By Bernard Hickey
Just imagine what an election debate in 2029 might look like.
Aside from Richie McCaw as All Black coach and Auckland's average house price nearing the NZ$2 million mark, not much would appear different.
The Baby Boomer generation would be heading into their late 70s and 80s and early 90s, but they would still be a major force in the shops, the cafes and the polling booths because they would have lived much longer than their parents and be much richer and healthier. They would still be receiving New Zealand Superannuation at a rate equal to 67% of the average weekly wage and many would also be receiving hefty earnings from their KiwiSaver accounts and their multiple rental properties. Some would still be earning big salaries from the jobs they haven't retired from.
But the Boomers would be starting to dwindle in numbers, certainly relative to the younger cohorts behind them. They would have been overwhelmed in numerical terms by the Millennials and Generations X and Y in the previous elections in 2026 and 2023.
However, it would only be in 2029 that the enormity of what happened to the nation's finances in the previous 30 years would have begin to dawn on the majority of voters in their 30s, 40s and 50s. Only 49% of those aged 18-29 voted in 2014. By 2029 that proportion would be much, much higher for those voters as they near their 40s and 50s. By then, the demographics of New Zealand's population structure will have become political destiny.
When they look back over those decades of political decisions leading up to 2029, what would they see?
They would have seen a raft of policies stretching from the 1980s onward that repeatedly blocked the building of new houses and the building of public infrastructure, particularly public transport. They would have seen the dismantling of free tertiary education by a generation that benefited from it. They would have seen the results of a New Zealand Superannuation setup that loaded the costs on the workers of 2015 to 2030, not on the retirees of 2015 to 2030 when they were workers from 2000 to 2015.
That's because contributions to the New Zealand Superannuation Fund were turned off in 2009 and not turned back on until 2023. That decision cost the fund NZ$18.2 billion in missing savings by 2015 and would have cost over NZ$121 billion by 2029.
New Zealand Superannuation spending would have risen from NZ$9.9 billion or 4.1% of GDP in 2015 to NZ$23.4 billion or 5.3% of GDP by 2029, with Treasury forecasts of it rising to NZ$100 billion or 7% of GDP by 2060.
That cost would be on top of a surge in health costs as the population aged and got fatter, thanks to a lack of preventative investment and taxes to encourage healthy eating.
By 2029, the taxpaying voters in their 30s, 40s and 50s would be facing massive pressures on public finances, potentially forcing tax increases and cuts in social spending without changes to the pension and health settings. So what would those voters want to do about it?
It would be too late to extend the retirement age by then, but there would be massive pressure to means test New Zealand Superannuation and health spending for the aged. The unfair link of NZ Super to average wage inflation, rather than price inflation, would be revisited. There would also be pressure to widen the suite of taxes to capital and land to hoover up some of the wealth held mostly in property by those retirees. The inevitable results of climate change would be clear for all to see.
That 2029 election would be a moment where one generation took over from another, similar to what New Zealand saw from 1984 until the early 2000s when the Baby Boomer generation of David Lange and Helen Clark and John Key took over from the the post-war generations of Keith Holyoake and Robert Muldoon.
The backlash to a long period of economic controls, heavy state investment and social conservatism through the 1940s, 1950s and 1960s shook New Zealand to its core and changed. A generation who stopped investing so much in public infrastructure and housing, and instead chose to consume the future and load up their future costs onto their children, would be leaving power.
The generations having to pay those costs through their taxes would assume (or take) power. What might the backlash of 2029 look like?
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A version of this article first appeared in the Herald on Sunday. It is here with permission.
60 Comments
you spend too much time listen ing to the media.
http://slatestarcodex.com/2015/09/11/book-review-manufacturing-consent/
Unexpected challenges to the status-quo are met with strident, if not incoherent, claims against the established order of who will be in charge in a so called "democracy".
A government headed by opposition leader Jeremy Corbyn could face "a mutiny" from the British Army if he tries to downgrade it or pull out of NATO, a senior serving general told The Sunday Times. Read more
Matters have been known to deteriorate towards the unexpected, if not surreal, to the point one would not expect certain players to prevail.
On Friday, Malaysian authorities arrested Khairuddin Abu Hassan. According to WSJ, the charges were “attempting to undermine democracy.” Read more
Which brings me to this most unexpected, undemocratic action undertaken by our neighbour and ally.
Today, 29 July 2014, WikiLeaks releases an unprecedented Australian censorship order concerning a multi-million dollar corruption case explicitly naming the current and past heads of state of Indonesia, Malaysia and Vietnam, their relatives and other senior officials. The super-injunction invokes “national security” grounds to prevent reporting about the case, by anyone, in order to “prevent damage to Australia's international relations”. The court-issued gag order follows the secret 19 June 2014 indictment of seven senior executives from subsidiaries of Australia's central bank, the Reserve Bank of Australia (RBA). The case concerns allegations of multi-million dollar inducements made by agents of the RBA subsidiaries Securency and Note Printing Australia in order to secure contracts for the supply of Australian-style polymer bank notes to the governments of Malaysia, Indonesia, Vietnam and other countries. Read more
We're not stupid. We travel, we see how the rest of the world works & we know that we're being cheated.
Just because a minority of swing voters are easily convinced with constant spin & marketing, rugby & thinly veiled nationalism does not mean that all youth are ignorant.
Quite why BH wants to stir up such strife is beyond me!!
BH wants all this social and infrastructure spending to be done and then he seems to want the elderly to pay for it, for the younger generation to benefit !! BH you obviously don't think the elderly have contributed enough !!
It isn't really the elderly (the over 65 age group) that haven't contributed. It is the whole political economy of the last 30 years that has under-invested in the basic private and public infrastructures needed to support an egalitarian productive modern democratic economy. If we don't change course then we are in terrible do-do.
you cannot grow for ever on a finite planet. Climate change, peak oil, were commented on in the 1950s and were ignored. Limits to growth, 1970s, ignored. Both the last 2 generations have a serious belief in a lack of accountability to future generations.
"terrible do-do" we are indeed already, and we will make it worse. Personally I think our species is heading for extinction within 200 years.
We'll hold enquiries into the corruption of John Key's National government & their corroborators in the fourth estate; their manipulation of the media, their witch hunts, their disdain for working people & their arrogant incompetence. Then we'll hold trials against these people - even if they're living in Hawaii or passed on, & we'll send a clear message that selfish, conceited rule on behalf of only the rich IS NOT ok.
We will have our time... And UTU will be high on the agenda.
Kunstler says it more brutally. To paraphrase, "banksters" etc will be taken for a drag behind their limo's, or the lynch mob scenario, somehow I really wonder if trails will occur if it gets as bas as Kunstler fears. Sure the likes of JK will swan off and be "safe" the likes of BE "retired" to his farm in Southland? not so sure.
That this is our future? Consider that lots of ppl will have their futures and lives ruined. "let them eat cake" didnt turn out to well did it? Also consider the reports of bankers buying NZ properties as ways to avoid this possibility. Personally I ask myself if such ppl are prepared to spend significant amounts of money for a bolthole surely they must think its a big enough possibility to act on spending millions?
In the aftermath of last week's FOMC "dovish hold" disappointment, it is not only the Fed that has seen its credibility crushed; so have plain-vanilla tenured economists and Wall Street strategists. Recall that it was on August 13, one month before last week's FOMC meeting, when 82% of economists said the Fed would hike in September.
Oops.
Post-mortem: more than four out of five economisseds were, as always, wrong. Hardly surprising: after all, when voodoo art pretends to be science, this is precisely the outcome one gets. Read more
and what % said the GFC was coming? hardly any. Of the "hardly anys" who considered that it would have been foolish to raise? why pretty much the same bunch.
Further,
"That was dead wrong, and the ECB — which believed in the inflation threat and raised rates — clearly made a big mistake. So you might have expected the BIS to ask why it was so wrong, and reconsider its policy recommendations. Instead, however, it continued to demand the same policies, while inventing new justifications."
http://krugman.blogs.nytimes.com/2015/09/19/the-creativity-of-the-perma…
So the Fed faced with no inflation, or prospect of any for the foreseeable future, blinked. It being an easy fix if it does occur anyway (just put up rates faster) decided not to move in case it imploded the [global] economy and sent us into a Great Depression mk2.
Yes, it (Fed) just facilitated an immediate transfer of wealth away from the taxpayers to the sovereign bond holders - Xmas came early for some.
Repeat after me..(sorry..finger trouble).
Will the latest Flag change be a White One in 2029.
Answers on a blank Cheque and post to nz.govt.distraction.team.nz/wesurrender/ [ casual racism removed. Ed]
Thanks, a former ever grateful Tax Payer.
Yours Affectionately,
[ casual racism removed. Ed]
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja…
I think that might cover all issues in my absence over the past 4 months.
Note. I do have overseas interests. As well as an Interest on what is happening worldwide as well as here in NZ. OIO. is not xenophobic and neither am, but I am...observant.
Personally, I think that is causal...but as usual,we differ. on the spelling.
Deniability is one eyed at best. especially when the power of veto on the real Financial juggling is yours alone to disparage.
And shall we just say, a little Interest is added into the equation. On your side, not mine.
As usual when Finance is involved, then the truth is never really pretty, no matter how you dress it up, so I just add a little fact, not fiction, plus a dash of ironical humour,
Call it what you will. We must not antagonize our new BFF, must we. We must disclaim all truths about where the money comes from, who it benefits most and just who will pay or benefit in the long run.
There are a lot of issues, we could debate, but then who do you trust to back you up, with the truth.
Perhaps, The Fed, The Derivative Fraternity, The Quantitative Easing Brigade, or the Exchange Rate Manipulative theorists.
Or the politically correct, but incorrect Non-Producers of this world.
You get an uptick for this sentence alone "Or the politically correct, but incorrect Non-Producers of this world".
I recently reread Bruce Jesson's book "Only Their Purpose is Mad". Where he argued that New Zealand has been transformed, since 1984, by the culture of finance, and that our society and economy are now subjected to irrational, speculative forces. He published this in 1999.
But it is even more correct now with the PMs of both NZ and Australia represent the global financial order, having worked and become wealthy from their time in Merrill Lynch and Goldman Sachs.
It is a great shame Bruce Jesson passed away too early.
Great to hear from you AE. I wouldn't get too offended by the editing, it has actually been done quite skillfully so that the intent of your post remains intact. The trick may be for you to up your game so your messages can remain unedited without losing their punch.
There already is a change. Over half the population over the age of 15 live in rental accommodation. Generation Rent is the majority now in 2015. We do not need to wait to 2029 for a demographic change.
This statistic (published in Shamubeel Eaqub's book "Generation Rent") indicates political change representing the needs of this new group will happen sooner than 2029. Maybe as early as 2017?
If change doesn't come by 2029 then change will never come. Kiwis will have thrown away their egalitarian traditions. Tory classism based around the 'landed gentry' of landlordism and absentee capital will be our ruling order.
The Sunday Star Times has done an excellent story about the power imbalances between Generation Rent and the Landed Gentry classes of NZ.
"Rental nightmare: Are are our tenants second-class citizens?"
http://www.stuff.co.nz/life-style/home-property/72180814/rental-nightma…
It would seem that under payment of the working middle classes might be a global issue that has been festering for a long time and it's symptoms are only now glaring and clear for all to discern.
With Wages Down 5% In 42 Years, Jamie Dimon Says Stop Complaining, At Least You Have An iPhone Read more
It's instructive how these issues are blithely underestimated when a frontline NZ Herald journalist claims without explanation that the sale proceeds of Lochinver Station for ~$88.0 million were partially earmarked to create endeavours supporting ~8,000 jobs. The return on capital would have to be extraordinary given that an annual income of $11,000 for each of the proposed employee numbers extinguishes the proceeds inside one year. Read more
I do not believe 8000 jobs were to be created with the sale, one or two too many zeros. also with cheap credit at the moment they should be able to raise easy enough
and as fran said this morning bayleys have said if they sell within NZ the price will be 30% less so even more evidence of offshore buyers pushing up NZ asset prices
The US version of capitalism is toxic and the less we have to do with it the better.
The likes of the TPP is a US corporate takeover and should be avoided. The original free trade agreements -The 1840s Corn Laws (free trade in grain) were about lowering the cost of living for workers and the growing middle class. This current TPP trade agreement does the opposite. Medication costs will rise and it creates structures to empower the corporate elite against the needs of the middle class and their democratic representatives.
Neoliberalism or the Washington consensus is also a set of philosophies that empowers the wealthy few against the productive many. The places that have done well -Singapore, Germany, Northern Europe..... are the ones confident enough to assert their own values against this onslaught.
As a related issue that I recently posted on Transportblog
Winston Churchill in 1909 was not able to build a political consensus on land value taxes and his final administration starting in 1951 where he was the British Prime Minister was not able to reform the 1947 Town and Country Act in a way that would provide affordable housing for the working class (unlike say the Germans). Winston was unable to reconcile the aspirations of the working and productive classes with the landed gentry class. The necessity of shelter in the 20th century unlike food in the 19th century was not reformed in a way that meant it could be provided affordably.
But his 1909 speech on Land Value Taxes is still perhaps the best explanation of the issue.
http://www.landvaluetax.org/current-affairs-comment/winston-churchill-s…
It is my belief that this has contributed to Britain losing its leadership in industrial innovation. For New Zealand because we copy many British policies this has meant New Zealand has had difficulty developing away from the one-horse economy of agricultural production to a modern diversified economy.
Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public.
Winston Churchill condemning unearned income, thank you for the link. Churchill = ENTP personality and IQ of 140, ie: a rational temperament with good mind that gets the bigger picture.
I would not be so forgiving as Churchill though, as I have said here often that the receiving rentier income is criminal like behaviour. What is so different about the thief from the landlord, they only differ in the process in which they obtain the other mans property. Capital gains is like taxing a thief on the proceeds of their crime, and letting him keep the rest.
You have undertaken quite a journey here Brendon, I am hoping you are starting to see that planning restrictions are not the cause of the unearned income and removing those restrictions does not alter the underlying process, it will only slow it down or transfer it.
That is scaremongering Brendon!! Lets look at the doubling effect of house prices for a moment......if a landlord has to pay down debt he is going to pay tax on the principle he pays down......What effect will the new equity rules in Auckland have on tax take? The Government will be on the winning side here.
Given house prices have doubled plus.......and many of these house purchases have been by landlord owners then the Government has effectively doubled the amount it can collect tax off......if and when the debt is paid down.....that means a $300k house that is now worth $600K is more valuable to the Government and future IRD tax take!! It's a dirty little trick and one that Aunty Helen unleashed upon NZ during her reign and one that JK has used as well.
The RBNZ under its financial stability criteria can at any time change LRV rules for any part of the housing industry........and when they do this it provides tax revenues to a Government as all those landlord owners have to now position their property portfolio's to be within the new parameters......so when a landlord has to fork out money to pay down debt....fat fingered Harry at the bureaucracy has to be paid also.....it's the old tax on principle repayments being enforced by the RBNZ LVR rules.......
If half the population is living in rental accommodation then there will be considerable tax to be collected from any enforced debt pay down.....the interest bill from all the Government debt administering all the demanded social services has to be paid from somewhere!!
It is not scaremongering. The beauty of democracy is eventually reality has to be acknowledged. In this case the new reality is renters have the numbers to out vote landlords -so renters needs will get greater political representation...... Landlords need to factor that into their investment decisions.
I really don't see the point in blaming baby boomers.
We got to where we are by a combination of events. Especially regarding the housing crisis it wasn't a planned thing.
The most relevant point about the situation is the combination of wealthy and powerful vested interests who prevent effective reform to fix the crisis. These vested interests are not the baby boomers -many of whom are genuinely worried about how future generations will affordably house themselves. In fact the vast majority of ordinary kiwis of every age when asked want affordable housing. Even those who already own a home -such as baby boomers.
The real problem is that governments have been unwilling to confront the powerful minorities who oppose reform. Our political leaders have chosen not to build an effective political consensus to deal with the problem.
We all know that housing could become affordable by providing a combination of supply and demand reforms. The group that most oppose these reforms is not the baby boomers but the rich and powerfully 'landed gentry' (this includes the finance, real estate and sycophantic MSM industries) who are intolerant of any threat to their wealth, even artificially generated wealth.
I think people all over are looking for genuine leaders not fakes and if this is a scruffy anti-establishment 66 year old guy who looks like a sociology lecturer called Jeremy then that is ok.
Regarding the British housing crisis -Paul Cheshire Professor of Economic Geography at LSE summed it up in his analysis of the various election manifestos in his article -A Real housing crisis and only fake solutions http://blogs.lse.ac.uk/politicsandpolicy/a-real-housing-crisis-but-only…
Really the fake leaders in the political/economic establishment have only themselves to blame -they had a chance and they blew it. Now it is someone else's turn.
The baby boomers always say 'we paid our tax, we are owed our pensions'. Well where is all of that money? Oh that's right, your elected governments spent it all! Its been well known for decades that we couldn't possibly pay for so many to retire at once, you should have voted for governments that were prepared to setup pension schemes or contribute to the likes of the Cullen fund. But you didn't, you voted for tax cuts. And you still do.
Now what government should we have voted for. They have all played football with super. The only super they actually have changed is the one they get when they leave politics. They voted on all three stages while the rest of us slept one night. They don't need National Super so they don' t deal with it as it is in the too hard basket. Don't blame the boomers. Blame greedy gutless politicians.
If and when you have taken the trouble to take todays 2015 average Auckland wage, and extrapolate and de-index it back to 1970, and then calculate the income tax paid at the ruling rate for that year at 5 yearly rests (not every year) - and produce the results here, then we just might believe you
The first people retired never put into a scheme, so National super is like a Ponzi scheme.
In 1974 labour introduced a scheme where employees and employer were required to put into a government retirement scheme. (I'm not saying this was a good scheme or Not, or what value it would actually be worth now)
The people who will benefit the most out a taxpayer Retirement scheme (The baby boomers) choose to elect a National Government who offer to scrap the scheme and refund contributions, and instead fund it from general taxation. "This wooed many voters who were unhappy about their take-home pay being reduced to fund their retirement."
This same generation who took power, lowered taxes, moved the economy from a baby to grave system to user pays, stopped investing in infrastructure, and believed that they deserved more than their parents, and now their lazy kids and grandchildren)
The Cullen fund is a burden on the workers now, to pay for their parents and grandparents generation, and will only offset the cost by about 14%
The generation today is expected to fund their own higher education, put away for their own retirement, all while trying to purchase house when income vs house price is historical high.
Of course when the generational shift in power changes from the baby boomers to their grandchildren generation, the policies will reflect what this generation is best for themselves.
I'm 36. Reading this article about asset testing for both super and health services scares me. It makes me think I have one of two options. Start investing now with very high risk and try to become very wealthy. Or blow it all and be happy being poor. Because with so much asset testing there is no reason anyone would want to be middle class. Same outcome as being poor, just whether the government pays or me.
Start investing now in shares in health providers as aging baby boomers put more and more stress on such providers. They will provide you with dividends when you need them. The only risk is that such companies will be bought out for their cash flow but that is not a bad risk.
Just continue to party like most people your age, forget about retirement you don't want any more than $225K worth of assets then the government then meets the full cost of a retirement home for you or else you have to find that $1000 a week. I don't see the world changing with the next generations, they are more greedy than the last. May as well enjoy it while it lasts I give the world as we know it another 50 years tops and with events panning out as they have been of late on the news it could be less. My advice......enjoy every day while it lasts.
Here is a much more realistic picture.
By 2019 robots will be doing all the work so the unemployment rate will be 90%
Because the unemployed are the majority they become the government.
This government makes all the unemployed workers millionaires with fiat currency and turns the top 10% into their slaves.
And the 90% live happily ever after - Amen
....I sympathise with the non home owner. Why should the landlord get a tax deduction for his loan interest, rates, insurance repairs, depreciation on chattles and so on when the home owner cannot? This is why they can pay more for the same property. It is a such a simple fix. The young should revolt, organise a social media rent strike or something. Get active - its worked for Grey Power.
"We have far to go before we see the full implications of today's generation wars. Some Boomers have only in the past few months discovered that their generation is widely and increasingly despised. They react to vitriolic attacks with hostility, puzzlement and surprise. If today's online comments are anything to go by, Boomers face harsh retributions and social vulnerability once they head into their 80s. Even their power to sway elections may not mean much in the face of the coming generational backlash."
http://historiesofthingstocome.blogspot.co.nz/2012/12/boomer-backlash.h…
Bernard Hickey - we are importing Baby-Boomers
Four months ago I ploughed slowly through the Government Statistics Census reports for the years 1996 through 2013 which granulates the different cohorts
by age and nationality - which produced the following results - (couldn't get any census information prior to 1996) - the information is there - you just have to persevere and you can get it- for total accuracy would need to get the first census after 1966 and find out the number of people aged 21 and nder at that census - it would have to be much less than the current 1.138 million because the total NZ population in 1966 was just over 2 million
On the basis that they weren't making any more after 1966 I was interested to see how many Baby-Boomers there were in New Zealand and if it was the problem that Bernard Hickey keeps making out to be. The exercise takes a while to assemble the data. While I was at it I also totalled up the number of Baby-Boomers that were of Asian Nationality because it was the largest identified sub-group
The surprise was the number of Boomers of all nationalities was growing, not decreasing, while the number of Asian Boomers was growing even faster. As the proportion of Asian migrants account for approximately 30% it can be assumed that all other nationalities are contributing to the increase probably at the same rate
Here are the results from the census. Identical more accurate information is required on the arrival and departure cards - but such detail is not provided in the monthly dump - it is noticed that 20% of PLT arrivals do not disclose where they intend to reside
The following comment was posted in response to one of Bernard Hickey's regular Baby-Boomer discriminations
Baby Boomers - Data extracted from censuses 1996-2013
Baby-Boomers Born 1945-1965
NZ-Total number of Baby-Boomers - all groups
1996 1,111,000
2001 1,110,000
2006 1,134,000
2013 1,138,000
Existing 1996 cohort can't increase beyond 1,111,000 locally
Can't make any more of them organically
Asian - Boomers - Total
1996 66,000
2001 80,000
2006 97,000
2013 113,000
Between 1996-2013
The National total number of Baby-Boomers grew 27,000
While the Asian total of Baby-Boomers grew by 47,000 (Que?)
Which means 20,000 of the original 1996 national cohort never made it
http://www.interest.co.nz/opinion/75757/bernards-top-10-boomer-doom-loo…
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