Urgent action needed over savings

Automatically enrolling all workers in KiwiSaver, raising taxes in line with inflation, and higher GST are among recommendations in the Savings Working Group's final report released today.

Automatically enrolling all workers in KiwiSaver, and higher GST are among recommendations in the Savings Working Group's final report released today.

The report says New Zealand's level of debt is too high with net foreign liabilities at 85 percent of gross domestic product (GDP) which leaves the country vulnerable.

"Sudden events over which we have no control could cause a dramatic and damaging fall to the economy. In the absence of that we simply face a continuing deterioration in the economy and living standards," the group said.

Urgent action was needed to improve savings to reduce that vulnerability and help economic growth. Savings needed to increase 2 percent to 3 percent of GDP or $3 billion to $5 billion a year.

The report makes over 30 main recommendations.

On KiwiSaver it said while the scheme should remain voluntary all workers over 16 should be automatically enrolled - the current start age was 18 and only new employees were signed up automatically.

Another change would be to spread the $1000 kick start payment over five years and make it dependent on ongoing contributions. The report said the default contribution rate should be set at 4 percent with workers able to opt to reduce it to 2 percent.

The report recommended the NZ Super Fund be continued and suggested a special social security tax to fund it which would be offset against ordinary income tax.

The group supported moves towards higher GST rather than income tax.

The report gave the Government a serve saying it was spending at an unsustainable level and running large deficits, borrowing $300 million a week.

"Looking ahead over the next 20 years or so the Government will face increasing costs from the effects of an ageing population."

Increasing taxes and reducing spending were unattractive options but if the Government made significant inroads in improving performance and productivity they may not be necessary.

"A no change approach to government policy is not viable," the report said and warned a repeat of the unsustainable boom problems must be avoided.

"The saving problem has developed over a long period and it is unreasonable to expect it to be solved overnight. But it is serious and requires urgent attention."