Paying Growth Dividends to Senior Citizens
9 May 2002
Last month, the authors of a Treasury working paper floated the idea of further raising the age of entitlement for New Zealand Superannuation. Although the paper was reasonably wide-ranging, the Treasury's main interest in this topic would appear to be to manage (if not minimise) the "cost" of our universal public pension.
We don't have the same sense of concern about the tax cuts that many economists and businesspersons are calling for. We seem much more ready to think of income tax cuts as a "growth dividend" than we are to think of pensions in that way.
Dividends are distributions of an economic surplus. They are profits rather than costs. We urgently need to become a profit-sharing society.
We should be thinking much more about the benefits of economic growth, how those benefits have been distributed, and how they should be distributed in a just future society. It seems quite unjust to advocate that our growth dividends should be paid as income tax cuts to the richest 20% (or so) of New Zealanders, and disproportionately in favour of the richest 1%.
If we choose to see our public pension as a significant part of our nation's growth dividend, then it becomes obvious that the age of entitlement to Super should be coming down as our economy grows. We need to explicitly define our growth dividend, and use democratic means such as public debate to decide to whom the nation's growing economic surplus belongs.
Yes, there are issues relating to rising life expectancy and the baby boomer retirement bulge that will start to take effect in about 10 years. All that means is that, if proportionately more of us are older in say 2020, then more of the growth dividend should be paid to older people.
We work to live. We don't live to work. The growth dividend should be the increased living made possible over time by increased GDP per person. If we don’t get a return on the work that we do, then it makes no sense to work.
Raising the age of Superannuation while also paying tax cuts to the rich is a form of theft. Tomorrow's seniors - substantial owners of the nation's growth dividend - will be the victims. Those rich New Zealanders and foreign creditors who already (and unfairly) get the lion's share of our growth dividends will, through "tax cuts", get more. They will be the beneficiaries of such theft.
Even if we accept the "live to work - work till we drop" line of argument, we should note that the supposition that today's thirty- and forty-somethings will live longer than their parents' generation is likely to prove false.
There are both theoretical and empirical reasons to believe that some generations have higher death rates, at all ages, than do other generations. In particular, baby boom generations appear to have comparatively high death rates.
We cannot take the low death rates of the generation born in the 1920s (the generation whose experience now dominates our life expectancy calculations) as any reliable indication of life expectancy rates in the 2020s and 2030s.
Indeed, I believe that life expectancy rates will soon start to plateau and will fall in say the 2030s. If we raise the age of entitlement for NZ Superannuation then that in itself will further help to reduce the life expectancy of the baby boom generation.
The challenge faced by relatively affluent societies today is to make retirement flexible. Phased retirement could mean that we gradually wind down our commitment to paid work. Or it can mean that we have more options, ranging from very early retirement to working for pay throughout our healthy lives. The important constant should be that, whatever option we choose, we do not forfeit our right to a public pension (the retirement component of our growth dividend). Basically, we should be able to choose to get a smaller annual pension at say age 45, or a larger annual pension at say age 75, or something in between at some age in between. Once begun, our pensions would then last until death.
Economic growth can be good or bad. Good growth can make everyone a winner; it uses resources sustainably, pollutes minimally, and generates a public surplus that each New Zealander has a stake in.
The age of entitlement to a retirement income used to be 60. Raising the age of entitlement to 65 was a backward step. With growth, our growth dividends should be rising, not falling. It's time to be creative in the way we think about retirement.