Truth in Super -- Rodney Hide
Truth in Super
Thursday 7 Mar 2002
Speeches -- Superannuation
Speech delivered by ACT Finance Spokesman MP Rodney Hide to the IIR Superannuation Conference, Intercontinental Hotel, Wellington
ACT New Zealand stands for freedom and personal responsibility. It's hard to imagine a policy more destructive of both values than New Zealand's superannuation policy.
New Zealand Super takes $60 a week from each and every worker in the country to pay for the retired. That's $60 a week that workers lose to spend or save as they choose.
New Zealand Super also robs us all of responsibility. It implies that you don't have to take responsibility for your own retirement because the state will always look after you.
There are currently 450,000 superannuitants. Over the next forty years the number will more than double to 1.1 million. The number in the workforce is projected to grow only 10 percent.
The result is that the cost of super per worker will more that double to $130 a week in today's dollars. That is simply unsustainable.
Workers can't afford the $60 a week now. They certainly can't afford $130.
Tax rates would have to rise 25 percent across the board over the next 40 years simply to pay the pension - let alone the health care costs of the increasing number of elderly. That would flatten the economy. Even Jim Anderton no longer believes that we could sustain that size of tax hike.
Dr Cullen's solution is to take another $22 a week off each and every worker and put it into a state investment fund to smooth the costs of super in the future. The fund doesn't solve the problem. It only smooths the costs. It puts the costs up on workers now and at best only drops the cost $13 a week in the future. The Cullen fund will raises the cost of super today from $60 a week to $82 and lowers them at best from $130 a week to $117. The burden still rises to unsustainable levels.
The problem has been solved before. In 1975 the pension kicked in at age 60 and was set at 80 percent of the average wage. Muldoon promised the nation that it was sustainable. No party campaigned on lowering the pension. Both Labour and National did. Winston Peters won votes complaining of the betrayal. In power he only removed the surcharge. He never increased the pension back to what it had been.
The number of over 60s has doubled since 1975. And the pension entitlement has been halved. Shifting the age of entitlement out to 65 and dropping the pension to 65 percent of the average wage has halved the pension entitlement.
It doesn't matter which parties are in power - or what their promises are - history will repeat itself. The number of elderly is set to double - the entitlement will be halved. The experience of the last 25 years will be repeated over the next forty.
It is simply a matter of arithmetic.
Of course, there will be a great deal of politics, many broken promises, growing disillusionment and a million retirees who will rightly feel cheated. A Winston successor will be on the sidelines complaining of betrayal - but arithmetic will beat even him (or her).
We have time to make the necessary adjustments. The way to start is to be honest. The present super scheme is unsustainable - just as it was in 1975. Dr Cullen's fund makes no difference. It is smoke and mirrors.
We would be far better to apply the $2 billion a year to dropping the top rate of company and personal tax to 30 cents rather than building up a state fund. Dropping the top rate of tax would expand the economy - the state fund won't. A bigger economy is the key to providing better for each and everyone of us - including looking after our elderly.
Tax cuts also give us the wherewithal to save for own retirement. Dropping taxes down to a top rate of 20 cents in the dollar would lift New Zealand's growth rate and allow New Zealanders to have the best super policy of them all : money in a fund in their own name.
In making the transition needed to cope with over a million over 65s we need to protect the position of the existing retired. That's why it is important not to take a political head-in-the-sand approach. We need to signal in advance the changes that are going to occur and that are needed.
Over the next thirty to forty years the age of receiving a pension will be increased. It will go out from 65 to 68.
Over the next thirty to forty years the pension link to wages will be dropped. The pension will be linked to inflation rather than wages. That will protect its purchasing power but not its relativity to wages.
These changes will hold the cost to the taxpayer of providing for the retired to present levels as a percentage of GDP. There is another change that would be helpful. Governments should be required to report the effect of their policies on intergenerational equity under the Fiscal Responsibility Act. Current government policy is robbing the next generation to pay for this generation. That needs to be reported as a minus. We should be holding governments to account to ensure fairness between generations just like we now hold them to account to run surpluses and maintain price stability.
I don't believe grandparents want to rob their grandchildren. We need to make plain that that is what we are doing - and we should hold governments and voters to account for their decisions by having a simple measure of intergenerational equity that governments must regularly report on just like we do for other key fiscal measures.