A Labour government would use hikes in its compulsory saving to battle inflation, rather than interest rate hikes.
Party deputy leader and finance spokesman David Parker told a business breakfast in Auckland this morning the Reserve Bank would be given a new tool: the variable savings rate (VSR).
"Instead of paying more interest on your mortgage, a similar amount of extra savings would go into your KiwiSaver," he said.
"As everyone would be enrolled in KiwiSaver, and as contributions are increased over time from 6% toward the intended total of 9% of earnings, consumption pressures will be lower."
The VSR would be included in the policy targets agreement with the Reserve Bank.
The idea is this would have a disinflationary effect but also mean lower interest rates and would also mean a lower exchange rate, he said.
"Using changes in savings rates as an alternative to changes in the official cash rate would mitigate the currency effects of higher or lower interest rates, and reduce overseas transfers on the proportion higher interest payments which currently go to overseas lenders.
"Distributional and hardship effects for the lower paid would need to be considered, but could be accommodated in the detail of how the variable rate was applied.
"This does not mean we are going soft on inflation. The crippling effect of high and volatile inflation is clear.
"No positive growth/inflation trade-off exists in the long run. On the contrary, uncertainty about the inflation outlook adversely affects decision-making by households and businesses, and lowers the potential growth rate of the economy over time. High inflation is hardest on those who lack the means to buy and leverage assets which inflate in value."
Mr Parker also recommitted his party to a capital gains tax, excepting the family home but included on businesses and farms.
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