Now is the Time

With both Labour and New Zealand First now talking about increasing the minimum wage to 12 dollars per hour it is an excellent time to reopen the debate about introducing a compulsory savings scheme.

The argument in favour of increasing the minimum wage is based on the idea that higher wages will force companies to invest in more labour saving technology that will increase productivty. New Zealand wages over the last few years have increased slightly but this rise has been cancelled out by rising fuel and property prices. The reason why the debate has currently been gaining ground is because of high levels of migration to Australia, which is managing to maintain a strong economy despite high minimum wage levels.

While a higher minimum wage increases productivity it could also lead to significant problems with inflation and trade imbalances. Giving workers more money in the hand won't do much for the national economy if the money is spend on imports and property. After all, wages have increased significantly over the last few years but this has only resulted in a further widening of the gap between wages and property prices.

If the government increases the minimum wage to 12 dollars per hour it should make workers pay some of this increase into a compulsory savings scheme. This would help keep inflation down and allow the government to lower interest rates and thus help local businesses expand. Furthermore, New Zealand would increase its levels of overseas investment and subsequetly benefit from higher growth in Asian markets.

New Zealanders are notoriously poor savers and this is made worse by easy access to consumer credit. Also, lower income workers simpy won't save anything unless the minimum wage is increased and they are forced to contribute to a compulsory savings scheme. In our increasingly decadent consumer society a national commitment to saving may also have a positive impact on our social values and attitudes.

Critics of compulsory savings schemes quibble over minor problems with such schemes overseas. Certainly there is no such thing as a perfect scheme but there are many proven shcemes from countries such as Singapre and Australia. The key point is that the benefits of compulsory saving outweigh the disadvantages, especially for low and middle income earners. High income earners with substantial investments are a relatively small proportion of the population and schemes can be modified to allow them to opt out.

Pragmatic countries like Singapore simply wouldn't introduce compulsory savings schemes if they didn't make sense.