Hide Speech: Cullen's Super Policy Classic Labour
Rodney Hide Speech: Cullen's Super Policy - Classic Labour
Speech to AMP Breakfast; Auckland Club; 34 Shortland St, Auckland; Thursday October 28, 2004.
Thank you for the invitation. I have been asked to speak on the Harris report on workplace saving and ACT's economic policy.
Pension policy and economic policy are inseparable.
I have always believed that the best policy for caring for our elderly is strong and consistent growth. The more prosperous we are as a nation, the better we will be able to look after our elderly and indeed every New Zealander.
I want to live in a country that not only provides a world-class education system and ongoing opportunities for its young, I want to live in a country that is wealthy enough to ensure its elderly - who have served us so well - live with dignity and have access to healthcare second to none.
Wealth generation is the only way we can deliver and sustain this ideal. Handing over our hand-earned cash to politicians to play with is no long-term workable proposition.
Averaging five percent growth a year instead of two would make us four times richer in 50 years. We can care for our elderly - even as the baby-boomers come of age - if we have good, strong growth.
Super policy in New Zealand has overwhelmingly focussed on the percentage of the average wage government is paying retired people. But this calculation will never ensure an adequate standard of living. Our focus should be on setting a standard of living that retired people can look forward to. Instead, more and more are sleepless with worry.
For example, if wages are low then pensioners won't be well off. Sixty-five percent of the average wage, say in Fiji, would drop the pension to a fifth of what it is. Sixty-five percent of the USA average wage would see the pension here doubled. The focus shouldn't be on percentages, the focus should be on the elderly and how best we can serve them. Let's not forget of the sacrifices they have made in the interests of our young developing country over the past 65 years.
I would rather have a pension 50 percent of the USA's average wage than one 65 percent of the New Zealand average wage, or indeed one 100 percent of the Fijian average wage.
The best solution to the problem of providing for our retired is prosperity and the best super policy is to promote prosperity. That means low taxes, a free economy and a minimum of red tape.
The Government's approach to the pension problem has been the opposite of what's needed. It's classic Labour.
FIRST, PUT TAXES UP
That makes it tougher to save. Helen Clark and Michael Cullen's first action on taking office was to put up taxes. They pushed up the top rate of tax from 33 cents to 39 cents in the dollar. The higher the tax, the tougher it is to save.
Ten percent of all taxpayers are now caught by the Cullen/Clark six-cent penalty on success and achievement. That's 238,000 people.
Higher tax means less investment, less entrepreneurship, fewer jobs, poorer wages lower growth, and less prosperity.
SECOND, LEGISLATE THE PROBLEM AWAY
Clark and Cullen have passed a law saying that the pension must be 65 percent of the average paid at age 65. As if that solves anything. The number of retired is set to more than double. The Government can pass all the law it likes - it doesn't change the reality. Next year the first of the baby boomers born in the last year of World War II turn 60 - time is rapidly closing in around us - just as it is for John Tamihere - oops I digress!!
The present super scheme is unsustainable and passing laws in Parliament doesn't change that.
THE THIRD ASPECT OF THIS `CLASSIC' LABOUR GOVERNMENT IS HAVE THE GOVERNMENT SAVE FOR YOU
Nanny State believes people can't be trusted, so Labour has the so-called Cullen Fund saving for you. The plan is to put some $42 billion of taxpayers' money into a big state-run fund over the next 20 years and then pay it out plus interest to cover some of the future cost of super.
Instead of the cost of super going from four to nine percent of GDP the Fund bumps it up to six percent now to knock it down to eight percent in the future.
The Fund itself peaks at 40 percent of GDP - 20 percent larger than the market capitalisation of the entire New Zealand share market. That's a big fund - and it represents a considerable financial and political risk.
Already politicians want to invest it in their pet projects and the Government's balance sheet is going to get knocked around as the Fund's value fluctuates.
The Fund sucks in two percent of GDP and does nothing to address the real problem: the need for strong, consistent growth. The Fund does nothing to grow the economy - indeed, in sucking an extra two percent of GDP up through the tax system, it's a negative for growth. We would boost the economy if we killed the Fund and dropped taxes accordingly.
FOURTH, MAKE SAVING COMPULSORY - WELL SORT OF
Clark and Cullen know that $2 billion a year into the Cullen Fund will make no real difference.
So now they are planning to make it easier for us to save. Not by letting us keep more of our own money. But by taking even more. The proposal is for the IRD to take an extra five percent out of each worker's pay packet. The IRD will then send that money off to some central administrator who will then invest the money on your behalf.
But the good news is the siphoning off of five percent won't be compulsory. If you ask not to have it taken and invested for you then you will get to keep it. Notice the presumption: it's for the government to decide what to do with the money you earn unless you nominate otherwise. I wouldn't mind that if that was the rule for the 35 percent of New Zealanders' hard-earned money the Government is taking now.
And think about this? Once that apparatus is set up, how long will Helen Clark leave it with an `opt out' option? Helen Clark is not into choice. She is into compulsion - she is into extra imposts - as you probably discovered when you were forced to pay 15-20 percent extra in cafes, bars and restaurants on Labour Day!
Back to the compulsory saving brainwave - just think of the administrative problems. If you have five employees or less, you don't need to run the scheme. But if you employ a sixth, you do. Oops. Imagine the extra compliance cost. So why employ that sixth person?
And what if you don't pay? Is there interest and penalties like with other payments that we make "voluntarily" to the IRD?
If you earn $27,111 or less a year, the scheme won't apply to you. But if you do a little over time, then bingo you are caught. You will be up for the minimum payment of $10 a week.
The schemes a dopey one. But it is classic Labour. Their solution to people not saving is to taken even more money from people. Notice they haven't been promoting this idea through their over-grown spin machine... but I'm sure they'll be grateful that I have taken it upon myself to do it for them!
CLASSIC LABOUR NUMBER FIVE: LOOK AFTER YOURSELF
Still, the Labour Ministers know how to look after themselves. The state pension is $592.98 a fortnight.
But MPs on the old pension scheme have their own pension scheme. For Cullen, that entitles him to $2,000 a fortnight, once he leaves Parliament. Tax-free. That's equivalent to over five times the pension that everyone else gets.
Of course, not everyone can get an MP's pension. But there are ample possibilities out there if you're a Government Minster. Get hooked up with some trust that's meant to be supporting the `have nots'. Leave. And get a $195,000 golden handshake. Call it net. Call it koha. Call it what you like. Pay no tax on it `cos you thought tax was for someone else to pay.
That will set you up with a good pension... and who knows maybe an early retirement!
Isn't that great? 39 cents for those who work. No tax for those who don't!
THE WAY TO PROSPERITY
We won't get rich - or secure our pensions - by having government taking even more money off us. The way to prosperity is to have a fairer and less economically-damaging tax system.
The best way to make our tax system fairer and less economically damaging would be to eliminate the 33-cent and 39-cent tax rates. We should drop the personal income tax to 20 percent. The rate of company tax should likewise be dropped to 20 percent. Government revenue would no doubt fall. But by how much?
The most conservative assumption to make is that such a tax reduction produces no extra jobs, no extra investment, and no extra business activity. On this basis, such a tax cut would reduce government revenue by $5.5 billion. That's less than the Government's current surplus. That is, it could be achieved without cutting any government spending - including the wasteful spending.
The political party I am privileged to lead believes that reducing the top rate of tax and the company tax to 20 percent would prove a great spur to work, investment and entrepreneurship. We would become more prosperous. Lowering taxes puts more money in taxpayers' pockets and increases New Zealand's prosperity. Our elderly would have much more of a chance of securing what they deserve - living in dignity and enjoying what were once dubbed the golden years.
The difference between Labour and ACT's approach to the economy and its attitude to our senior citizens couldn't be further apart.
ACT's approach is to look after everyone, not just the lucky few. ACT's approach is to let Kiwis keep more of their money, not less. ACT's approach is to trust people and to allow them more freedom, not less.
No one knows when the forthcoming general election will be, but what we do know is that voters will be presented with some stark choices.
ACT wants to be part of a government which will build a country young and old can be all be proud of.
Everyone deserves more than being treated as some percentage of the average wage!