Cullen: Address to Tokoroa Grey Power
14 July 2005
Address to Tokoroa Grey Power
Tokoroa Bowling Club, Chambers St, Tokoroa
Budget 2005 has as its goal the long term security of all New Zealanders, be they young people at school, families caring for children, business people or those in retirement.
Security is not something we can simply legislate for ourselves. As you are well aware, it is hard won and involves careful planning and a habit of making sacrifices in the short term in order to achieve longer term goals. Making good choices early on can make us more independent and give us more choices when it counts.
That is true whether we are thinking about retirement savings, or home ownership or education. It is also true of decisions about the government’s finances. Excessive spending or tax cuts may be popular in the here and now, but they simply weaken the economy in the long term.
That’s why the major initiatives in this year’s budget have been around encouraging New Zealanders to save more. I appreciate that this is a message that does not directly impact upon you, since most of you have moved beyond the saving stage. However, your children and grandchildren are no doubt in the period of life when they need to be investing for the future as well as surviving in the present.
During the 1970s we in New Zealand lost the plot with respect to retirement incomes, both the state pension and private provision. Your generation has had to prepare for retirement during a period of uncertainty over what the state would provide and uncertainty in private provision through the decline of workplace savings schemes and unsettling experiences such as the 1987 stock market crash.
How much of that turmoil was strictly necessary is a matter of debate. It began with Roger Douglas’s compulsory workplace super scheme which, while it had its merits, was tied to an expectation of long stable careers that was fast changing in the 1970s. It was also burdened by a centralised approach to funds management which Sir Robert Muldoon effectively lampooned through his dancing Cossack advertisements in the lead up to the 1975 election.
Of course, he replaced the scheme with a tax-funded state pension so generous that it contributed to the rapid deterioration of the nation’s finances and led to the economic and financial crises of the early 1980s.
That was about the time I was starting out on my political career, and over the course of the following 25 years I have been both an observer and a participant in a struggle to find a solution than is both fiscally responsible and politically sustainable, and also fits into the changes in work patterns and lifestyle that we have seen in recent decades.
With the savings package in Budget 2005 I can now proudly say that the Labour-led government has delivered on long term stability for retirement, both in terms of the basic safety net and in terms of a sensible regime to encourage private retirement savings.
The first task was to secure the state pension, both in terms of its relativity with wages and in terms of the security of its funding.
We reversed National’s cut in the link to wages as the first in a series of changes aimed at restoring the value and security of the pension. Most recently we have announced new legislation which ensures that all superannuitants living alone can be paid the single, living alone rate of New Zealand superannuation.
The legislation removes anomalies which have prevented some superannuitants living alone from getting the Living Alone Payment of $19.67 a week.
Two critical changes are being made to the existing law to ensure that all superannuitants living alone qualify for the payment.
First, married superannuitants with a partner in long-term residential care have not been paid the single living alone rate if their partner was in unsubsidised as opposed to subsidised residential care. The discrimination had existed since 1993 when the previous National government made changes to residential cares subsidies.
We are fixing the problem, and from 1 July next year around 2,000 more superannuitants with partners in care will become eligible for the higher rate of single superannuation. That will mean an additional $19.67 a week which is a significant boost to living standards.
The second change will remove the 'sharing expenses rule' which has prevented some single superannuitants getting the Living Alone Payment. The way this rule has applied means, for example, that a superannuitant living alone who has help with her rates from her family would not qualify for the Living Alone Payment.
When the new legislation comes into effect on 1 July next year all superannuitants living alone, whether or not someone is helping with their household expenses will qualify for the extra $19.67 a week from the Living Alone Payment.
In the interim the Minister of Social Development has issued a ministerial direction on the sharing expenses rule from last Friday, 1 July, to soften the impact of the current rules, pending their removal in the forthcoming legislation.
In addition to restoring New Zealand Superannuation, we also set about establishing the New Zealand Superannuation Fund to provide long term security for the state scheme. In so doing we addressed head on the unavoidable reality that we have a bulge in the age profile of our population, caused by those now in their 40s and 50s, and that this places in jeopardy a state pension scheme funded entirely from current taxation.
There would be only three ways of dealing with it: higher taxes, cuts to the pension, or putting aside funds now to meet a portion of the costs in the decades to come. What is more, a problem of this magnitude requires action well in advance. If we as a nation want fiscal stability in the future we have to start working towards it now.
The Super fund now stands at around $6.3 billion. It will need to increase to several times that amount over the next couple of decades.
The need to build up the Superannuation Fund is an important reason why I have resisted calls to cut taxes. It is true that the government is running surpluses. But it is also true that we have been using those resources to reduce our debt, and to build up the Super Fund and to invest in essential infrastructure such as major roading projects and upgrading electricity and water supply systems. There is no sense in which the surplus will stay in my bottom drawer for a rainy day.
We are fully committing our resources to grow our economy, build up our infrastructure, care for health and education needs, maintain law and order and put something aside for managing future costs. Significant tax cuts would mean something has to give, and what their proponents are very coy about is what would be sacrificed. Would they cut health? Would they cut pensions? Would they reverse the rates rebate? Or would they allow our national debt to move back up, thereby incurring greater debt servicing costs and placing our economic future in jeopardy?
There is no free lunch, and people who live outside of the major urban areas need to be especially suspicious of the tax cut rhetoric, since the spending cuts needed to pay for lowering taxes would almost certainly impact first upon rural and regional services. That is because the easiest way to cut government spending is to withdraw services from the regions and centralise them in the big cities. So, when anyone promises tax cuts, you need to read their lips carefully, because what they are actually saying is longer waiting times for health care, longer queues for public services, lower pensions, fewer police and so on.
That’s why we are not talking about across the board tax cuts. They would hurt our economy and jeopardise public services that sustain our communities.
Alongside the Superannuation Fund, the other pillar of a stable superannuation policy is the savings package that I announced in the budget.
The Securing Your Future package will make it easier for people to develop a long-term savings habit. At an estimated cost of $588 million over the next four years, components include:
KiwiSaver, a government-sponsored work-based savings scheme, including features to assist first home purchase;
a substantial expansion of the Mortgage Insurance Scheme and;
education programmes for financial literacy and first home buyers.
KiwiSaver will be a voluntary scheme, enabling people to put 4 or 8 per cent of their gross salary automatically into a managed savings fund. However, to make participation easy, new employees will be automatically enrolled in KiwiSaver and have three weeks to decide whether to remain members. Existing employees, the self-employed and beneficiaries will be able to opt in.
Savers will have personalised accounts they can take with them as they shift jobs.
There will be no tax incentives for saving per se; however, the government will contribute directly with a contribution of $1000 to each new account. It will also pay part of the fund management fees, increasing the return that people get on their investment.
A secondary feature of KiwiSaver is to assist with first home purchase. As you know, home ownership has been declining in New Zealand. This is matter for legitimate concern, since the security of home ownership is linked with better health and educational achievement and a stronger sense of community. Ownership helps people participate in society, giving a sense of control and independence.
So while KiwiSaver's main purpose is to help people save for their retirement, first home buyers will be able to withdraw their funds for a deposit on a house. They will then be able to divert their fund payments into repaying their mortgage.
When people have been KiwiSaver members for at least three years and are ready to buy their first home, the government will help with their deposit. They will receive $1000 for each year's membership in KiwiSaver, up to a maximum of $5000.
Our estimates are that KiwiSaver will enable around 3000 households a year to realise the dream of owning their own home.
At a broader level, what we are aiming to do with these policies is to shift the savings culture so that New Zealanders take a more informed and more disciplined approach to creating and managing their wealth.
That is why we have included in the budget savings package a set of education programmes for financial literacy and first home buyers to be developed over the coming year.
This set of policies is aimed at a generation younger than yours, of course; but that simply means you are in an ideal position to see the wisdom of encouraging more New Zealanders into a regular savings habit. No doubt you see your own children struggling to save.
You know how strong is the temptation to spend any extra money on current consumption rather than to put it aside for retirement. And you know the value of a savings system that quietly, week after week, puts small amounts of money aside and enables them to build up over time into something that can supplement New Zealand Superannuation.
Our policies for older New Zealanders extend well beyond superannuation. We have always recognised that older New Zealanders are usually on fixed incomes and that the periodic adjustments to New Zealand Superannuation do not always cover increases in costs, or take some time to do so.
That is why, for example, the Prime Minister recently announced the new rates rebate threshold. This means that up to 300,000 low income and older New Zealanders will be eligible to have up to $500 deducted from their annual rates bill. $50 million a year is being budgeted to implement this policy.
Thousands of Government Superannuation Fund recipients will have their incomes lifted as a result of proposed amendments to the GSF scheme. $10.2 million is being allocated over three years for this initiative.
We are continuing to put additional resources into improving health care for older New Zealanders. We have greatly reduced doctors’ fees and prescription charges for superannuitants. We are injecting an additional $17 million over the next three years to fund 7500 more cataracts operations.
We are spending more on orthopaedic surgery to double the number of hip and knee operations funded by the public health system over the next four years. By 2007-2008 we will be spending up to $70 million on more than 9300 major joint operations. Already in the first five months of this financial year, major joint replacements increased by 33 per cent.
Also, District Health Boards will receive a funding boost of around $71 million to address movements in inflation and population growth and to ensure they are fully funded for the services, both residential and home based, that they already provide for older people.
Where residential care is needed we continue to work to ensure its quality and affordability, and to ensure that those who require it are not treated unfairly. We have passed comprehensive legislation protecting the interests of older people in retirement villages.
Also, as you know, from 1 July we have started phasing out asset testing on older people in care.
Independence in the home remains the preferred option, and we have been working to make sure this is more manageable for longer.
More than $690,000 over four years is being allocated to increase pay rates for people who deliver home help under the Ministry of Social Development’s Home Help Programme. Under this programme, financial assistance is provided to nearly 6,000 clients annually to purchase temporary part-time assistance to complete tasks around the home.
An additional $3 million over the next four years will bolster programmes to prevent elder abuse and neglect. Responsibility for funding these programmes is being transferred from the Department of Child, Youth and Family Services to the Ministry of Social Development.
We have recently announced that we intend to abolish the mandatory requirement for age-based driving tests for people aged eighty years and over. The current regime is costly on older people, it is stressful, and it is unfair.
We established a Review of Older Driver Licensing Policy, involving a Stakeholder Consultative Group and including representation from Grey Power. We will develop a new older driver licensing regime based on their recommendations, which were:
No mandatory age-based on-road test;
Retaining the current GPs "medical fitness to drive" certificate at age 75, 80 and two yearly thereafter;
The possibility of an optional on-road test in certain circumstances;
Medical practitioners to make greater use of a range of conditional/restricted licence options; and
Increased provision of educational materials.
What this demonstrates is our commitment to listening carefully to Greypower and other advocates for older New Zealanders. We may not see eye to eye on everything, but we share a positive view of ageing, one characterised by a high level of security and of participation in the life of the community.
This year’s budget took some important steps forward to making that the pattern that future generations of New Zealanders will follow as they move into their old age.