Our $100 billion debt of gratitude

By: Michael Lang

Every now and then someone comes along who, in their lifetime, puts in place changes which touch not only everyone in their generation, but generations to come. Sir Michael Cullen is one such person.

In 1898, the government of Richard Seddon introduced a means-tested “old age pension”. This pension was available for people 65 and over and was worth around one-third of the average wage. This pension, like most of the later changes, was funded out of current
taxation rather than through a separate investment fund. Subsequently, the age of eligibility declined to 60 and the pension as a percentage of the average wage increased.

However, those who were fortunate enough to be employed by a responsible employer – like my father whose employer was the Auckland Hospital Board – could contribute a portion of their salary to a superannuation fund which paid either a lump sum, or an annuity or the rest of their life based on a percentage of their final salary. 

Life in New Zealand was good. But over the course of a generation things were to reverse. Many financial commentators cite the high inflation of the 1970s, the debt taken on to pay for “think big” projects and the decision to remove the tax deduction for private superannuation payments, as the cause of our nation’s reversal in fortune. But it was only the first in a series of extraordinarily poor financial decisions that led to our current predicament.