OnPoint by Keith Ng

There's some pretty heated debate over at No Right Turn and Kiwiblog about the nature of KiwiSaver, and unfortunately, I think both DPF and I/S are very far off the mark.

It's taken the weekend to sink in, but the simple and obvious truth is that the government can't make your pay packet magically increase by 4%. Cullen has mentioned the "downward pressure on wages" that the compulsory employer contributions will have, but little has been made of how much of a downer this really is. The scheme is still as sensible as it was last week, it's just lost most of its "woohoo - free money" charm.

It will certainly push wages down.

Employers are going to take KiwiSaver contributions into account when setting wages and in considering wage increases. The compulsory contributions will be absorbed into wage levels in the medium-term (~3-5 years). However, it's not going to be the full 4%, because there's also the tax credit to consider.

Wages are still going to increase, but just at a slower rate until the changes are absorbed. Once they are, they will have no effect on wage levels (unless the compulsory contribution levels or tax credits are adjusted).

Your real wage (your nominal wage + what you get back from your employer via KiwiSaver) will be unaffected.

It won't hit the poor.

Employers are only justified in pushing down wages in proportion to the amount they pay into KiwiSaver, minus the tax credit that they receive. It means that low-income earners will be less affected by the downward pressure on wages.

For example, for a worker who earns $30,000 p.a. and puts $1,200 into KiwiSaver, an employer is only going to have to match $108/year - the rest is covered by the government. The downward pressure on wages is directly related to the cost to employers, therefore, the impact on low-income earners is minimal.

(For someone on $60,000 p.a., the employer will have to pay $915. See spreadsheet, under "Employer Contribution (Net)" for more details.)

The rich will benefit more, but not the way you'd expect.

As the first part addresses, the dirty little secret behind KiwiSaver is that the employer contribution is an illusion. The government is making the employer make you pay. And the government contribution is capped (with an exception that I'll explain) at $2080 per year. What this means is that as the personal contribution increases, the employer contribution also increases - but this is meaningless, as the employer has already recovered this amount through reducing your wages! The government contribution stays fixed and all the increase is - directly or through your employer - coming from you. Ha, you've just been tricked into saving for your retirement with your own money, sucker!

What this means is that the extra employer contribution is not really a "benefit". It's just your own contribution, slightly recycled.

But ah - KiwiSaver has *another* dirty little secret. By making part of your wage go to your employer as a compulsory contribution, it never becomes part of your pay packet, and so you don't get taxed on it. It's practically a tax cut. This is the only income-dependent part of the government contribution - i.e. The bigger your pay packet, the more you get. So if you include the portion they don't have to pay in taxes, then it does benefit the rich, but it's not huge, either.

Here's a graph. Click on it to see a bigger version.

Note that the personal contribution is the biggest, but the employer contribution is actually very small do begin with, as most of the personal contribution is off-set by the government contribution. This grows pretty slowly (the bit that increases is the superannuation tax exemption that businesses get, which the government counts as part of their contribution), while the tax avoided grows. And yes, it gets bigger as you go up in income.

(Apologies for using a bar graph. Google Spreadsheet can't do area graphs, and I can't figure out how to make OpenOffice spit graphs out as JPEGs. Google sure makes them look pretty, though. Okay, maybe not so pretty when they're scaled down. Hideous, in fact.)

Where both DPF and I/S got it wrong is that they treat employer contributions as if it would have no impact on wage levels - i.e. That employer would just agree to pay this extra 4% out of their own pockets forever. They won't. And so, it won't have either the redistributive effects that I/S hopes for, nor the outrageous benefits that DPF implies. Instead, the employer contributions need to be written out of the equation - it's a fiscally neutral part of the scheme aimed at changing behaviours (i.e. Holding your money to ransom so you'll save). The only real place where the government is pumping in money is for tax credits, as well as the tax avoidance mentioned above. With these in place, how does it compare? Here's one I prepared earlier.

Those on $30,000 p.a. benefit the most from the $2080 tax credit for KiwiSaver. Since the $2080 tax credit is capped and the tax benefits on the savings is small, it gets overtaken by tax cuts around the $70,000 p.a. mark. But the tax cuts are to the thresholds, not the rates, which effectively caps them at $4,800, so at $150,000 p.a. Income KiwiSaver takes off again. But keep in mind that they're still only getting $2080 from the government, they're only benefiting because they're not paying tax on the employer half of their savings.

Not that a direct comparison of the two has any validity, unless National provides an updated costing, and then you have to consider inflation, inflation, interest rates, exchange rates and inflation. But there you go. If you want to compare the two, head-to-head, without comparable costings, and then ignore the macroeconomic consequences and focus exclusively on nominal return, then here you go.

Hell has frozen over: Cullen has sold a macroeconomic jab in the arm as a political lollipop.

It's not really about your retirement. It's about the more pressing issues that the New Zealand economy faces in the medium-term. It's about getting a grip on the current account deficit, it's about reducing inflationary pressures; ultimately, it's about making damn sure that you have less money in your pocket. That's the terribly unsexy version, anyway.

In the short-term, it's about reducing your disposable income. This will reduce demand on imports and reduce inflationary pressures, which will take the edge off the Kiwi dollar.

In the medium-term, it's about building up capital. Having more money available for investment in New Zealand will reduce our dependence on overseas investment, which will reduce the amount of profit going overseas (i.e. reduce our current account deficit).

In the long-term, there's the aging population and the comparatively smaller workforce, etc., and we'll need to dip into this fund in the future.

Of course, it's not as if these are unrelated issues. It all comes back to the fact that New Zealanders don't save enough, and all the problems we currently face are derived from the debt-financed non-productive consumption spree. (Which includes, of course, your houses; your cursed, cursed houses.)

It's a pretty drastic measure - getting people to not spend their money by giving them nearly twice as much as return - but I guess the problem and the expected returns warrant it. Besides, the Government contribution to this has an added bonus, in that it allows a part of the surplus to "used up" without it adding to inflationary pressures.

Here, of course, we get to the perpetual whine that the Government should return its surplus in the form of tax cuts. Conveniently, for all the reasons that saving is good, tax cuts are bad.

In the short-term, they'll increased import demands and inflationary pressures, which will drive up the dollar and interest rates, which will in turn drive up the dollar again.

In the medium-term, they'll reduce the capital available in New Zealand, exacerbate the current account deficit and make New Zealand more vulnerable to international financial shocks.

In the long-term, it'll mean that the Government is in a poorer position to deal with the aging population.

Of course, this is assuming that most of the tax cuts will be spent, not saved. For those who wish to challenge this assumption on the Public Address System, I just have to ask: How many people who receive tax cuts will put it into their savings, and how much of it will they put?

But back to the surplus, it's pretty straightforward. To reduce inflation, the interest rate and the exchange rate (which are all directly connected), the government needs to take more money out of the economy than it puts in (i.e. run a contractionary fiscal policy). Taking more money than its putting back would imply that it has money left over. AKA: Surplus. Reducing the surplus, either by increasing government spending or having tax cuts, will put more money back into the economy and increase the inflationary pressures.

Please, leave the goddamn surplus alone. It's not just idle money. We need it.

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One point on which I agree with Key is that it does suck for employers. They get a 3% tax cut, but then gets whacked with what amounts to a 4% payroll tax, but gets it tax-free (which is a 30% credit) and with an additional fixed subsidy. They'll come out ahead after all this, but it's hardly generous, and it's a bit insulting after they thought they were going to get a real tax cut.

And then there's no reason why businesses should be carrying the burden for enticing taxpayers to save for their retirement in the first place, so, double-suck for them.

(Pet peeve aimed at National comms: You can't "squander" a surplus, and you can't "waste" a surplus, because if you did, it wouldn't be there, and it wouldn't be a fucking surplus. The whole point of a surplus is that they still have it.)

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On another front, the Government is backing my loathing of houses (well, the insane property market, at any rate) by specifically targeting property speculators for auditing. At some point, they're just going to have to shoot them.

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Kudos to Mr Farrar, for his reportage from the Budget lock-up. Speedy and informative, he deserves a pat on the back.

The popular conception of Indian trains being filled to the brim, with passengers and their goats clinging onto the roof, has been fiction for a long time. This was good, because after five days in Delhi, I was on my way to Chennai (formerly Madras), in the southernmost state of India. It was a 34 hour train ride - one of the longest direct routes available, and being inside the carriage was a plus.

The modern Indian railway system is a massive network of rail, IT and bureaucracy which dwarfs many governments. Its reach across the subcontinent is as wide as its bureaucratic insanity is thick.

The stations themselves are a mad rush of inactivity. At major stations, from dusk till dawn till dusk again, thousands of passengers sit waiting for their ridiculously late trains. They chat, sleep and picnic on the station floor. Life continues to stroll along, just very slowly, and on the same spot. The occasional porter, dressed in bright red, darts through the crowd.

The murky combination of smells and sounds blur into a unique blend. It reminds of me airline food.

Amidst the noisy, static crowd, another crowd throw themselves at the bureaucracy. Prospective passengers line up for a form, then proceed on a scavenger hunt across the station, searching through the dozens of boards to make a shortlist of trains, then log on one of the handfuls of computer terminals to cross-reference the shortlist with train availabilities, then fill out the form and line back up again. It works. The trains pull in, after traveling a thousand kilometres, and they have all the reservations by name.

Near the reservation window sits the concession board - an epic work, embodying India's pains, hopes and political realities.

The deaf, blind, mute, and orthopaedically handicapped get 75% off, so do the mentally retarded, cancer patients and non-infectious lepers (presumably, infectious lepers do not get any discounts). Recipients of the President's Police Medal for Gallantry get 75% off, but the recipient of the President's Police Medal for Distinguished Service only receive 30%. War widows, war widows of the Indian Peacekeeping Force in Sri Lanka and war widows of Operation Vijay against Pakistan all have their own concession categories, respectively receiving 75%, 75% and 75% discounts.

At big stations, the list covers the hall like a memorial wall. At smaller stations, they have long since given up on updating the list. With each budget, new voter segments and powerful unions are added. This year, it's amputees and farmers.

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On the train, nothing happens. But a lot of nothing, and all the time. There's nowhere to go, so you just sit in your bunk and sleep, and then sleep some more. Of course, you can't do this on an empty stomach. Snack sellers travel up and down the trains at stations, offering samosas and other fried bits, while beverage-mongers stay through the whole journey, at all hours, with their mesmerising chant: "Chai, chai, coffee chai; chai coffee, chai coffee, chai coffee; chai, chai, coffee-chai...".

Three meals a day are offered for purchase. Chilly omelet for breakfast, veg/chicken biriyani for lunch and dinner, with curry in little plastic pouches. After the meal, the tinfoil boxes go, en mass, out the side of the carriage. The snoring slowly returns, the chai-chant ebbs in and out, and the train rumbles on...

"Excuse me, excuse me," they said apologetically but insistently as they shuffled towards their new seats. It was only a six hour flight from Hong Kong to Delhi, but damnit, their new baby was going to get the best seat possible.

As the young couple sat down in the spacious emergency row, the stewardess explained the grave responsibility to them.

"Excuse me, excuse me," they said, with a much heavier dose of the apologetic, as they shuffled back to their old seats.

Ah, middle-class neurosis - India has truly joined the modern world.

You wouldn't know it, though, landing in the dilapidated airport, decked out in moldy 70s drab. A dozen armed guards watch over a handful of kiosks and a broken ATM. It was two in the morning. Outside, taxi drivers and passengers swarmed grudgingly under dim streetlights and a concrete sky.

As I wrote before, there was the usual hoo-har, but by the next morning I was in the diplomatic quarter and Delhi really did feel like a capital city.

On the satellite map, you can see an intricate geometric pattern across the central city, with hexagonal main roads radiating out from the India Gate. On the ground, like other planned capitals, the streets are wide, open, going in very straight lines to nowhere fun. But it was India, after all, and real street life overran those neat SimCity lanes. At the north of the grid was the main shopping district, Connaught Place, laid out like Dante's Inferno, in concentric circles of chaos.

On the very outside was the Stygian circle - a blazing ring of traffic as dense as any in India and twice as fast. Which isn't particularly fast, but an ingenious system of traffic lights and tributary roads manage to keep traffic constantly accelerating until they reach escape velocity, while corralling shoppers back towards the centre.

The next circle was the smelly one. Here, stray dogs, light industry and very public public facilities stream together, only coming up for air when the circle intersects one of the main roads. Internet cafes, travel agents and restaurants have sprung up among the workshops and hardware stores. Pedestrians skirt around rubbish tips pooled with piss while cars skirt around the pedestrians; motorcycles squeeze between them, until the tightly packed flow is released into the crossroads.

Breaking through into the wide open centre, the visitor arrives at the inner circle - bright and shiny shops selling RBK (it's Reebok, but Marketing has decided that they're too cool for vowels now) sneakers, books, jewelery and other shiny things, along with lattes and fried chicken.

But, as this satellite image shows, at the core of Connaught Place, beneath the surface, lies Delhi's best-kept secret: A modern subway system that nobody uses.

The best way to get around Delhi - and indeed, all of India - is still the trusty tuktuk, known in India as the autorickshaw. Riding in anything else is just not the same. In an auto, you get the sounds of India at full volume, the smells, the passing cars and fellow auto-riders just an arm's length away, the constant "Oh fuck I'm going to die" adrenaline buzzes... it's the only way to see India, really.

The vehicle itself is built on top of a moped chassis, with a marginally beefed up engine and a body that consists of a back panel and two side rods, as thick as a thumb, that holds up a canvas roof. It's essentially a scooter with a big bum. It's not designed for battling SUVs, but then again, if it rolls, you just climb out and unroll it.

Drivers in their nondescript brown uniforms are part of the national consciousness - they (well, better-looking versions of them) feature on TV, movies and even music videos. Courageous and full of promise, the auto-rickshaw driver is a perfect everyman that comes with the perfect vehicle for a comedy-adventure.

In reality, they're semi-skilled workers in a developing country. Many barely have enough cash for the next tank of gas, others sleep and eat in their vehicles. In more touristy places, though, our poor bargaining skills fund pimped-up auto-funksters, complete with obnoxiously loud sound systems and epilepsy-inducing disco lights.

They might lack the legendary navigational skills of their London counterparts, but they make up for it with their lightning reflexes, 360 degree vision and complete contempt for death. Death can kiss their asses.

Driving on the wrong side of the road? Who cares? Driving on a footpath? Not a problem! Pushing - literally pushing - pedestrians out of the way? They don't mind.

Sure, the drivers never understand what you're saying, but pretend that they do so you'll get in; they don't know any street names and they've never seen a map of their city before; and yeah, even if they know exactly where you want to go, they'll still need to stop to take a leak, stop to fill up the tank, stop to buy some lollies, stop to ask for directions...

Okay, fine - they're terribly unprofessional and couldn't navigate their urine into a urinal. But they are the workhorse of India, the marginally honest folks who keep the country running. They don't give a shit about airbags, about diesel fumes, about oncoming traffic.

They can't afford our middle-class neuroses. So they don't wear seatbelts - and just don't care.

We apologise for the outage in bloggage. Normal services will resume soon.

My travel writing will be posted here, in serial form. The format (and timing) is a conscious choice of quality over immediacy, but since it's light entertainment, I hope you won't mind.

In the meantime, here's an interesting project from BarCamp Bangalore, as well as the latest installments of Newtown Ghetto Anger.

PortableApps is a project to make a host of open source applications usable straight from a USB drive, which I'm finding quite nifty after four months without a computer (sob).

Of the range of software available, the most useful would have to be Firefox Portable. It means that you can run Firefox at internet cafes etc. where only IE is available, but better still, you can keep all your settings and bookmarks wherever you go, and because everything is run from the USB drive, you don't need to install anything and you don't leave any personal information behind.

It's supposed to work on any version of Windows, though I had trouble getting it to run on a Pentium running Win95 on a hill in India. Nor have I tried it in a high-security setup, but otherwise, it's been working fine for me. A bit slow on the start-up, but runs fine.

Also available are the staples, like Abiword/OpenOffice, Thunderbird and instant messaging clients, as well as tools that are just handy to have handy, like a PDF reader, sound editor, grunty image editor, archive programme (rar, ace, zip, etc.), FTP and all that jazz.

All in all, it means that you can have your software and your settings wherever you go - and it all fits on a thumbdrive.

Neat, eh?

And now, for the return of NGA:

Click here for more NGA.