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On The Left: Superannuation bugs, and an apology

Monday 28th May, 2000

Superannuation looks like being torn again by partisan division that is not only needless - but is positively irresponsible. Why are there such big divisions over Superannuation policy, and what can we do to move forward?

Retirement income in this country faces an uncertain future. A political consensus which was forged in 1993 between National, Labour and the Alliance (the Accord) was unilaterally broken and declared dead in 1998 when National let the superannuation rate fall below the Accord floor of 65% of the average ordinary time weekly wage in the “policies for progress” package. Since then, parties have been making a range of noises.

One of the issues that isn’t so important, to me anyway, is the question of whether the pension remains universal or not. It is Labour policy to retain a universal system, and the policy of the Greens and the Alliance is the same. National appears to be confused on the issue, and I don’t know what ACT’s policy is. I totally support universal social systems in principle, and in practice they don’t cost all that much more money than targeted ones, due to administrative costs and so on. The way to achieve a form of means testing is simply to tax super like all other income. If people are earning a lot, then they will pay a higher tax rate, and if they earn a huge income, they will get no net super at all, paying it all back in taxes.

What is important though is how the system is funded. All parties agree that there is a need for universal provision of some level of sustenance. The basic division appears to be between those who support a pay-as-you-go scheme (National, Alliance) and those who want some form of pre-funding (Labour, ACT, NZ First).

I have some sympathy with those who argue for pay-as-you-go. If our economy was somewhat differently structured, I would support it wholeheartedly. It is a fact that the needs of superannuitants will have to be met out of production in the future. Whether the pensions are prefunded or not is irrelevant to that fact. The Alliance policy makes other good points too - with the dependency ratio falling at the other end of the age profile, we will be able to better afford the rising number of senior citizens than we would otherwise.

My support for Michael Cullen’s scheme to pre-fund is at least partially a consequence of the alternative. National has demonstrated that the incomes of those in retirement are to be sacrificed to an ideological obsession with tax cuts. So a pay-as-you-go scheme would never be secure under National led Governments. In comparison, the Alliance proposes significant increases in income tax to fund its super policy, among other things. This, too, presents political problems - the desire of ordinary New Zealanders to pay more income tax is generally fairly limited.

So if one accepts that pay-as-you-go is not politically saleable, then some form of pre-funding is inevitable. One method of doing this is to simply run larger budget surpluses, and to pay off debt in the short run, while running debt up in the longer run. The drawback to this scheme is obvious: while it would work, the temptation is there for parties on both sides of the spectrum to give away the required surpluses, either in tax cuts (from the Tories) or in increased spending (from the left).

The great advantage that Michael Cullen’s proposed scheme provides is that it would lead to an increase in the savings rate for the country. And doing that, essentially, is key to regaining sovereignty over ourselves and our future. The enormous debts we owe overseas are a result of our shocking savings record, and a properly set-up fund, beyond political interference and committed to investing a portion of its income in New Zealand, would be a significant help on the way to helping kill two birds with one stone.

Of course, nobody has really grasped the nettle yet on this issue. And it’s still early days in this Government’s term. The difficulty of the partially pre-funded system that Cullen is talking about is that it would take a long time for any concrete results, in terms of assets owned or significant surpluses to be accumulated, to occur. Such a scheme, if it was going to provide a useful benefit in the long run, would need to lead, I think, to higher taxes over all. There is no fat left in the public sector to cut. Unless the Government’s regional development strategy produces some quite startling growth outcomes (which it may well do, given the gathering strength of the economy and the lower, export-friendly dollar), surpluses on their own many not be enough.

Despite the divergent aims of those who support the fund Cullen is proposing, I think it has a good chance of eventually going through. The nationalist and sovereignty argument will bring about changes in the Alliance’s view, I believe. ACT will probably always oppose the state’s role in anything, but given the extent to which they are moving to become a populist party rather than a free-market urban liberal one, it may find it hard to oppose a scheme which was popular in public. And National has shown that its view is far from solid (with a delegate at this weekend’s Northern regional conference opposing the current position, and calling on the leadership not to follow a blind ideological line), and can probably be brought into tune with public opinion.

So a careful sell needs to be worked on by the Government. The price of failure is more of the same - ever-increasing foreign ownership of the economy and our future ever further out of our own control. Success will not only secure the pensions of all those who retire in the future, but will be a genuinely popular policy with positive effects for the left’s ongoing support base.

--

Last week’s column produced nothing short of a furore on the West Coast. The chief reporter of the West Coast Times read the column and re-published the first paragraph on Wednesday on page 2. The story went on, with a partial withdrawal by me on Thursday, and appeared as an NZPA story in the Christchurch Press on Thursday too. Allegedly comments were made on Radio Pacific and Newstalk ZB talkback, with one woman apparently insisting that I had published the column on the Young Labour web site (http://www.younglabour.org.nz) as an official party release.

I think what happened was due to my clumsy construction of the first part of the column. Both the first two paragraphs were designed to show two views of the Coast that are in circulation. I definitely didn’t intend to call Coasters “feral bastards,” which was part of the first paragraph. However, the Times and people on the Coast seem to feel I have called them all those words, despite my rejection of that. I am also, apparently, being taken to the Race Relations Office by one Barry Nicolle, who happens to be the leader of the “Coastal Action Network.” His logic in doing so is quite beyond me, but I guess everyone has their own theories as to what the Race Relations Office is for.

To reiterate what I said on Thursday, I want to apologise to anybody who was offended by the column. The way it was misconstrued did not help, but on reflection I can understand how it could be offensive. The only thing I can really say in my own defence, is that my intention was not clear - and it certainly wasn’t to direct such an offensive term at the Coast. It was to show what extremes of opinion exist out there. I will make sure in future that my meaning is crystal clear. Sorry.

Till next week,

Jordan Carter (c) carters@ihug.co.nz -- Jordan Carter Auckland, New Zealand

09 266 0445 -- 021 294 6105 ICQ: 4261200


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