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Tough choices need to made over superannuation: Treasury

Tough choices need to made over superannuation: Treasury

By Paul McBeth

April 13 (BusinessDesk) – The Treasury is warning the nation has to do something to address its ageing population, with either sharp spending cuts or higher taxes the most likely response to pension affordability.

Deputy chief executive Gabriel Makhlouf yesterday told an Age Concern conference in Wellington that future pension costs will increase “very significantly” and trade-offs will have to be found to make it affordable if the country is to live within its means.

If changes came in the form of tax hikes, Treasury estimates GST would have to rise to 19% or personal taxes would need to increase by $30 a week from early next decade to maintain the current system. Alternatively, the government could slash total spending by about 7.5% from the early-2020s, he said.

“If nothing changes, the future funding of the increased costs of New Zealand superannuation, health and long-term care will need to come from somewhere,” Makhlouf said. “These are not easy choices. They all involve pluses and minuses.”

In his first public speech last year, Makhlouf flagged New Zealand’s ageing population as needing new policies that may include lifting the age of pension eligibility or introducing some form of means-testing.

In February, the government-appointed Savings Working Group called for tax incentives to stoke savings and investment, and lifting consumption tax to 17.5%. The group, led by former BNZ chairman Kerry McDonald, said the country was at risk of creating a generational divide between those over 45 who were assured of a pension and younger people who are not.

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Makhlouf said lifting the nation’s productivity, increasing the level of output per hour worked, could help stoke economic growth and make public services more affordable, though “we have seen a sustained rise in overall labour productivity in the past.”

Other options he canvassed included means-testing, or making bigger contributions to the NZ Superannuation Fund, set up by the previous administration to partially pre-fund a ballooning pension bill. The Savings Working Group also advocated resuming payments to the fund.

Finance Minister Bill English suspended payments to the fund in 2009, saying the government won’t resume its contributions until its books are back in surplus.

Superannuation has been a touchy issue in New Zealand, with Prime Minister John Key staking his political career on leaving pensions alone.


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