“Free Press” Act’s New Bulletin

Prime Minister on NZ Superannuation
In the House last week the PM suggested we didn’t need to worry about NZ Super because it is only costing us less than 5% of GDP, compared with over 9% for the OECD average now. He added that on current trends in NZ it would only rise to 8% of GDP by 2060.

Sound Reasonable?
Well, that depends on whether all is well in the OECD countries that are at or above these levels. France, Greece, Italy, Portugal, Spain, for example, are all well above the OECD average already. In a word association game, the words “fiscal and debt crisis” would fit pretty well with this list of countries. And also “grinding recession”. The PM is setting the bar way too low.

From Where do Pensions get Paid?
Not from GDP. For largely pay-as-you-go systems, pension costs are a large component of government spending. For that list of countries, pension payments range from 23-32% of government spending (OECD data from 2011). That sort of spending on pensions contributes to the surge in debt levels, squeezes out a lot of other worthy spending, and kills any chance of lower taxes. Do we really want to go there?

How are those Countries Responding?
It’s been a mad scramble of panic and desperation, in the context of grinding recession and, in some cases, depression level collapses in output. The ages of eligibility are going up; where there are pension contributions those are being increased; and indexation is shifting from a wage to inflation basis. It’s not wise to kick the can down the road.

The Outlook in NZ
In 2012 NZ Super was about 10.3% of government spending, and this year 12%. Treasury’s long term fiscal projections referred to by the PM show that increasing to 15% by 2030. And this is assuming the economy can deliver 1.6%pa real wage growth. As discovered in Europe, if something goes wrong debt levels will spiral out of control.

Or in Dollar Terms
NZ Super costs in 2014 were $11 billion. How much extra would that have been if not for earlier far-sighted political decisions to lift the age of eligibility from 60 to 65? The answer is another $4 billion a year. So what programmes would we have had to cut to fund that, or what taxes increased? Would those who opposed the last increase in the age of eligibility, from 60 to 65, now argue the case for putting it back to 60?

Well?
We didn’t think so.

Extra Costs Coming Down the Line
NZ Super costs will be increasing by about $700 million every year through the rest of this decade, and by about $1.5 billion by the second half of the 2020s. By 2030 we will be spending around $30 billion a year on NZ Super. So which bunch of taxpayers are going to be funding this extra spending every year, or which spending programmes will be cut, or which taxes increased? No wonder it is hard to balance the budget – that’s quite a headwind.

NZ Super Sustainability can Easily be Achieved
It’s true that NZ is in a far better position than many OECD countries. But many of them are a mess. If we make gradual changes now we can keep what is a simple and effective pension scheme, while making it fairer across generations. Time to get started.

Intergenerational Warfare
This resistance to making continual incremental changes to NZ Super is setting up an intergenerational battle. Younger generations, with student debt, unaffordable housing, and the threat of rising taxes to pay for all this, have every reason to feel aggrieved.

And We Live Longer
Life expectancy is rising by a year every decade. It should be a no brainer – we all know intuitively that it makes sense to align the age of eligibility with life expectancy.

But That’s not All
The demographic shock is not just due to rising life expectancy, it is also due to reduced fertility. There are fewer younger people. We are moving from a period in the 1970s where there were seven working age people for every one superannuant, to a situation in 2060 with only two working age people for every one superannuant.

Behavioural Changes Matter Too
Some interesting US data shows behavioural changes adding half a year to life expectancy since 1960: +1.3 years due to less smoking, +0.4 years due to lower vehicle accidents because of better cars and roads, partly offset by rising obesity (minus one year) and drug overdoses (-0.3 years).

Winston on the Budget
He writes: “There is a proverb that the wise man saves for the future but the foolish man spends whatever he gets. This has happened with the foolish Budget that has cut the KiwiSaver kick-start grant of $1000 and failed to resume payments to the Cullen superannuation fund.” A++ for rhetoric, but one problem...

Borrowing isn’t Saving
The KiwiSaver kick start wasn’t saving, it was borrowing by government to give to those who registered for Kiwisaver. And 38% of them just took the $1,000, without any follow-up saving. The other 62 per cent who did save were mostly those who would have saved anyway. That’s right, KiwiSaver kick starts were probably adding more to government debt than to citizens’ saving.

And the Cullen Fund
That’s not saving either, unless the government has a surplus to use. Otherwise it is borrowing to invest in debt and equity markets. Given that the opposition parties have opposed every savings measure since 2009, and dreamed up numerous spending measures, they can’t really be taken seriously on savings issues.

Norman Caught Picking Cherries
Last week Russell Norman tweeted a chart of the NZ trade-weighted index measure of the NZ currency, suggesting it was “an ongoing problem for NZ”. The chart was from 2009 to date, showing a general upward trend for the NZ dollar. He cherry picked the year after the GFC, when dollar dropped 25 per cent (it didn’t recover its pre GFC level until 2013). This from the guy who imperiously lectures us all about the global temperature record. Just as well the Greens have changed their co-Leader.

And Another Thing
A stronger currency represents an increase in household incomes, a boost to kiwi spending power, an increase in real wages. Successful countries with solid growth and low inflation tend to have currencies that drift higher over time.

A Free Press Reader Writes
Why can’t people renewing their passports in the next year benefit from 10 year passports now? How hard is it to change the expiry date line of a passport, make the associated changes in the computer system and set a new pricelist?
You expect small businesses around NZ to do this all the time whenever you fiddle with taxes, charges and levies.

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