NZ POLITICS DAILY: Super - will boomers pull the ladder up behind them? Again

Is the proposal to fix the "intergenerational unfairness" of superannuation actually a Trojan horse?

Labour’s proposal to raise the superannuation eligibility age to 67 is being met by an almost deafening media chorus calling for National to agree – see: Duncan Garner’s Pressure for John Key to raise retirement age

National appears stuck with an election promise, but it’s giving some signals that it will follow suit in a few years, according to Tracy Watkins, who says that Key has admitted that "National had 'kicked the tyres' on whether to revisit his 2008 and 2011 election promise" – see: Nats thought about pension change.
 
Labour’s proposal is to raise the age in increments between 2020 and 2032 – after the vast majority of baby boomers have already secured their full entitlement.
 
They will get their super at 65 and collect it for their expanding life span, pulling up the ladder behind them. 
 
It is actually the following generation who will pay the boomers’ full entitlement but get less themselves. It’s OK – they are used to it. It is a generation that has had the cradle-to-grave welfare state ladder pulled up higher all of their lives.
 
At each stage of the baby boomer life cycle the decisions benefitting them have always been pushed as "what was best (and necessary) for the country as a whole. And so it is now.
 
The current pressure on National to agree to raise the age of eligibility for superannuation is perversely pushed as being necessary to remedy ‘intergenerational unfairness" – see, for example, Grant Miller’s Doing nothing about super. It’s exactly the opposite in many ways but that shouldn’t come as a surprise to anyone who has tracked the fortunes of this "lucky generation".
 
If you were born in the 1950s you would have grown up as New Zealand’s economy boomed, with almost zero unemployment. If your family couldn’t afford a decent private rental there were literally entire suburbs of state houses built and available at low rent.
 
These were not the multi-story blocks that later tenants had to endure, but roomy, well-built (and now much sought after) houses with quarter-acre sections.
 
If you wanted to own your own house but didn’t have the deposit then your universal family benefit could be capitalised and there were subsidised housing corporation loans to make sure the mortgage payment weren’t too onerous.
 
Most health and education services were, for all intents and purposes, free. School donations were actually donations – not invoiced with threats of exclusion if not paid. 
 
Tertiary education required almost no fees and living allowances were easily accessible, along with plentiful holiday employment.
 
Of course, the top marginal tax rate was 66% in order to pay for all these benefits. But in the late 1980s, just as middle-class baby boomers entered their high earning years, the top tax rate was halved.
 
That meant the next generation had to start paying and borrowing for their education, along with market rentals for state house tenants and numerous other user-pays charges.
 
A new generation of graduates already saddled with mortgage sized debt wasn’t really a problem. They were told the need to own your own home was irrational and there were plenty of houses they could rent from the well-off baby boomers, who were furiously investing their surplus income in property, claiming deductions but still free of any tax on their substantial capital gains.
 
House prices rocketed – which was great for growing untaxed wealth, but was a disaster for families trying to buy their first home.
 
Baby boomers who joined Kiwisaver early will have received the highest proportion of government subsidy for their savings – the state’s generosity is already being ratcheted down.
 
Kiwisaver funds will be the icing on the cake for baby boomers, but is likely to be the main staple for those that follow with auto-enrolment already planned and compulsion being mooted by Labour (see: Alex Tarrant’s Labour considers not letting KiwiSaver savings out of NZ).
 
John Armstrong certainly sees the writing on the wall: "It might survive as a vital back-stop for those unable to save for their retirement if the bulk of workers can draw their retirement incomes from elsewhere. It stands to reason that the more workers there are with KiwiSaver schemes, the less the future pressure on the existing state scheme" – see: Shift that would turn Key into a superman.
 
Paper boys and girls are having their taxes increased to save a few million and childcare subsidies are being reduced, but huge sums are still flowing to the "lucky generation" each year.
 
The government apparently had no choice but to fork out $1.6 billion to save (overwhelmingly older) finance company investors who chased a few extra dollars in return for much higher risk.
 
Treasury had kindly underwritten these risks and, as usual, the boomer’s well-being was deemed essential to all taxpayers.
 
Particularly hard hit will be Maori, Pacific people and those on low incomes whose relative life expectancy worsened in the 1980s and 90s, a gap which has never been made up (see: Otago University’s Unequal playing fields).
 
The number of years they will be able to securely retire will be dramatically cut – many Maori and Pacific males will never see a pension. Raising the retirement age is not only an intergenerational transfer of wealth, it is effectively a massive shift in public benefits to middle and high income pakeha retirees. 
 
We shouldn’t be surprised that the ever-increasing health spend goes largely unquestioned and attempts to direct it to more cost-effective prevention rather than treatment continue to be resisted.
 
We can probably look forward in a few years to greater government regulation and subsidies for funeral services – those customised Harley Davidson hearses don’t come cheap.
 
Raising the age of entitlement to superannuation is presented as the only option.
 
It is apparently unthinkable that we should ask the most well-off of a generation to contribute back some of the wealth they have accumulated (thanks to their dream run through the welfare state) so that their children can at least retire with the same security as the "lucky generation". 
 
Luck, as they say, has nothing to do with it.
 
Other important or interesting political items today include:
 
  • Graeme Edgler has an interesting proposal that our MPs should be allowed (and encouraged) to regularly undertake part-time work in other jobs – see: Shirking their responsibilities?.
  • With the plug about to be pulled on TVNZ7 the campaign to save it is louder than ever. Duncan Graham acknowledges that TVNZ7 wasn’t perfect but says New Zealand will be much poorer without a commercial free channel – see: Whose airwaves are they anyway?. The campaign to save the channel is misconceived according to Steven Cowan, especially as it allows Labour to posture as the defender of public service television – see: Letting Labour off the hook.
  • National, Labour and even the Greens are skewered by Toby Manhire over the WWF’s damning report on New Zealand’s environmental record over the past 20 years – see: 100% Pure New Zealand. Ha, ha, ha.
  • Rod Oram looks at the contrast between the Auckland Council’s long-term growth plan for Auckland and Bill English’s zero Budget – see: A tale of two budgets.
  • The media has an obsession with turning elections into a two horse presidential style contest according to political scientist Jack Vowles. He argues that this ignores the MMP reality that an election can be very close even though the gap between the two main parties is wide – see: Reesh Lyon’s Media Blamed For Low Election Turnout. Mark Blackham disagrees – see: Election turnout not media fault.
  • Willie Jackson says At least Louis Crimp is honest, claiming Crimp’s views are not that far from the more carefully worded utterances of Michael Laws, Paul Holmes , Don Brash and John Banks. 
  • Kim Dotcom seems to be growing on New Zealanders according to the Southland Times editorial, despite the latest attempts by US law enforcement to smear him by claiming there were some child porn files among the 800 transfers per second on the megaupload servers – see: The pirate king?.
  • The struggle over reproductive rights in New Zealand has never been properly written up, but Alison McCulloch has a book coming out on the recent history of this very contentious area of sexual politics – see: Return of the DIY Abortion
  • Finally, left-wing economist Brian Easton has penned a lengthy and very thoughtful take on the evolution of the political left in recent decades entitled Rogernomics and the Left. He concludes with a warning to the left – that its failure to take ideology and economics seriously, could result in the next Labour Government essentially being a repeat of the Fourth Labour Government: ‘The danger remains that there may be a repeat of Muldoon’s legacy in which a future government of the left has to introduce major radical modernisation to resolve its predecessor’s failures to respond to change, while handicapped by the limitations that these failures cause. Will the incoming government be as bereft of analysis and vision as the left was after Muldoon? Last time the consequence was Rogernomics’.
 
Bryce Edwards

 

Today’s content:
 
Superannuation
Duncan Garner (TV3): Superannuation costs on the rise
Grant Miller (Manawatu Standard): Doing nothing about super
Isaac Davison (Herald): Smokers save Govt cash, says report
David Farrar (Kiwiblog): Grey Power hypocrites
 
Kiwisaver
Eric Crampton (Offsetting Behaviour): Labour's KiwiSaver plans [Updated]
 
TVNZ7
Danya Levy (Stuff): Coleman: Number's up for TVNZ7, regardless
Robert Winter (Idle Thoughts): More blame game in the Key Government’
Steven Cowan (Against the current): Letting Labour off the hook
Duncan Graham (Pundit): Whose airwaves are they anyway?
Russell Brown (Hard News): Reading the Numbers
 
Families Commission
 
Education 
John Hartevelt (Stuff): Allowance cut adds thousands to loan
John Hartevelt (Stuff): Schools 'transition' sped up
 
Child poverty
Jessica Tasman-Jones (Stuff): Children in poverty 'lost' to education system
 
Environment
Toby Manhire (Listener): 100% Pure New Zealand. Ha, ha, ha
David Kennedy (Local Bodies): Head in Sand over WWF Report!
Jenny Keown (Stuff): 'Grave fears' for border security
Reuben Hunt (Press): Facts, fracks and community action
 
Ureweras
Matthew Backhouse (Herald): Iti's Urewera appeal filed today
 
Christchurch rebuild
 
Same sex adoption
Danya Levy (Stuff): Key signals gay adoption support
David Farrar (Kiwiblog): Handing over law making
 
Judith Collins defamation case
Hayden Donnell and Newstalk ZB: Mallard gets served, snaps and tweets
Tracy Watkins (Stuff): Mallard: You've been snapped
 
Green Party
 
Parliament
Graeme Edgeler (Public Address): Shirking their responsibilities?
Deborah Russell (Dom Post): Parliament needs diversity to rule fairly
Reesh Lyon (Parliament Today): Media Blamed For Low Election Turnout
Mark Blackham (Political Business): Election turnout not media fault
Pete George (Your NZ): The kneecapping of United Future?
 
Budget/economy
Rod Oram (Stuff): A tale of two budgets
Eric Crampton (Offsetting Behaviour): Unemployment lenses: Salmond edition
 
Other
Isaac Davison (Herald): Govt cool on insulation extension
Claire Trevett (Herald): Mfat chips in to relieve Cup chaos
David Farrar (Kiwiblog): Keep it 18 reason #1
Tracy Watkins (Stuff): John Key to tour Europe
Vernon Small (Stuff): New head of PM's department named
Kirsty Johnston (Stuff): Kim Dotcom allowed back to mansion
Southland Times: Editorial: The pirate king?
Morgan Godfery (Maui Street): The best and worst Maori MPs for May
Willie Jackson (RadioLive): At least Louis Crimp is honest
Alison McCulloch (Scoop): Return of the DIY Abortion
Brian Easton: Rogernomics and the Left

 

 

 

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5 Comments & Questions

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Super should stay at 65, those people have paid taxes all their working lives, no ifs buts or maybes. If you want to find some money deduct off welfare, that bill is $7.6 million a year and climbing, ask yourself, you do the maths.

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Those people have paid taxes all their lives?

Thats great - we just need to find the money that was set aside during that time to fund their super!

Wrong! There was no funds set aside - the taxes paid were for spending priorities at the time - not super.

It is current taxpayers that are bearing the burden of the increasing Super bill - not historical ones. Had taxes been set aside in the past we wouldn't be facing this issue.

However we probably need to change super in a way that makes it fair to all generations.

Firstly we need a safety net. Can't argue with that. People who have not been able to save enough money on their own during their working lives need to have a minimum benefit to survive.

Secondly means test Super - if people have assets or income of a high enough level then they should use that money first before being eligible for Super. Family trusts become an issue here but over time making Kiwisaver compulsary below will fix this issue.

Thirdly increase the age from 65 to 67 over a number of years. (Not sure of timing - need to give people notice). Also link this to life expectancy calculations.

Fourthly Make Kiwisaver compulsary. These funds would then be included in the Asset Tested Super.

This would also need to be a cross party accord involving at least National and Labour to stop short term electoral cycle politics from ruining the policy.

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I was meant to say $7.6 billion

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What about assett testing. Even the boat up.

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Cor, gosh, this column's a bit LEFT WING for the old NBR isn't is? Take care you don't lose your core (baby boomer) readership by talking commonsense!

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