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Posts Tagged ‘superannuation’

Tax cuts or Super?

Posted by on July 27th, 2010

Over at Policy Progress David Choat has written up a few observations on the future affordability of New Zealand Superannuation, based on presentations at the recent Retirement Income Policy and Intergenerational Equity Conference. Choat looks at various projections of the cost of the ‘retirement boom’ and some of the alternative options. He concludes by essentially arguing we have a choice: change our current entitlements or increase taxes to keep them as they are.

That conclusion highlights the folly of the arguments people like Don Brash have been putting forward. Brash argues that current Super entitlements are unaffordable. Fullstop. Brash and his contemporaries in National have spent years arguing that massive tax cuts are affordable and necessary. They’ve conveniently overlooked one of the biggest longterm implications – less money to pay for the baby boomer’s retirement!

I want to see New Zealand Superannuation remain as it is, a universal entitlement from the age of 65. But John Key’s promise to resign rather than cut it looks pretty hollow given his total lack of a plan for how to pay for it. In 10-15 years time when the crunch comes, Key will be off sunning himself in Hawaii while future generations work out how to plug the massive hole he and his crew have left us with.

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Filed under: senior citizens, superannuation, Tax
24 Comments

Peter Harris on NZ Super

Posted by on May 13th, 2010

Peter Harris has done an interesting guest post over at Policy Progress on New Zealand Superannuation. Peter puts forward a compelling argument that the Brash Taskforce was wrong to argue that NZ Super is overly generous. He draws on data that shows average post-tax pensions in OECD countries to be about 70% of earnings after tax. Here in NZ it is 42%, making us the 5th lowest in the OECD.

Peter argues that the universal nature of New Zealand Superannuation makes it more equitable than equivalent arrangements in Australia, where differentials in earnings during someone’s working life are replicated in their retirement.

In defending the universal nature of NZ Super, he quotes Michael Cullen, who argued that providing basic income security in retirement is both the least and the most citizens should expect from the state. In other words it is the state’s role to ensure pensioners don’t live in poverty, but it is not the state’s role to ensure that their earnings in retirement reflect their earnings during their working lives.

Peter’s final comment focuses the debate not on whether the scheme is generous or affordable, but how we should pay for it:

By any standard, New Zealand Superannuation is affordable and sustainable. A programme that costs at peak no more than 10% of GDP is both. The legitimate question is whether that is the priority that the citizens want. Debate that by all means, and debate how it is to be funded, but please, as a matter of analytical rigour, do not prejudice the path of that debate by making the assertion that our scheme is “generous”.

For me that last comment is the critical one. How are we going to pay for it? Over the next 10-20 years the number of people over the age of 65 will roughly double while the number in the workforce will stay about the same (although it goes without saying that as we live longer more and more people are likely to continue working, thus paying PAYE tax, beyond the age of 65).

National cut contributions to the NZ Super Fund last year and has yet to demonstrate how it will make up the shortfall. Both John Key and Bill English are playing the short game on NZ Super – they’re kicking it to touch for a future generation to deal with.

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Filed under: policy, senior citizens, superannuation
17 Comments

National’s ACC and Super scaremongering exposed

Posted by on December 6th, 2009

Earlier in the year John Key sent a letter to every senior citizen in my electorate reiterating his promise to resign if the National-led government cut the rate of superannuation or raised the retirement age. It was a hollow promise. Key knows it’s a promise he will never need to keep because he will be long gone by the time the crunch comes. It will be at least 10-15 years before the real pinch starts, and about 25 years before we feel the full effects of the “baby boomer” retirement. Key’s promise is all the more hollow because he, along with Bill English and the rest of the Cabinet, have cut savings to pay for future superannuation entitlements.

Under Labour, Michael Cullen set up the New Zealand Superannuation Fund and set aside some of the money that we’ll need in the future to pay for Super. Cutting contributions to the fund was one of Bill English’s first moves as Finance Minister. It was a stupid decision. Latest Treasury figures show the fund with higher than forecast returns of the $1.3 billion for the four months to 31 October. That return would have no doubt been higher if more money had been paid into the fund. National argued the cut was necessary due to the recession, ignoring that the best time to invest is when prices are low.

National’s scaremongering over ACC has a similar hollow ring to it. John Key and Nick Smith used the lower returns from the ACC investment funds to justify huge levy hikes and cutting of entitlements. But ACC’s investment funds had returns of $600 million in the four months to 31 October, which like the NZ Super Fund were higher than expected. Week by week, the National Party’s economic track record is looking all the more superficial and lightweight.

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Filed under: ACC, economy, superannuation
8 Comments

Thanks Whanganui!

Posted by on August 11th, 2009

Great to see the community turn out in support of the Labour Caucus effort to reconnect with grass roots. We were well recieved and one of the first statements in the community forum was a vote of thanks from the local grey power branch in acknowledgement of inflation indexing the rates rebate to maintain value of the rebate over time. Health workforce development is another concern given that the Government is signalling a number of reforms for the sector. Finally the Governments cuts to the Adult and Community Education have seriously undersestimated the depth of feeling in coimmunities throughout Aotearoa/New Zealand…..A great range of issues covered!!

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Filed under: education, events, health, superannuation
1 Comment

Tories in panic over super

Posted by on July 5th, 2009

The Key government is clearly in a bit of a panic over superannuation. They know that their decision to cut contributions to the NZ Super Fund is deeply unpopular and they are desperately trying to soothe public opinion. This week Key has written to every senior citizen in my electorate repeating his pledge to maintain superannuation entitlements or resign from parliament. The problem for Key is that everyone knows that it’s a hollow promise. When the super ‘crunch’ comes in 10-15 years, Key will be long gone.

Key obviously knows that people can see right through his hollow promise, which is why he dismissively states “I can assure you that suspending full contributions to the fund in no way affects people’s entitlement to Superannuation payments, either now or in the future”. Of course, he doesn’t say how it will be paid for in the future! They must be pretty spooked by the public reaction to their cuts. A mailout to all senior citizens won’t have been cheap.

[Update: I've now had a chance to scan a copy of Key's letter]

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Filed under: national, superannuation
27 Comments

Give kids the vote, or at least give it to their parents

Posted by on July 5th, 2009

The National Government’s decision to suspend payments to the Super Fund has put the superannuation consensus on the skids. Late baby boomers like me are uneasy about the security of our super. Gen X and Yers are grumpy about the prospect of paying taxes for baby boomers’ pensions when it is likely by the time they reach retirement the cupboard will be bare. Bernard Hickey calls it inter-generational theft. Baby boomers got free tertiary education, explosive capital gain on their houses, and will make damn sure they get their super. Gen X and Yers got student loans, were priced out of the housing market, and can’t rely on super. His advice: Get out of Dodge.

The trouble with Hickey’s advice is that baby boomer tyranny is pretty much a fixture across the rich world. Japan is an extreme example. A recent study shows approximately 24% of eligible voters in Japan are parents of children under 18, whilst those concerned about pension levels (55 years +) constitute 43% of voters. The result? Great pensions and policies for the ageing. And lousy policies for families. No wonder fertility rates are among the lowest in the world.

Rhema Vaithianathan, an economist at Auckland University’s Business School, who is a friend of mine and has done some work on the economic impact of the Government’s super city plans, was in Tokyo recently and did some research with a Japanese colleague on a possible solution to this. The idea, called Demeny voting after its originator Paul Demeny (1986), is to give parents the right to vote on behalf of their children until they are old enough to vote for themselves. (You thought reducing the voting age to 16 was radical!)

Apply the Demeny principle and the voting power of Japanese parents rises from 24 to 37%, while the over-55s decreases from 43 to 35%, giving Japanese politicians a good incentive to pay more attention to intergenerational equity.

Dr Vaithianathan argues the Demeny principle could provide the answer to New Zealand’s own problems with intergenerational equity. Our fertility rate is higher than Japan’s but it is declining fast. Over-55s are 13% of the population but this is expected to double in the next 40 years.

“Why should I, as a member of a household with two adults and no children, have more voting power than a solo parent down the road with three children?” Dr Vaithianathan says. “After all, her children inherit the future of this country, and they, via their parents initially, should have a say in what happens.”

Worth considering?

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Filed under: democracy, superannuation
72 Comments