Prime Minister on NZ Superannuation
In the House last week the PM suggested we didn’t need to worry about NZ Super because it is only costing us less than 5% of GDP, compared with over 9% for the OECD average now. He added that on current trends in NZ it would only rise to 8% of GDP by 2060.
Well, that depends on whether all is well in the OECD countries that are at or above these levels. France, Greece, Italy, Portugal, Spain, for example, are all well above the OECD average already. In a word association game, the words “fiscal and debt crisis” would fit pretty well with this list of countries. And also “grinding recession”. The PM is setting the bar way too low.
From Where do Pensions get Paid?
Not from GDP. For largely pay-as-you-go systems, pension costs are a large component of government spending. For that list of countries, pension payments range from 23-32% of government spending (OECD data from 2011). That sort of spending on pensions contributes to the surge in debt levels, squeezes out a lot of other worthy spending, and kills any chance of lower taxes. Do we really want to go there?
How are those Countries Responding?
It’s been a mad scramble of panic and desperation, in the context of grinding recession and, in some cases, depression level collapses in output. The ages of eligibility are going up; where there are pension contributions those are being increased; and indexation is shifting from a wage to inflation basis. It’s not wise to kick the can down the road.
The Outlook in NZ
In 2012 NZ Super was about 10.3% of government spending, and this year 12%. Treasury’s long term fiscal projections referred to by the PM show that increasing to 15% by 2030. And this is assuming the economy can deliver 1.6%pa real wage growth. As discovered in Europe, if something goes wrong debt levels will spiral out of control.
Or in Dollar Terms
NZ Super costs in 2014 were $11 billion. How much extra would that have been if not for earlier far-sighted political decisions to lift the age of eligibility from 60 to 65? The answer is another $4 billion a year. So what programmes would we have had to cut to fund that, or what taxes increased? Would those who opposed the last increase in the age of eligibility, from 60 to 65, now argue the case for putting it back to 60?
We didn’t think so.
Extra Costs Coming Down the Line
NZ Super costs will be increasing by about $700 million every year through the rest of this decade, and by about $1.5 billion by the second half of the 2020s. By 2030 we will be spending around $30 billion a year on NZ Super. So which bunch of taxpayers are going to be funding this extra spending every year, or which spending programmes will be cut, or which taxes increased? No wonder it is hard to balance the budget – that’s quite a headwind.
NZ Super Sustainability can Easily be Achieved
It’s true that NZ is in a far better position than many OECD countries. But many of them are a mess. If we make gradual changes now we can keep what is a simple and effective pension scheme, while making it fairer across generations. Time to get started.
This resistance to making continual incremental changes to NZ Super is setting up an intergenerational battle. Younger generations, with student debt, unaffordable housing, and the threat of rising taxes to pay for all this, have every reason to feel aggrieved.
And We Live Longer
Life expectancy is rising by a year every decade. It should be a no brainer – we all know intuitively that it makes sense to align the age of eligibility with life expectancy.
But That’s not All
The demographic shock is not just due to rising life expectancy, it is also due to reduced fertility. There are fewer younger people. We are moving from a period in the 1970s where there were seven working age people for every one superannuant, to a situation in 2060 with only two working age people for every one superannuant.
Behavioural Changes Matter Too
Some interesting US data shows behavioural changes adding half a year to life expectancy since 1960: +1.3 years due to less smoking, +0.4 years due to lower vehicle accidents because of better cars and roads, partly offset by rising obesity (minus one year) and drug overdoses (-0.3 years).
Winston on the Budget
He writes: “There is a proverb that the wise man saves for the future but the foolish man spends whatever he gets. This has happened with the foolish Budget that has cut the KiwiSaver kick-start grant of $1000 and failed to resume payments to the Cullen superannuation fund.” A++ for rhetoric, but one problem...
Borrowing isn’t Saving
The KiwiSaver kick start wasn’t saving, it was borrowing by government to give to those who registered for Kiwisaver. And 38% of them just took the $1,000, without any follow-up saving. The other 62 per cent who did save were mostly those who would have saved anyway. That’s right, KiwiSaver kick starts were probably adding more to government debt than to citizens’ saving.
And the Cullen Fund
That’s not saving either, unless the government has a surplus to use. Otherwise it is borrowing to invest in debt and equity markets. Given that the opposition parties have opposed every savings measure since 2009, and dreamed up numerous spending measures, they can’t really be taken seriously on savings issues.
Norman Caught Picking Cherries
Last week Russell Norman tweeted a chart of the NZ trade-weighted index measure of the NZ currency, suggesting it was “an ongoing problem for NZ”. The chart was from 2009 to date, showing a general upward trend for the NZ dollar. He cherry picked the year after the GFC, when dollar dropped 25 per cent (it didn’t recover its pre GFC level until 2013). This from the guy who imperiously lectures us all about the global temperature record. Just as well the Greens have changed their co-Leader.
And Another Thing
A stronger currency represents an increase in household incomes, a boost to kiwi spending power, an increase in real wages. Successful countries with solid growth and low inflation tend to have currencies that drift higher over time.
A Free Press Reader Writes
Why can’t people renewing their passports in the next year benefit from 10 year passports now? How hard is it to change the expiry date line of a passport, make the associated changes in the computer system and set a new pricelist?
You expect small businesses around NZ to do this all the time whenever you fiddle with taxes, charges and levies.
We Rate the Budget Speeches
Free Press observed the Budget Speeches live. The media underreported the Government’s momentum and the opposition’s flat-footedness. It was one-way traffic as the opposition sat dumbfounded at National stealing their policies.
Death by Assimilation
National have returned to their traditional governing style, managing other parties’ ideas. Labour promised to introduce a capital gains tax and build houses, the Greens promised to deal with child poverty, New Zealand First promises to do nothing on Superannuation, and Peter Dunne promises to do nothing on the RMA. National are now, to an extent, doing all of that.
Bill English (7/10)
Bill is the policy architect of this government. He provides his colleagues with the alternative to government by pork barrel, and often succeeds. He has managed to refocus the civil service on achieving outcomes instead of consuming inputs. The biggest disappointment was that his courage cutting the $1000 Kiwisaver kickstart wasn’t matched on fixing Superannuation. As a result, a generation is paying twice.
Andrew Little (1/10)
Free Press feels sorry for Little. His speech has been panned as the worst ever. Some would have sat down upon running out of material, so we are giving him one point for speaking right through his time allotment. He talked about a ‘rooster on heat’ and then about ‘fiscal gender reassignment.’ Clearly Little needs biology lessons. But he’s got bigger problems too.
What he Needed to Do
Little theoretically wants to be the Prime Minister. His 20 minutes of rage showed he is out of touch with the country – New Zealand in 2015 is not exactly at a low point in history. Unless he’s proposing a total revolution, he could have spent five minutes talking positives. That would have given him fifteen minutes to lay out Labour’s alternatives.
There is No Alternative
The problem is Labour doesn’t have any. They have abandoned most of the policies they stood for last election. Changing the electricity market, reforming Superannuation, capital gains taxes, changing the Reserve Bank Act, all gone. What do they stand for?
John Key (8/10)
John Key delivered a tub thumping speech crowing about Little’s failure. We give him an eight because he mentioned David Seymour and ACT twice and endorsed Partnership Schools.
Meteria Turei (4/10)
Turei mentioned sustainability once, 15 minutes into her speech. RIP the Greens as an environmental party. The grandstanding on child poverty was cringe worthy. A person who got free university, lives in a remote castle and complains about urban sprawl tried to appeal to younger generations on housing and finance - priceless. A four is generous.
Winston Peters (5/10)
You have to hand it to him. We have no idea what he was on about (did he?) but it sounded great. His main refrain was “I See Red” a la Split Enz, complete with his caucus holding up fire hazard signs. Free Press understands “That was my Mistake” and “I Hope I Never (Have to See You Again)” have become more popular among Northland voters recently.
Te Ururoa Flavell (6/10)
Flavell gave a solid defence of the Maori Party’s wins for Maori in government.
Peter Dunne (6/10)
Dunne is an exceptional parliamentary speaker. Without any notes at all he gives perfectly structured essay-like addresses. Nonetheless we don’t know what Dunne’s end game is.
David Seymour (7/10)
Along with Little, David gave his first budget speech, certainly the best of the rookie speeches but he has room to grow. He gave a spirited defence of Partnership Schools and the people who step up to run them and change young people’s lives. He also pointed out that the budget lacks the kind of long-term view that younger New Zealanders need. Where is the Superannuation reform, where is the housing market reform? Where, in all this focus on child poverty, is the recognition of those who save, sacrifice, and delay having children to bring them up without poverty? Where are the company tax reductions aimed at bringing capital and more interesting jobs to New Zealand in years to come? You can watch David’s speech here.
Parliament sat late to pass Budget legislation, which makes for some noisy night-time debate when MPs think no-one’s watching. But Free Press sees all. If David’s Budget speech was too proper for your tastes you might prefer this onslaught, congratulating National on their Kiwisaver action, but challenging them to show the same courage when it comes to the increasing cost of Superannuation.
Greens don’t get Dependency
Catherine Delahunty tweets: Rise in benefits welcome but extra work expectations and pressure on sole parents is punitive. No, that balance is essential if you want to reduce welfare dependence. The government’s approach is informed by the Nordic model. Nordic states expect mothers to return to work when their child is 1 to 3 years old. Employment is front and centre in the Nordic welfare strategy. It works.
Moves to tackle child support debt and encourage parents to pay what they owe in child support are also a welcome move.
Government as Land Speculator and Land-Banker
After all the months of commentary about speculators, land bankers and foreign buyers in the Auckland property market, it now turns out that the biggest land-banker of them all was the government! The move to free up Crown land for housing development is sensible and long-overdue. But again, this is only a short term fix – we will soon use up the available 430 hectares. We still need fundamental reforms to allow the market to respond to rising demand for housing.
Where’s Maurice Williamson Going?
Betting site iPredict has opened up stocks for a by-election in Pakuranga, and for incumbent Williamson to be the candidate by 2017. The interesting thing is the opening odds, respectively 30 and 25 percent likely. iPredict’s operators, who have deep political connections, set these odds. Something’s up.
ACT’s Board has unanimously rejected an approach by the hapless Don Brash (no joking, this is too good for us to have made up) for Williamson to join ACT’s caucus. “My own party don’t want me no more” is not an attractive pitch. For similar reasons, what poor country would accept him as ambassador?
The Prime Minister’s backdown on the RMA is disappointing but not surprising, says ACT leader David Seymour.
“If we’re serious about councils allowing the next generation to build homes, we need to get some guts. We cannot have an act of parliament preoccupied with telling councils that building houses is inappropriate.”
In his Budget speech Mr Seymour pointed out, “The words inappropriate subdivision appear 156 times in the Resource Management Act, three of them in the principles sections.”
“Unfortunately, this backdown is not surprising,” said Mr Seymour today.
“The political class have focused on immigration, foreigners, tax, interest rates, government building programs, basically everything but fixing the RMA’s anti-development bias – the vital thing central government could easily change with a little political will.
“ACT will continue campaigning to free up land supply through essential RMA reform.”
ACT leader David Seymour today welcomed Labour engaging the debate over NZ Super’s future, but says they need to change tactics.
“Andrew Little appeared in The Herald to endorse means testing for superannuation before distancing himself from the idea within hours.
“He has shown why an issue with such important long term implications might be better handled under ACT’s referendum proposal.
"All parties can put aside their political positions, join together to form a cross party working group – like the flag committee – and appoint an expert group to identify workable options for the long term sustainability of NZ Super. These options, including no change, could then be put to referendum for the voters to decide.
“It’s to Andrew Little’s credit that he notes these pressures arising from an aging population, calling superannuation ‘a looming issue requiring $30b by 2030’, and highlighting the government’s silence.
“If we don’t address this issue now, New Zealanders will be forced to pay higher taxes or face harsh service cuts in order to fund Super in the decades to come.
“I have confidence in the common sense of voters to support an option which would ensure the fiscal sustainability of NZ Superannuation, an option which is fair across the generations of taxpayers.”
ACT Leader David Seymour welcomes the moves to focus spending on the poorest families.
“One of the problems with government is the pointless churning of income, taxing middle income families and then returning it to them with government spending,” said Mr Seymour.
“A good example of that is the $1,000 Kiwisaver kick-start, which I am pleased to see axed.
“The move to boost core benefit rates is a welcome move, in combination with the welfare reforms to date and the tougher work tests proposed.
“With superannuation linked via a floor relationship to wage rates, core benefit rates have fallen well behind other income support measures linked to wages.
“Moves to tackle child support debt and encourage parents to pay what they owe for their children are also a welcome move to encourage responsible parenting.”
“After all the fuss over property speculation and land banking, it turns out the biggest land banker is the government,” says ACT Leader David Seymour.
“The move to free up Crown land for housing development is sensible and long-overdue. But again, this is only a short term fix – we will soon use up the available 430 hectares.
“The good news is there is approximately another 27 million hectares in New Zealand, and only 0.7% of that is developed.
“We can free up this land by removing the anti-development bias of the Resource Management Act and encouraging councils to ease damaging land supply restrictions.
“The consequences of these restrictions are dire, as shown by the huge disparity of land prices inside compared with outside the Auckland rural-urban boundary.
“We need strong action in this area if we are to avoid locking an entire generation out of home ownership.”
The Budget should have provided a vision of progressively lower taxes for business, says ACT Leader David Seymour.
“The best thing the government can do to create job opportunities is forecast a welcoming environment for business and investment.
“New Zealand has one of the highest company tax rates in the OECD, even compared to famously egalitarian nations like Denmark and Sweden. We need to step up our game if we are to attract job-creating business and investment.
“ACT proposes a long-term programme of cuts in company tax – from 28% to 20% over eight years. This sends a simple message: ‘New Zealand is open for business’.”
“The Government missed a golden opportunity to end stealth tax increases by indexing tax brackets,” says ACT Leader David Seymour.
“The average household is $1036 worse off since the tax changes of October 2010 – a figure that’s increasing each year.
“This Budget was the perfect moment to index tax brackets. With inflation bordering on zero, the effect on government fiscal plans would be relatively small.
“Taxes on New Zealand households will increase when inflation resumes. Ending bracket creep now would force governments to be honest about any future tax increases.”
The Budget’s focus is too short-term and ignores intergenerational issues, says ACT Leader David Seymour.
“National is denying the demographic realities behind rising Superannuation costs,” said Mr Seymour.
“New Zealanders are living longer than ever, a trend which won’t go away any time soon. As life expectancy rises by about a year each decade it would be fair to raise the age of eligibility for Super by about the same.
“Otherwise, today’s young people will be forced to fund NZ Super through higher and higher taxes, with no guarantee of receiving the same benefits when needed.
“The longer we wait the more drastic will be the inevitable adjustment. We must recognise the need for more intergenerational fairness.”