VSR vs OCR

The Herald reports:

National’s Associate Finance Minister Steven Joyce said in May that the VSR wouldn’t be very effective. His rough calculations showed KiwiSaver contribution rates would have to rise six percentage points – say from 9 to 15 per cent – to have the same effect as a one percentage point rise in the OCR. …

However, Labour’s finance spokesman David Parker says he estimates that KiwiSaver contributions would have to rise just two percentage points to equal a one percentage point rise in the OCR.

This comes close to an outright lie by Parker.

A change to the KiwiSaver contribution rate will impact around $600 million a year. By contrast the OCR affects around $330 billion of lending. There is not an economist alive I reckon who would agree with Parker.

Again I remind people Labour deliberately declined the offer of a Treasury secondee who could professionally assess stuff like this.

Here’s what the Westpac Bank Chief Economist said:

However, we suspect that the VSR would not be particularly powerful. Our back-of-the-envelope calculations suggest that a one percentage-point hike in the VSR would reduce household consumption by just 0.2% of GDP. And in terms of the impact on inflation, a one percentage-point hike in the VSR would be equivalent to an OCR hike of between 10bp and 15bp.

David Parker is claiming an impact three to five times greater than Westpac has calculated. This is not a minor difference. This is a 300% to 500% difference. And this is not a complex calculation. The amount of money paid into KiwiSaver and generally on loan from banks is a known quantity.

I do not believe Parker’s figures are made in good faith. I bet you he can not produce a shred of a calculation to back them up. It is a con.