he will stop you making this sensible choice. He will force you to save that $2000 right now, whether you want to or not.

This is typical Labour Party policy. First, they wrongly assume themselves to know what is best for others; then they declare that people who disagree with them will be deprived of their liberty to follow their own judgment.

Ignorance and thuggery naturally go together, not only in school bullies but in politicians. With wisdom comes an appreciation of the uncertainties and complexities of your subject. A skilled financial adviser knows that how much people should save, when they should save and in what ways they should save are complex matters, and that the right answers vary from person to person.  A skilled financial adviser wouldn’t dream of commanding everyone to save the same percentage of their incomes in the same way at all times, even if he had the power.

To do such a thing, you need to be unusually ignorant and even more arrogant.

Jamie Whyte is the ACT party leader

Comments and questions

That's the ticket Dr Whyte, get after them and don't let up. Good on you.

I've been in a similar scenario to the first example - except under a Labour led government with an interest rate north of 9%.

I am now in a position where I can save for my retirement but in my situation - the employer and employee contributions will be funded by me and I would rather self manage my own retirement savings (SMSF) rather than handing it over to someone else to do.

But Kiwisaver assumes the lowest common denominator with a one size fits all solution as Dr Whyte points out - it doesn't provide flexibility nor does it take into account my personal circumstances and risk preferences in terms of investing in things across the portfolio other than equities and cash.

If the house is considered an alternative investment for retirement, there is a question of whether that provides a risk-free return above 6% as well. If you are looking for the highest expected return with low risk, then it probably makes sense to diversify and not only invest in housing(regardless of how much leverage has been used), i.e. Kiwisaver.

Labour and Fabian Socialists are not big on free choice. They are big on BIG Government and economic coercion though.

Mr. Cunliffe won' t be able to "force" anyone about anything soon - not from the deepest backbench...