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Dunne Speaks: Taxing Superannuation? Oh no, not again!

In 1984 when the fourth Labour Government introduced its now infamous tax surcharge of 25 cents in the dollar on additional income above $100 a week for those in receipt of National Superannuation, it was claimed that about only a quarter of superannuitants would be affected – the actual figure turned out to be 23% - and that very, very few of them would lose the equivalent of all their National Superannuation. In the heat of the time, that claim was largely disbelieved as much greater numbers of superannuitants, thinking their retirement income would be more than it actually was, believed they had been adversely affected and reacted angrily accordingly.

Then, there were just under 400,000 National Superannuitants, accounting for 12% of the population. National immediately promised to repeal Labour’s surcharge, only to replace it with its own version in 1991. Superannuitants’ outrage was predictable and immediate, leading not only to the establishment of Greypower but also contributed to the birth of New Zealand First to fight for the abolition of the surcharge. That eventually occurred in 1997, leaving both the Labour and National Parties of the time with massive credibility scars for their handling of the issue over the years.

Since then, universal entitlement to New Zealand Superannuation (as it is now known) has been restored and no major political party has been brave (or foolish) enough to tamper with that. National’s commitment since 2017 to gradually increase the age of entitlement to 67 by 2037 is perhaps the biggest potential move, but it is timid by the standards of Labour’s 1984 and National’s 1991 changes. Now that the current government has resumed contributions to the so-called Cullen Fund to future proof superannuation payments from 2025, an uneasy consensus appears to reign on superannuation policy.

In the meantime, the raw numbers of those in receipt of New Zealand Superannuation have risen around 95% since 1984 to just under 770,000, and their proportion of the population is up by a third to around 16%. Perhaps it was that growth and projections that it will increase in the future to around 1,430,000 New Zealand superannuitants by 2050, around 21% of the total projected population then, that has influenced the University of Auckland’s Retirement Policy and Research Centre to call for a tax surcharge on higher income earners receiving superannuation, to cover the cost of their superannuation payments.

Whatever economic and equity considerations there might be in favour of a proposal like this, political reality means it or anything like it is unlikely to fly. Too many political parties and politicians have been scared by the superannuation experience of the last couple of decades to want to go anywhere what looks like a reintroduction of the discredited approach of the 1980s and 1990s. Even though most of the generation of politicians involved at that time has moved on, the legacy of the sense of betrayal and antagonism engendered by those earlier changes remains.

Importantly, it was often not the superannuitants themselves who felt most aggrieved, but rather those approaching superannuation who saw their potential future income – and thus their intended retirement standard of living – being reduced, and their children, worried about how their parents might cope. It would be just the same today.

The only way change of this type could be progressed at this time would be through some form of multi-party agreement, but the chances of that occurring are zero. For a start, no party would want to be seen to initiating a move to tax superannuitants more, and few others would be keen to join them. There was a brief accord between National and Labour before the 1993 election which quickly fell apart because both saw richer pickings in continuing to attack the other over their earlier “treachery and betrayal”. There is no reason to think it would be any different today.

Moreover, if ever there was a cause to revitalise the flagging fortunes of New Zealand First, this would be it, and while Labour, and it appears National too, are prepared to cuddle up to them as the price of gaining political office, neither is so generous as to gift them a whole generation of voters in this way. The rising numbers of older New Zealanders presents enough of a challenge for both Labour and National anyway, and while both are steadily moving to recapture that ground, neither can afford to alienate, for whatever reason, that group of voters on an issue as basic as superannuation.

Now, while all this might appear an overly cynical assessment, it is nevertheless a political reality. It is not to say, however, that the preservation of vested interests means that future discussions of superannuation policy are off the table, but, rather, that if those discussions are to have credibility, they need to be couched in such a way to gain broad political support.

Enhancing and promoting Kiwisaver may well a prove a starting point towards some common ground. Today, over 2,800,000 New Zealanders are enrolled in Kiwisaver and that number is increasing steadily. Making Kiwisaver contributions compulsory for all those in the work force would allow for a more considered approach to be taken to New Zealand Superannuation over time. Backing that up with an annuities policy whereby Kiwisavers could manage their investment on a regular income stream basis once their funds mature at the age of 65, would mean that the absolute reliance on New Zealand Superannuation as the major retirement income source for so many would steadily reduce over the years, and that the climate for considering its long term future would be more congenial. There is scope for Labour and National to work together on this ground, if they are of a genuine mind to secure a stable retirement income scene for the future.

New Zealand Superannuation is but one – albeit a very large – part of the retirement income mosaic. The mistake we have made for more than a generation now has been to treat it as the whole picture. It is time to learn from that, and to move forward.

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