Bernard Hickey replays the latest NZ Super debate car crash and finds the cause - nearly 300,000 young non-voters

Bernard Hickey replays the latest NZ Super debate car crash and finds the cause - nearly 300,000 young non-voters

By Bernard Hickey

Watching the latest episode in our current non-debate about New Zealand Superannuation over the last week was like watching a car crash in slow motion. You can see what's going to happen next, but there's nothing you can do to stop it.

The fiscal and electoral forces at work are enormous and the cleverest politicians and spectators with anything at stake stay well away from the crash zone.

Labour Leader Andrew Little stumbled into a right mess last week when he answered a simple question about the affordability of the current universal pension and whether means testing should be considered.

He didn't directly endorse the idea of means testing super, but did question the affordability of the scheme and the fairness of working pensioners collecting the benefit and wages at the same time. He went on to call for the Government to restart contributions to the New Zealand Superannuation Fund.

Within minutes he was being accused of considering means testing and the backdown came from his office well before the six o'clock news. The Government could scarcely believe its luck (or its delight). Both Prime Minister John Key and Finance Minister Bill English leapt in with glee to paint Mr Little as the enemy of all hard working and/or hard retiring pensioners.

A few days later a contrite leader of the Opposition had to front up to the Press Gallery to explain that Labour had never, would never, and could never (ever) means test NZ Super. Even his views about resuming contributions to the Cullen fund had run away into the sand. He said Labour was not sure yet whether to resume them before or after the achievement of a surplus. The word 'fair' or even 'unfair' was nowhere to be seen in connection with the universal pension, or even the free ferry trips to Waiheke on the SuperGold Card for winery tourists.

It was yet another abject lesson in how New Zealand simply cannot have a sensible debate about the future of New Zealand's most expensive and fastest-growing benefit.

Yet every initial point made by the now-chastened Mr Little was valid and has been made by all manner of number crunchers and impartial advisers repeatedly for years, including Treasury and the Retirement Commissioner.

The numbers in Budget 2015 show the growth of this universal benefit dwarf any other movements in spending elsewhere. Treasury forecast spending on NZ Super would rise NZ$5.6 billion to NZ$14.4 billion in the nine years to 2018/19. The benefit increases aimed at poor kids were worth just NZ$200 million a year in 2016/17. Only half of the increase in NZ Super was caused by the ageing of the population, Treasury pointed out. The rest was because the benefit's indexation to average wage inflation, rather than consumer price inflation.

The cost is forecast to almost double as a percentage of GDP to 7.9% by 2060, when it will hit NZ$100 billion.

Yet this looming cost, which is amplified by the Government's refusal to contribute to the New Zealand Superannuation Fund, has become the Voldemort of politics - 'the problem whose name cannot be uttered out loud'.

And why is that? It is simple electoral mathematics and the details from last year's election have further enabled those who never want to mention even a suggestion of change.

There were 864,100 New Zealanders aged over 60 in September last year and 87% of those voted in the election. There were 743,200 18-29 year olds who could have voted in the election and who will have to pay the taxes to pay for the NZ$100 billion in pensions by 2060, yet only 49% actually voted. If the young had voted at the same rates as the old then there would have been an extra 282,000 voters.

That would have easily been enough to get the attention of politicians and open up the debate to include the interests of those who will be paying taxes from 2020 to 2060 -- the core of their working lives. And that, of course, doesn't count the children who can't vote now but will certainly be paying come 2060. Instead, the debate is frozen in time because a generation of politicians nearing retirement can rely on the indifference, inattention and laziness of a generation who will have to pay the price.  

----------------------

A version of this article also appeared in the Herald on Sunday. It is here with permission..

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

21 Comments

Comment Filter

Highlight new comments in the last hr(s).

There were 864,100 New Zealanders aged over 60 in September last year and 87% of those voted in the election. There were 743,200 18-29 year olds who could have voted in the election and who will have to pay the taxes to pay for the NZ$100 billion in pensions by 2060, yet only 49% actually voted.

By 2060, the oldest BBers will be 114 years and the youngest will be 96 years - I wonder what the average longevity of the BBer generation those projections are based on? Perhaps even more urgent is a debate on prolonging life through medical intervention beyond what nature intended for our species. The interventions to keep folks ticking along is going to cost a whole lot more than their super, I expect.

If boomers find a way to prolong their life by sucking the lifeforce out of the young so they can continue their life of wine, cheese and property they will, no doubt.

Can workers and businesses afford the taxes to fund a 50% increase in Super over nine years to 2018/19? "Treasury forecast spending on NZ Super would rise NZ$5.6 billion to NZ$14.4 billion in the nine years to 2018/19." While they pay the 'wealth tax' in the form of inflated rents, poor housing and inflated house prices that are increasing in cost even faster than Super does?

I suspect one or the other has to give or the hope of the generation producing NZ's wealth will be gone. They will permanently fall into negativity and despair.

Have a look at the comment below from Chris_J yesterday 30 May 2015

What is evident is NZ will vote for anything so long as the un-touchables remain untouched

1. NZ Super remains untouched
2. CGT taxes are not proposed
3. Housing remains untaxed

You can do anything else and they won't care

The demographic numbers are changing so fast you cant keep up
What is happening in Auckland will ensure the status-quo will be maintained

That was the crystal clear reason the nats got a mandate to govern on their own
The young who didn't vote saw no reason to vote
Do-nothing and Steady-as-she-goes will always out-vote rocking the boat

http://www.interest.co.nz/property/75741/building-and-housing-minister-d...

What you don't mention

NZ Super is taxed at source

and

Whether the costs and percentages you quote are gross or net - before or after tax

and

How much tax the superannuitants are paying in total as a group on all their income toward that cost

Sleight-of-Hand - again - playing with numbers

Bernard is discussing cost of Superannuation but directs attention away with voting demographics

Bernard Hickey says
There were 864,100 New Zealanders aged over 60 in September 2014
There were 743,200 18-29 year olds

Note he uses age group 60+ not 65+

NZ Herald - August 2013
The population aged 65+ has risen by 48,200 over the last two years
At 635,200, the population aged 65+ now makes up 14 per cent of the population
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10912279
I assume 65+ population in 2015 is now about 684,000

Only a 200,000 difference - or 30% on 684,000 - mischievous - as usual

The young and the old are 2 different issues.
NZ super is a social contract that those lucky enough to live to 65 receive for being a long term tax payer of NZ.
Poor children are caused by poor people having children (not the child's fault) and the tax payer give them money too.

You don't ever have to have paid any tax at all to receive NZ Super.

So, it's got nothing to do with how much or how little tax you might ever (or never) have paid.

I do so wish people would get up to speed on what universal means.

Actually there are some conditions such as having lived in NZ for several years. http://www.workandincome.govt.nz/individuals/65-years-or-older/superannu...

It would be extremely rare to live for many years in a place and not paying any taxes when buying groceries, paying fees, gst, etc.

Taxes are not only in income.

Having said that it is true it's nothing related with the amount of taxes paid.

"The cost is forecast to almost double as a percentage of GDP to 7.9% by 2060, when it will hit NZ$100 billion."
Yeah, well there are probably about 24 assumptions inherent in this statement: fertility rates, death rates, immigration, emigration, the economy etc. Besides, at this time the young people who were born in 1995 will be getting super. Unless, as you suggest they should vote against getting super at 65. If I was young I would never vote against getting super at 65. Sure taxes may be a little higher in the meantime during the transition phase to more oldies, but wealth is relative. if people do not have much wealth en mass, the greatest elastic cost of all: housing costs MUST fall. Ergo wealth is retained. Do not forget that once the NZ super age of entitlement is increased, it would be extremely unlikely to come back down again. So the young should be VERY wary of taking Mr Hickeys' advice seriously.

BH you're like a dog with a bone on this issue.....pity you didn't put energy and effort into how NZ can afford NZS!!!

The ageing of societies is a worldwide issue that in my view is manageable but that will end up with central banks and governments taking a different approach to the funding of economies. Already as the first baby boomers are well into retirement, and starting to require more health care as well as pensions, classical thought would mean their consumption was overwhelming the rest of society's ability to supply that consumption. And yet the world is suffering from a dearth of consumption. Retirees actually tend to consume less, other than in health care late in retirement, than when they worked.
Taking money off pensioners is not the answer- there is not over consumption. Nor is taxing young people more, a good idea, for the same reason. So how will it be paid for, is the obvious question under conventional economic thought, when the real question should be how will their consumption be supplied. The answer to the latter question is that there are plenty of resources to do so, it is just the making up the numbers that will be the issue. Many countries are stumbling on the answer through programmes of money printing, which they pretend they will pay back to themselves, but never will. The normal and perfectly good challenge against money printing is that it will be inflationary, even hyper inflationary. Despite more printing in the last few years than in all the years of mankind before that, if anything we have deflation.
So, there are answers. The world is well on the way to a solution. New Zealand is somewhat slow to the party, and are borrowing from the rest of the world, or selling them our assets.
I suspect John Key understands all this, or he would be more concerned. He is right not to be, but not for the reasons normally understood.
Modern Monetary Theory, espoused by a clever American professor named L Wrandall Wray, explains real economies better than I can, but as I understand his views, he would not solve the problem by stopping pensions, or taxing people more, unless inflation becomes an issue. And that would only be because consumption got ahead of supply.

As NOE says above it's a dog with a bone

Two things come to mind that Bernard never touches - but are very relevent to his hypothesis

(a) Multi-nationals avoiding tax thru profit-shifting and thin-capitalisation. If the government had pulled its finger out and levelled that playing field how much extra tax would be collected, and would not the extra tax collected (over-time) off-set any increase (perceived or otherwise) in the cost of new-entrants into the 65+ cohort

(b) New Zealand has just experienced boom-conditions over the past 3 to 5 years thru the success of Fonterra and Global Dairy prices so much so it should have been squirreling the added bonuses that were obtained, away in the Cullen Fund.

(c) Had those been done, would there be any substance and validity to Bernards proposition? Would we need to concern ourselves - I suspect not

(d) Until we get some meaningful data that says otherwise - that will be my view

a) How about the estimated SIX BILLION a year that the wealthy individuals in this country are sneakingly avoiding paying in income tax? While we proles cough up all the increased taxes hidden (not called "tax") as increased GST, fees for everything under the sum, absurd electricity rates, etc

b) Oh, the great business wisdom of the current crop couldn't figure that out, the idiots. If it doesn't have a large benefit for their "we want it all and we want it now" mates, it isn't in the picture.

Looking at birth stats, they peak at 1957 through to 1964 and drop off quite a bit by 1970 so the peak does not set a level that must be maintained there after. Retirement age of 65 means that most of these will be receiving GRI by 2022 - 2029 and this will be the peak period, there after there will be a drop off. Underscoring this issue is the need for Governments to create the environment that supports the creation of lots of jobs paying reasonable wages, thus enabling more people pay their taxes, and also making sure that the corporates, especially the multi-national ones pay their taxes.

The issue is not the absolute number of old people, it is the ratio between old people who collect Super and young people who pay for it. That looks as if it has undergone a permanent shift, unless you think life expectancies are likely to go strongly down or the number of children people have is going to go strongly up.

Having said which, you're not wrong about the rest. If the economy does well, then we can afford more, including NZS. Is 7.9% of GDP really unaffordable? Can everything else really not get by on 92.1% of GDP?

"...also making sure that the corporates, especially the multi-national ones pay their taxes." Good luck with that.

Yes, might need it. I am fast becoming a believer that the capitalist economic system we call the "free market" is as flawed as the communist one was. The big corporates and the wealthy in general seem to act like society owes them rather than recognising that they got their wealth on the back of societies. Governments who are supposed to be working for their people, seem to spend all their time sucking up to the big money like pigs at a trough. I can see a train wreck coming and the longer it takes I think the uglier it will be!

Marray - by far the most sensible comment on this thread.

History Lesson - have we forgotten already?

The day New Zealand stood up - can it stand up again?

Rainbow Warrior - Mururoa - Nuclear Free New Zealand

http://en.wikipedia.org/wiki/New_Zealand_nuclear-free_zone

In 1984, Prime Minister David Lange barred nuclear-powered or nuclear-armed ships from using New Zealand ports or entering New Zealand waters

At issue was whether these ships were nuclear-armed as well as nuclear-powered.

American policy was to "neither confirm nor deny", and most allies chose not to ask

Nameless versus the Named

So it's easier to bash the un-named oldies and the grey-hairs instead of the pillagers is it?

First, fix up the outsiders who happily pillage us