"Superannuation - Let's Get It On"

Recently the New Zealand First Council of Social Services in their submission to the McLeod Committee, reviewing the tax system, argued for a reduction of GST to 10% on food, power and local public transport - ostensibly to support lower income working families battling current food inflation at its highest for ten years. That submission runs headlong into the Government's superannuation plan of building fiscal surpluses now to fund superannuation demands later.

What the Council is arguing against is charging today's low incomed to build tomorrow's superannuation payments. They want re-distribution of income now.

The Government's plan to construct a massive savings fund in the Government's not individuals name is one of the most all encompassing fiscal policy decisions in recent times. It is claimed that this plan is motivated by the deteriorating circumstances that an ageing population will have on the Government's fiscal accounts. In short, an increasing burden for taxpayers in the future supporting an increasing number of superannuitants.

The Government argues that unless there is a savings pool now, to be drawn on later, policy alternatives fiscally will include slower growth in super payments, a real rise in taxation or a budget blow out - or a mixture of all of the above. In reality the Government's stated position is no different from that which National argued when it attacked superannuation payments on 1 October 1998, as it did before in 1991, and as Labour did in a previous government in 1985.

Given the serious implications for the New Zealand economy portended by Labour's savings plan it is nothing short of alarming how little debate the plan has evoked. What is particularly serious is that the debate thus far has avoided the most fundamental of issues which may be summarised as follows:

Fiscal belt tightening to construct this savings pool runs counter to any dynamic growth strategy for New Zealand and hence there will be no attempt to stop the downward slide of our comparative international income and scale of wealth per capita.

Some key areas for economic development expenditure such as education will be insufficiently addressed to properly position New Zealand in the global marketplace. Moreover, critical issues like the reduction of company taxation to international competitive levels will simply remain neglected.

Stronger GDP growth and wealth creation will be adversely affected

To the question whether this savings fund is consistent with a dynamic growth strategy - the true test of its' soundness, the answer is that it fails the test.

The perimeters of New Zealand Superannuation entitlements, as set out by the present government, are:

• age 65 moderation to CPI within a band of 65-72.5% of net average ordinary wage (net of tax and ACC levy)


• recipients must have spent 10 years in New Zealand after age 20 (five of which must be after age 50)


• single live alone rate 65% single sharing rate 60% of the married couple rate respectively not income or asset tested

The fund would be established through annual funding at a constant % of projected GDP to adequately meet the expected costs over a rolling 40 year time horizon.

The Government may deviate from the required level in 'exceptional circumstances'.

The fund would not be drawn on until at least 2020.

Funds to be managed by an independent Crown Entity Board and would be taxable.

Fund to commence 1 July 2001 (and legislation to be completed this year).

Remember the Budget Economic Forecast Update 2000 made provision for:

$600 million in 2001/02 $1200 million in 2002/03 $1500 million in 2003/04

The proposed fund is NOT a conventional ' fully funded' scheme - it is not a pre-fund arrangement at all but a superannuation cost smoothing strategy.

It builds up funds for 'around the next 25 years' in order to meet part of future costs ie. the fund will eventually run down.

Annual payments of NZ Super are expected to rise from 4% of GDP to around 9% over the next 50 years. Currently there are 6 workers per superannuitant. By 2050 there may be only 2.

About $2 billion will need to be contributed to the fund per year initially.

Just what has happened on this issue for the last quarter century?

For 25 years, retirement income policy has been a political football in this country - a game played at enormous cost to our economy. After 16 years of economic experimentation, and without any savings strategy, we are a country with over $106 billion in foreign debt, with most investment being dependent upon the savings of foreign populations in other lands. New Zealand's key assets, in the main now, are owned by foreigners.

We are a country where today those who advocated the policies of reform have not got the intellectual courage to admit that they were wrong and have no answers for those who make up the emigration numbers - those who are described as supposedly our brightest and best - are emigrating to economies that do have savings strategies in individual names and do have long-term plans for economic survival.

We, as a party, in New Zealand First, from our formation have sought to promote a long-term savings strategy for this country and for its people.

It bears remembering that in 1975 the Labour Party passed the New Zealand Superannuation Act, which was a compulsory savings scheme in the name of individuals who had saved. That scheme had defects that could have been removed by Parliament, but the scheme was never given a fair chance.

What would this country look like today had there not been the level of political angst about that scheme but rather a genuine attempt by Parliament to improve it over time? How different today would New Zealand be?

In 1997, as an initiative from New Zealand First, the surtax was repealed from 1 April 1998 and we proposed a referendum on a long-term savings strategy. There was an immediate stampede by politicians to politicise the issue.

New Zealanders voted down the referendum, but they did not vote away the problem.

The Government has an opportunity at the start of the millennium to deliver a long-term sustainable superannuation scheme that will give certainty to New Zealanders planning for their retirement.

But Dr Cullen's plan against the tests outlined earlier is little better than nothing. It fails to address New Zealand's growth needs, it ghettoises those in the current poverty trap, and despite the superficial treatment by commentators it will not provide New Zealanders with the confidence that this era of economic planning has resulted in something that will work. Alarmingly it is Labour and Alliance supporters who will be most adversely affected.

Norman Kirk knew that within Labour's ranks were significant groups who never made it to 60 or 65 years of age and at least an individual account would have the benefit of passing something on to one's estate should one die before retirement age. In short, a person was a saver with a life insurance policy maturing to a retirement policy when that person died.

It is fair and Norman Kirk knew that.

Moreover the most likely scheme to be raided is a pooled account as opposed to millions of individual accounts. No Government would commit political suicide by raiding individual bank accounts.

But raiding the pool has been a frequent occurrence in the past, particularly in respect of producer board monies. The last time it was raided was in December of 1975 by the National Party.

Those who say that they will entrench legislation to defend the pool account clearly do not understand that repealing the entrenched clause needs a bare majority of Parliament.

Currently superannuitants do not have the margins to retire with dignity, and that is why it should be no less than 72.5%. That is affordable with a sound economic strategy based on a savings and domestic investment strategy generated from within our own society.

For goodness sake. In Singapore 20% of a person's earnings goes towards savings that are run by an account almost identical to that proposed by Norman Kirk, and is in individual names.

In Malaysia the figure is 40%. Here we are whinging over figures of 5, 6 and 7%. Really, if we want to be part of the first world then we have to do some things like the first world does.

The question is why settle for less? Why settle for a scheme that has the defects that I have outlined, and introduced as it is without a mandate? The answer is that I do not think that New Zealanders will settle for it.

That is why these series of Armstrong Jones Roadshows on superannuation and savings are important. While politicians dally with inadequate and superficial answers a growing proportion of New Zealanders now have come to believe in compulsory savings for retirement. A recent AMP survey is further evidence of that.

More and more New Zealanders are making plans for their own retirement because they know the Government is not. Worse still, those who have analysed the likely future scenario know that a low growth economy with an ageing population spells trouble for taxpayers and savers. And they are acting and saving outside of any government partnership to protect themselves. They are to be commended for it.

However, in a climate where savings is not compulsory and governmentally insufficient, we will see every three years an assault at the ballot box of the non savers upon the savers.

It is inevitable and that is why it is to be hoped that the growing numbers of savers, in a nation where today our national savings are negative, will someday soon impose a level of rational thinking on this subject.