"Critical analysis" of Labour's super policy is fundamentally flawed i

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Ian Douglas provides a response to the Littlewood Papers which criticise Labour's superannuation policy as being fundamentally flawed.

Wednesday, November 24th 1999, 12:00AM

by Philip Macalister

From the time that Malthus published his views on population and food production, economics has been called the dismal science. This report led by Michael Littlewood is only a modern example of the negative approach of economists to social progress.

What can be said in answer to this report?

1 The subscribers say 'they are a group of people with an interest in public policy on retirement incomes'.
On inspection it appears that they are all operating in the private sector of the superannuation industry. This would indicate a somewhat biased view of Labour proposals to improve the situation for the bulk of those depending on a universal provision for NZ Superannuation.

2 'It is a logically flawed proposal'

This is a statement of opinion not of fact.

3 ' It is more likely to increase the cost of New Zealand Superannuation over the next 30 years'
There is nothing to support such a conclusion. My own research indicates that there need be no increase in cost, and in fact there could be an overall decrease due to various factors -

1. An increase in certainty in the ongoing provision of a universal superannuation as a result of positive moves to establish an acceptable basis could lead to an increase in labour productivity. Let us have some positive expressions in favour of the proposal.
2. There is no increase in tax proposed to fund the proposals. There is simply a diversion of government surplus from a tax reduction to the wealthy (applying the concept of those who do not need a tax cut should not get one).
3. The 'surplus' is simply registered as being a part of the NZ Superannuation fund. It can still be directed to the reduction of overseas debt - the debt is simply transferred to the NZ Superannuation fund.
4. It is accepted that this will require some taxation to pay the interest on the debt to the fund. But the fund will benefit from the investment.
5. The considerable cost involved in ongoing commissions to investigate superannuation and the subsequent shelving of their reports. The Todd report, the PRG report, the Super 2000 study - all costs that can be avoided in future.
6. A steady flow of investment funds from the NZ Superannuation fund, whether they go into local investment or overseas investment will produce opportunities for NZ private investors. The return on investments will contribute towards the provision of universal superannuation.

4 'The fund is more likely to detract from New Zealand's economic health'
If this is the case why then has the government been spending large amounts trying to encourage New Zealanders to save for private superannuation for retirement?  There is no difference in economic effect between private saving and government saving. In fact government savings have proved to be a more reliable source of funds than private savings in NZ.

5 'the underlying premise that fully or partly funded superannuation can guarantee the security of New Zealand Superannuation ... This view is wrong.'
There is no underlying assumption of this nature. The policy simply states the basis of a funded universal superannuation. This proposal in itself cannot 'be wrong'. That depends on one's point of view. This view is right.

6 'Labour's proposals make New Zealand superannuation less sustainable because they are likely to increase its cost'

Refer to reason why it can decrease cost under para 3 above.

The monies paid into the National Provident Fund over the period from the NPF inception until its demise contributed considerably to NZ's economic well being with the enabling of loans to local government to provide the infrastructure of roads, sewerage and water schemes that National now wants to sell.

7 'Labour's proposals are economic window dressing. they will rob Peter to pay Paul'
One's view of this depends on whether you are Peter or Paul. The present Student Loan scheme which shows the large amount of student loans as an asset of the government without taking into account that the students are people having to pay for that asset must be an even greater exercise in window dressing.

8 'Our ability to create wealth - not the level of savings - is the key to the living standards of present and future retirees'
Someone should have told the Retirement Commissioner this before he engaged in widespread advertising to encourage private savings.

There is a great deal more to living standards than the accumulation of wealth. Living standards depend on community attitudes and a sustainable ecology not only on the wealth supposedly measured by economists. It may be that future living standards depend on a reduction in our wealth accretion and a distribution of wealth among the poor to improve their standards of health and simply getting enough food to eat - so reducing their propensity to revolt as in 1789.

9 'A change from PAYG requires workers during the transition paying twice'
This is nonsense. The amount actually paid out to superannuitants is exactly the same. The only difference is that a fund is being built up which will help pay for future superannuation - when current workers come to retire. They are helping to reduce the cost of their future superannuation.

10 'Peter and Paul again'
Twa corbies sittin on a wa'. Fly away Peter, come back Paul.

11 'Labour proposes increasing the generosity of New Zealand Superannuation'
There can be no increase on what does not exist. There is no generosity in present NZ Superannuation. The proposal is simply to return to the 65 percent relativity to average after tax wage for a married couple. This is what existed before National unilaterally broke the Accord on Superannuation.

12 'The investment risk remains with the government - it is difficult to see how such a large pool of investment money will be free from government interference'
This will depend on the 'democratic principles' being exercised by a freely elected parliament each three years, as is currently being demonstrated.

13 'Labour's proposal is fundamentally flawed'
No more so then the critical analysis put forward by the self-styled experts.

14 'how the proposed fund will help increase the capacity of tomorrow's New Zealand Workers to produce more.'
The fund will simply be one factor in producing a flow of capital to enable Workers and those working with them to improve the results of their own labours. The labour productivity statistics have remained relatively static over the past 10 years. This may be due to the negative attitude to workers over that period. The introduction of the Employment Contracts Act has had a negative effect on employee relations. The recently introduced privatisation of ACC has reversed one of the major advances in worker conditions introduced following the Woodhouse report.

The significant growth in world population will require ways of enabling more people to share work - even with the increase in aging of the population. The ongoing health of many of those older workers who are still in good health will depend on them having a useful contribution to make and a recognition of that contribution. Something more substantial than an 'International Day of the Elderly'

15 'How the fund boosts output, raises productivity, constrains current consumption'
The simple answer to this would be to abolish advertising - (particularly on TV1!). The continual increase in consumption is a major threat to world ecology.

 

A FEW POSITIVE IDEAS

1. Dedicate GST to the provision of superannuation.
2. GST is 8 percent of GDP. Current superannuation costs just under 5 percent of GDP.
3. This would leave 3 percent of GDP to go into a Superannuation Fund.
4. Note that Universal Superannuation, free of income and asset tests, applied, at the same rate as the Old Age Pension, but taxable and payable from age 65, from 1960 (not 1977) and at this point was 55 per cent of the gross average wage.
5. Comparison with other OECD pension provisions indicates that 8 per cent of GDP is at the lower end of the scale.
6. Starting NOW, GST at 8 percent of GDP will provide, with the income earned on the fund, for the payment of universal superannuation at the ongoing level of 65 percent of the average after tax wage, over the next 80 years and still leave a balance in the fund.
7. Presently about 70 percent of superannuitants have little more than the universal superannuation. This ratio is unlikely to change significantly, so universal is a necessity for the future well being of the elderly.
8. A universal provision which is financed from GST means that everyone contributes and everyone receives universal superannuation at the qualifying age. With improved health for the elderly, this age could be increased. A minimum of 25 years notice of change would be required - not the 5 years provided for the recent change. The income replacement for the low income superannuitants offsets the slightly higher percentage rate of contribution to income. Note that women are provided with significantly better security than from any contributory scheme.
9. The use of a GST funded universal flat rate pension provides one of the lowest administration costs in the OECD.
10. A Universal Basic Income would provide a strong support to the economy and provide a lower administration cost than the current means tested benefits system. With ecofarming in space to provide living space for the increasing world population on earth, this will be more of a challenge than the comparatively simple problem of providing a universal superannuation for the older members of society.

Ian H Douglas M Com; FCA Retired.

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