Labour proposes a cut in everyone’s after tax income

David Parker has announced:

Introduce a new tool – a variable savings rate or VSR – allowing the Bank to vary KiwiSaver savings rates (which would be universal under Labour) as an alternative to raising the OCR to take the heat out of the economy. This VSR would mean Kiwis would pay money to their retirement savings instead of higher mortgage payments to overseas banks.

Something that people should be aware of is that only a relatively small proportion of households or earners have a mortgage. While a VSR will impact every single person who earns money, by lowering their take home pay to reduce inflation.

What this means is that the Reserve Bank could lift the employee contribution rate to KiwiSaver from 3% to 4.5% (it will be compulsory). If you’re earning $40,000 a year then your take home pay will drop by $600 a year. The biggest losers in this policy are likely to be low and middle income earners who don’t currently have a mortgage. They will face a reduction in their after tax income.

This doesn’t mean the policy is a bad one, just that it creates both winners and losers – and the losers are low to middle income earners without a mortgage.