By Bernard Hickey
Treasury has again warned that leaving the current age and indexation settings for New Zealand Superannuation would force the Government to borrow heavily in the middle of the century, increasing net debt to 205.8% of GDP.
The Government's top economic advice and forecasting agency published the repeated warning in its Long Term Fiscal Position report, which it is required to release at least every four years.
The Government chose not to accept the advice because Prime Minister John Key has pledged to resign if either the retirement age or indexation are changed for New Zealand Superannuation.
Treasury gave similar warnings in its last report in 2013, when it forecast net debt would rise to 198.3% of GDP because an ageing population would see the cost of New Zealand Superannuation with an unchanged age of eligibility and indexation to the average wage rise from 4.8% of GDP to 7.9% of GDP by 2060. Healthcare costs would rise from 6.2% to 9.7% over the same time.
"While current Government finances remain relatively strong, fiscal pressures are projected to build over the next 40 years," Treasury said.
"Population ageing is projected to apply pressures through slower revenue growth (resulting from less participation) and increased expenses (primarily through New Zealand Superannuation and healthcare)," it said.
Treasury repeated the Government had several options to close the Government deficit gap of around 6% of GDP that would build up in the later years if there were no policy changes.
It proposed lifting the age of eligibility to 67 from 65, which would save around 5.5% of GDP, and moving to indexing New Zealand Superannuation to the rate of CPI inflation, rather than average wage inflation as is currently the case.
It also repeated suggestions for a rise in the GST rate to 17.5% from 15% and indexing income tax thresholds to inflation, which would allow fiscal drag to lift income tax as a percentage of GDP because of the fiscal drag caused by wages rising faster than inflation.
The new proposals in the document were for two different types of improving social outcomes through 'social investment' to reduce unemployment, reduce child abuse and reduce recidivism rates. Treasury estimated improving such outcomes could improve the fiscal outlook by btween 5 to 6% of GDP, which would be enough to close the gap.
Treasury Secretary Gabriel Makhlouf told reporters when releasing the document that he was confident Governments would eventually take the right decisions to ensure the long term fiscal outlook was sustainable.
"There is absolutely a choice for the Government to make," he said.
Political reaction
Labour Finance Spokesman Grant Robertson said the Government was not listening to the Treasury.
"John Key's head-in-the-sand approach to the long term sustainability of superannuation is reckless and irresponsible," Robertson said.
"Rather than cut taxes we need to re-start contributions to the Super Fund now we are back in surplus," he said.
ACT Leader and Epsom MP David Seymour called for a debate on New Zealand Superannuation, including in this Facebook video.
“Anybody under 30 knows that they will not receive Super on current settings, and that policy adjustments are inevitable. The issue is that we’re not allowed to talk about it, with all political parties in denial,” said Seymour.
“They intuitively know what the Treasury says in its report, that ‘governments have many options at their disposal to address these challenges, but the challenge gets harder the longer we delay.’ Treasury couldn’t be clearer – we’re going through an unprecedented demographic shift towards an older population, and this will have enormous effects on the affordability of Superannuation," he said.
"John Key made an ill-fated promise in 2008 not to adjust superannuation. Labour used to have a policy to raise the age but scrapped it after their 2014 election loss. That’s left ACT with the job of keeping this issue into the spotlight," he said.
“Whether it’s transitioning to a higher eligibility age, pegging the payment rates to inflation instead of average wages, means testing, or all of these measures, we need to have the discussion today, no matter how skittish John Key and Andrew Little may feel.”
(Updated to include comments from David Seymour)
37 Comments
Treasury has again warned that leaving the current age and indexation settings for New Zealand Superannuation would force the Government to borrow heavily in the middle of the century, increasing net debt to 205.8% of GDP.
Maybe we outsource the Treasury to an equity finance outfit and seek another opinion with credible corroborating evidence at least in tune with Bill English's forecast of significant government surpluses as far ahead as any dare to claim?
Well with our high immigration over the last five years the forward problem will be even larger. I can hear it now we will need more immigrants to pay for the super of the ones already here. It should be paid pro rata on how many years you have contributed and that is born kiwis too
Maybe just strip those who have more than they need to live a decent life till they are 100 of super so that others can get the hospital operations they need to live comfortably too. It's a case of priorities I think. Minimising the inheritance would also help stop the country getting more inequal. When you think about it, the pension that multi millionaires get is really just topping up their kid's inheritance....
So you want to strip hard working young people of more of their income to help subsidize the retirement of already wealthy elderly? This is on top of the challenges already faced by the working young in terms of student debt and un-affordable housing. That doesn't really seem fair does it?
Asset and income testing sounds good in theory, but in reality only catches the paye earner and unsophisticated. Trusts (both local and foreign), income left in companies (owned by the trust) , toss in migrants from countries where we have no recipricol agreements, then add gifting and false invoicing to associates and family .................and suddenly it's not so simple.
Great job creation scheme for lawyers and accountants though, so expect to see some professional support for the idea.
"......and indexing income tax thresholds to inflation, which would allow fiscal drag to lift income tax as a percentage of GDP because of the fiscal drag caused by wages rising faster than inflation."
Yeah? Well no fiscal drag adjustments are being made at the moment (unless you say that tax cuts are a proxy for this), so if this suggestion was taken up, it would actually REDUCE income for the govt not INCREASE income!!!!!
Other side of the coin.. So you want to take income tax from the poorest families who are struggling to get by week to week, and give it to the richest of the pensioners who do not need it at all, and it makes no real difference to them, and really just tops up their wealthy kids inheritance?
Can't the govt. just possess the boomers housing around 2040 or so when they all die off - that should raise plenty of dosh. Of course, you could just stiff me and the rest of my generation and say we need to work to 75 cos it sounds like that's were we are heading...
I wonder how much of the influx are returning NZers who spent most of their working lives in australia,paying taxes there.now they have too much money to get an australian pension but can get one here.just stay long enough to get the first payment and fly back home!if you travel on your aussie passport and tick the visitor box they wont know you are gone.
If NZ had kept a stable population the oldies were no problem. The oldies had built and paid for the countries infrastructure of roads, bridges, Hydro dams and hospitals etc etc.
The young people inherit this infrastructure as a birthright and therefor could support the oldies who built it.
The problem is that because we are raising our population we now have a huge deficit of infrastructure and a larger % of old people to be taken care of.
Population growth is the real problem and now we seem to have locked ourselves in to the growth recipe which needs more and more people to feed the growth economy.
We now have a huge deficit of infrastructure and are blaming the oldies who paid taxes all their lives being told that they would be looked after when they got old.
We have to ween ourselves off population growth, Be more selective who we let into NZ and somehow build the infrastructure that this enlarged population needs while honoring the promises made to the oldies who built this country.
Population growth is the only true, bottom line way to achieve growth and since WW2 we have been able to rely on it. In the western world we probably peaked a generation or two ago, so we have been shoring it up with immigration, cheaper goods to keep us all buying, and consumerism along with planned obsolescence of just about everything we buy. It has been a very wasteful few decades in the pursuit of growth, I just wonder how we will go weaning ourselves of it, but we do have to. Someone estimated that by 2050 there could be more plastic in the oceans than fish. I am going to say we could have seen off some of the world's most iconic mega fauna and I constantly have an image in my mind of a few people, clutching their children to their sides and huddled together in a landscape of rubbish.
Yes, we do have to wean ourselves off population growth, and it will take a massive shift in the way we organise ourselves. What Donald Trump is planning is about as far away from a solution as you could get.
I didn't think the day would come where I would agree with something you posted - Up to your last line anyway. DT will be blamed and scape goated to death for things he does or doesn't do, look to China/India/Africa if you want to lay blame for most of the worlds pollution. The worlds population (as you pointed out) has been on a path of self destruction since the end of WW2 (some could argue before that too) but no, wait, its definitely going to be the next 4 years of DT that mean more than the sum of the last 100 years, right.... Right....
Very much a rose tinted glasses view. NZ just about went bankrupt from the debts accumulated by the Muldoon Government. Receiving debt as a hand me down means that I've been paying for that infrastructure. Now the current Government is accumulating debt but it's nothing on household debt. I feel like our financial stability has been handed to people who can't control their excessive consumer spending and unsustainable household debt accumulation.
Means testing retirement will become a necessity in the future, but we could ignore that future and not plan for it now by acting like children.
Yes dictator, agreed, Muldoon was this countries biggest financial disaster up till now. The infrastructure he built at huge cost was mostly not needed and mothballed. He was in fairness reacting to the oil crisis and energy crisis of the time.
I believe the infrastructure deficit we now have due to population growth is going to be a bigger financial disaster than Muldoons one.
National Government has already stated that we need to spend 100 bln $ on infrastructure over the next 10 yrs to catch up on infrastructure for population growth. That is a cost of $100,000 for each tax payer if we had one million taxpayers. In truth we probably have 100,00 taxpayers who aren't being propped up with accommodation supplements or WWF.
Our infrastructure deficit is a financial disaster! we better bring in more people?
"The Government chose not to accept the advice because Prime Minister John Key has pledged to resign if either the retirement age or indexation are changed for New Zealand Superannuation."
John Key also pledged to resign if the GCSB was illegally spying on New Zealanders. That turned out to be the case and he didn't resign. He will just have a brain fade when he changes his mind.
Actually I think it was he would resign if NZ spies were using mass surveillance on NZers. It then turned out there was mass data collection of NZers but John said that it doesn't count as mass surveillance as the spies were not looking at all of the data. It was his little inside joke that there could never be mass surveillance by his definition of the word as it would take far too many people to manually look through every bit of data they collected.
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