Making forward provision for the ageing population

What Finance Minister Michael Cullen had to say about Superannuation in the Budget.

Thursday, June 15th 2000, 12:00AM

We have safeguarded the relative living standards of today's superannuitants by restoring the floor for New Zealand Superannuation to 65% of the average ordinary time net wage. We did this because we are committed to providing, from age 65, a universal pension that is capable of supporting a reasonable standard of living.

All the evidence suggests that this is very much what the New Zealand public wants and expects. The political challenge now is to deliver on that aspiration by putting New Zealand Superannuation onto a sustainable long-term footing.

The ratio of those aged 65 and over to those in the working age population is projected to more than double by 2051. This means that spending on New Zealand Superannuation and health are likely to grow faster than GDP.

The problem is not confined to New Zealand. It is not even most acute in New Zealand. But it does demand a response. There are no easy options. There is still time but the window of opportunity will soon blow shut.

We can prepare for this by setting aside an allowance now to smooth out the anticipated costs of supporting the baby-boomers in their retirement.

The Government has not yet finalised details of its policy approach towards prefunding. But the implications at a general level are clear. In the medium term, prefunding will require the Government to generate cash flows sufficient to meet our debt commitments and to make the necessary payments to the proposed New Zealand Superannuation Fund.

This means the Government must increase structural fiscal surpluses from current estimated levels, which means in turn, forgoing opportunities we would otherwise have had to increase spending or reduce taxes. But while it may appear attractive to increase spending or reduce taxes now, it is not responsible in view of future fiscal pressures.

The risk is in delays. If we do not act soon, and act decisively, a core element in our support structure will become unsustainable. At that point, future governments will have only three equally unpalatable options: large tax hikes, big cuts in the level of New Zealand Superannuation or tough age, work, income or asset tests to limit eligibility.

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