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Government again rips off retired

Government again rips off retired

Tuesday 8th Feb 2000
Rodney Hide
Media Release -- Other

ACT Finance spokesman Rodney Hide said today that Treasury documents
obtained under the Official Information Act show that the new government has
been tricky and dishonest and has once again ripped off retired people.

"Married couples are $1 1 a week worse off than Labour promised.

"The previous National Government tied the pension to the CPI and was
letting it fall relative to the average wage until it hit the new floor of
60 percent of the average wage.

"Labour promised to restore the pension to 65 percent. Helen Clark's
credit card commitment was to 'reverse the 1 999 cuts to superannuation

"Dr Michael Cullen declared on announcing the pension boost on 27 January
that the new Government was keeping 'faith with the electorate'.

"The Government at the time never released the costings. It's easy to see
why. The Treasury costings show that the Government only keeps it word for
the first year. The pension then drifts down relative to the average wage
because it is indexed to the CPI for three years.

"The Treasury papers confirm that under National a married couple would
receive $351 .94 net a week in April 2003. Labour's promise was to
boost this to $378.1 3 a week in their hand. Instead, the Treasury papers
show they will be getting only $366.84. They are $11.27 short.

"Their pension boost is only half what Labour promised. Pensioners
are shortchanged because the government has changed the way it
estimates the average wage. The Government compensates for this change
for the first year, but then lets the pension erode in value for the three
years after that.

"Once again, pensioners have been ripped off. Helen Clark, Michael Cullen,
and Jim Anderton have failed to keep their promise. Their credibility is
on the line yet again," concluded Rodney Hide.

Mobile: +64 25 570 803)

Pension Promises -- Married Couple

::::: Base Case::::: Labour's policy Labour's promise::::: CPI Adj.
:::::::::: Wage Adj.
Apr-99 Apr-00 Apr-01 Apr-02 Apr-03::::: $325.58



Actual vs. Promised Increase
::::::::::::::: Actual Increase Promised Increase::::: Difference
$14.92 $16.28
$26.19 $0.00

Treasury Report:::::: Calculating the Fiscal Cost of Increasing New
Zealand Superannuation Rates

1::::: This report sets out the process by which Treasury calculated
the fiscal costs associated with the Government's decision on 25 January
to increase New Zealand Superannuation (NZS) rates.

Base Case Previous Policy of a 60% Floor

2.::::: Under the base case, the NZS couple rate for April 2000 would be
adjusted by the percentage movement in the CR1 and would continue to be CR1
adjusted until the 60% wage floor is triggered in 2002103. The forecast
cost of NZS under the base case is based on the Pre-EFU numbers.

New Policy Set the Couple Rate at $347 (Inside a 65 72.5% Band, Based on
the Revised QES)

3.::::: Under this scenario, the wage floor is higher than in the base case
and the NZS couple rate is set initially above this floor. It is then
subject to annual CR1 adjustment until the wage floor rises to meet it1
which is forecast to occur in 2004.

4.::::: The cost of the new policy is the difference between the two
scenarios. Expenditure is estimated net of taxes and covers both NZS and
Veterans' Pension (VP).

5.::::: The Government decided to set the rate from 1 April 2000 at
$347 for a married couple ($173.50 for a married person) and adjust it
for the CR1 in subsequent years until it reaches 65% of the average weekly
earnings measure. It has done so because using the Statistics New Zealand
new QES survey would have resulted in NZS rates lower than expected
from its pre-election commitments. $347 is an estimate of what NZS
would have been for a married couple using the old Statistics New Zealand
QES survey (see table 1).

Table 1 NZS Rates Based on Estimate of old QES (for 1 April 2000)

Gross Ave. Weekly Earnings::::: $673.72

65% NZS wage floor: married couple rate $347.061
Tax on Ave. Weekly Earninqs:::::$139.79
Net Ave. Weekly Earninqs::::: $533.93

in the event, the Government rounded this figure to $347.00. These
costings were based on $347.06 as they were undertaken prior to the
Government setting the new rate at
::::: T2000-i 16: calculating the Fiscal cost of Increasing
::::: New Zealand
Superannuation Rates 3
6.::::: The Government sees setting the married couple rate at $347 as
the most effective way to meet its pre-election commitment on NZS rates. At
the time the Government set the NZS rates it knew that Statistics
New Zealand was introducing a new QES series but did not know the
exact figures that would result.

7.::::: The table below sets out the rates used in the base case and those
used to estimate the cost of the new policy. Forecasts for these
rates over the following three years are based on the stated assumptions
about the CR1. The CR1 has no impact on rates in 2000 as the increase to
at least 65% of average earnings raises rates by more than the CR1.

Table 2 Rates of NZS Used in Costing - Base Case and New Policy
::::::::::::::: Base Case::::: New Policy::::: CR1 Percentage
::::::::::::::: married::::: married person Adjustment::::: change
::::::::::::::: person rate:::::rate (estimates::::: between base
:::::::::::::::::::: for costings)*::::::::::case and new
____________ ____________::::: policy
April 2000::::: $165.39::::: $173.53::::: -::::::::::4.9%
April 2001::::: $168.37::::: $176.65::::: 1.80%::::: 4.9%
April 2002:::::$171.74::::: $180.18::::: 2.00%::::: 4.9% April 2003:::::
$175.97 $183.42::::: 1.80%::::: 4.2% * The actual rate set was rounded to

8.::::: Table 2 also sets out the percentage differences between the two
rates. This difference is applied to the base case estimates of costs
to determine the increase in fiscal costs associated with the new rates
in Table 3. Note that the rates are changed on 1 April, 34 of the way
through the fiscal year, and so the percentage difference applied relates
to 34 of the difference in the first year and 14 of the difference in the
second year.

$347.00. Setting the rate at $347.00 results in fiscal costs that are
expected to be $2.5 million lower over the four years, ie $681 million in
total. T2000-1 16: calculating the Fiscal cost of Increasing
New Zealand Superannuation Rates 4 Table 3 Increase in Fiscal Costs
From Base Case
::::: Fiscal year::::: Pre-EFU::::: % difference Net cost of New
::::::::::::::: expenditure between Base Policy compared
::::::::::::::: net of tax Case and New with Base Case
:::::::::::::::::::: ($m)::::::::::Policy:::::::::: ($m)
::::: 1999/00:::::5,098::::::::::1.2%::::: 52
2000/01 5,066:::::::::: 4.9%:::::::::: 208
2001102 5,179:::::::::: 4.9%:::::::::: 212
2002/03 5,363:::::::::: 4.7%:::::::::: 212
Total over
::::: 4 years _____________ _______________ 684

Costings Over Four Years

9.::::: The estimated net four-year cost of $684 million is lower than
pre-election estimates of the cost of raising the wage floor to 65%.
Earlier estimates showed the annual cost growing over the next four years
because the 65% wage floor, as determined by the "old" QES, would have
been binding in each year, leading to rising real rates of NZS linked to the
growth in real average weekly earnings. Under the new policy costing,
the first year's rate increase is similar but increases in the following
three years are only CR1 linked because the 65% wage floor is not triggered.

10.:::::In later years, costs would have grown at the same rate under
both the "old" and the "new" QES, but the level of the costs will be
lower with rates based on the "new" QES average weekly earnings figure.
T2000-1 16: calculating the Fiscal cost of increasing New
Zealand Superannuation Rates 5

For more information visit ACT online at or contact
the ACT Parliamentary Office at

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