By Chris Trotter*
On Saturday, Shamubeel Eaqub came out swinging against the Baby Boom Generation on TV3’s The Nation. The Gen-X economist was adamant that the New Zealanders born between 1946 and 1965 had guaranteed themselves a universal retirement income, which they were now enjoying, regardless of the economic impact on subsequent generations.
Outraged that the Boomers, not having saved for their retirement, continue to live on “welfare”, Eaqub made it clear that he regarded NZ Superannuation as a form of intergenerational theft. It was unaffordable, unsustainable, and it had to stop.
Asked what he would recommend by way of addressing the vexed issue of retirement income, Eaqub proposed raising the age of eligibility for NZ Superannuation to 70 years-of-age, and subjecting every applicant to a means test. Writing on the same subject for Stuff back in 2018, Eaqub further suggested making KiwiSaver compulsory and dramatically increasing the contributions from employers and employees. He was also of the view that his proposed means-testing regime would need to: “test assets and would be a natural complement to a tax regime that taxes capital as well as income and spending.”
As the National Party were quick to point out in relation to Grant Robertson’s proposed social insurance scheme (now on hold by order of Chris Hipkins) the sharp increase in deductions from workers’ pay packets required to make KiwiSaver a viable alternative for NZ Superannuation will be experienced by most employees as just another tax. It is unclear from his Stuff article whether Eaqub’s proposed Capital Gains Tax will be applied to the family home. If that is the plan, however, then the impact on asset-rich/cash-poor retirees could be catastrophic.
At the core of Eaqub’s proposals is a puritanical belief that citizens have no entitlement, morally, to an income they haven’t saved for. And that NZ Superannuation – currently paid for out of the steady growth of the New Zealand economy – is a violation of intergenerational equity. On The Nation, he railed against the fact that “very wealthy people” continue to receive NZ Superannuation. In a world run by Shamubeel Eaqub, this outrage would, presumably, cease. “Very wealthy” people’s entitlement to “Super” would be means-tested into nothingness.
Radical stuff! But also a plan guaranteed to provoke an extreme political backlash if implemented. Indeed, so vociferous would the reaction to Eaqub’s proposals be that it is difficult to see them being introduced in any other circumstances than those arising out of a full-scale intergenerational war.
If that is what Eaqub wants, if his plan really amounts to nothing more than the meting out of what he and his generation consider a well-deserved generational punishment, then they will have singled themselves out as a very dangerous generation.
When, however, Eaqub’s argument is pulled apart, older New Zealanders may feel entirely justified in arriving at such a grim judgement. Take, for example, Eaqub’s claim that the universality of NZ Superannuation “makes the system simple to administer, but expensive.”
Expensive compared to what? The cost, of New Zealand’s universal basic income for the over-65s, measured as a percentage of GDP, is predicted to top-out at between 7% and 8%. But, that is the cost of the German pension scheme right now! What’s more, as New Zealand moves beyond its Peak-Boomer moment, and the generation dies out (as all generations do) then the cost of NZ Superannuation will fall.
It is at this point that the reckless quality of Eaqub’s argument becomes most apparent. As the Baby Boomers disappear into the historical shadows, the Generation Xers will start to view their retirement with a mixture of trepidation and horror. In their determination to punish the privileged and selfish Boomers, Gen-X politicians, inspired by the likes of Eaqub, will have replaced the generous universal pension of yesteryear with a means-tested grant that kicks-in only after they reach their seventieth birthday.
Moreover, the KiwiSaver “nest-egg”, for which they have been required to defer so much personal and familial gratification throughout their working lives, will offer them a weekly payment barely equivalent to the purchasing power of their parents’ and grandparents’ Super!
To make matters worse, it turns out that Eaqub’s fingering of the Baby Boom Generation as the villains of his puritanical economic narrative for The Nation is just plain wrong.
More than 30 years ago, an academic by the name of David Thomson, wrote a book called Selfish Generations?: The Ageing Of New Zealand’s Welfare State. Born in 1953, Thomson was a fully-paid-up member of the Baby Boom Generation. Did that mean that his book was a sinister blueprint for the dispossession of the Boomers’ own children? Did it heck as like! In a fashion echoed uncannily by Eaqub, Thomson railed against his parents’ generation:
“In New Zealand the big winners in this have been the ‘welfare generation’ – those born between about 1920 and 1945. Throughout their lives they will make contributions which cover only a fraction of their benefits. For their successors the reverse is true.”
Eaqub’s fatal weakness is that, like so many economists, he is not particularly well-versed in his country’s recent history. Clearly, he has no idea that it was Baby Boomer politicians (David Lange, Ruth Richardson) who did their best to rein-in the cost of retirement income support. Between 1990 and 2000, these efforts transformed the Super issue into an electorally devastating political football which ended up scoring own-goals against both major parties. It was, Eaqub seems not to grasp, Boomer politicians who made sure the retirement age rose from 60 to 65. Boomers, too, who set up the Superannuation Fund to ease the nation through its Peak Boomer period.
Eaqub is not, of course, alone in his generational ferocity. There are plenty of other Gen-X commentators who are happy to join in the Oedipal dance. If these characters spent as much time blaming the neoliberal order (put in place by individuals born far too early to be branded Baby Boomers) as they do to bad-mouthing their parent’s generation, then something considerably more positive than gratuitous age-baiting might ensue.
A more fruitful place to seek for inspiration than Eaqub’s arid blame-game is on the streets of Paris and many other French cities and towns. It is there that young Frenchmen and women are fighting running battles with riot police to protect the French retirement age of 62, and the state pensions that come with it. They do not begrudge their parents’ good fortune. On the contrary, they are fighting tooth-and-nail to ensure that it remains their good fortune as well.
Those Gen-Xers who thrilled to The Nation’s intergenerational blame-fest, should turn their attention, instead, to just how much Shamubeel Eaqub’s ruthless prescription on pensions, and that of France’s technocratic and neoliberal president, Emmanuel Macron (b.1977) have in common.
*Chris Trotter has been writing and commenting professionally about New Zealand politics for more than 30 years. He writes a weekly column for interest.co.nz. His work may also be found at http://bowalleyroad.blogspot.com.
136 Comments
Wrong, Chris.
You belong to the most consuming, trashing, growth-indulging generation in history. On a finite planet, there can never be another such.
Future generations have a right to be p---ed.
Where you have a point, is that, if they continue to be kept in the dark by the MSM, Academia and politicians (with the notable exception of Macron - interesting you failed to see that - https://www.france24.com/en/france/20220824-macron-warns-french-of-toug… ) are still failing to understand that we are the inflection-point(s - it's multiple) of the Limits to Growth. Money is an invalid marker; the stuff it can be exchanged for, is the valid one.
Time for a valid accounting system; the one which assumed pensions/retirement funds, even beyond the boom-bulge, had to make heroic assumptions, eventually traceable back to assumptions that the planet is larger than it is. Infinitely so, taken to it's illogical conclusion.
Indeed.
Chris Trotter rightly demolishes Shamubeel Eaqub. But in his indignation he ignores Susan St John. She it is who proposes the sensible solution of keeping NZ Super universally available to everyone at 65 ... but by reintroducing a form of the surcharge or surtax abolished in 1998 clawing back the super from those with other incomes who don't need it.
Susan St John proposes something along the lines of the UBI that TOP wants for everyone, but specifically for those over 65: make NZ Super a tax-free UBI, then tax all other income at a rate, say 45%, that would deter anyone with significant other income from applying for NZ Super at all.
https://cdn.auckland.ac.nz/assets/business/about/our-research/research-…
https://cdn.auckland.ac.nz/assets/business/about/our-research/research-…
The St John/Dale proposal points in the right direction, but has its flaws. It fails to account for the growing number of retirees who are renters: for them, rent is likely to be more than they will get in their Super. Yet to throw in an accommodation allowance will only encourage landlords to charge even more. Perhaps the answer is to increase NZ Super to a tax-free $800 a week for everyone, then tax every home-owner-occupier the imputed income from living rent-free in their own house (along with any other extra income).
John, we should all be having this conversation, as something needs to be done, the bureaucracy and politicians in Wellington are not intertesed, but how do we bring it to the public?? We need to be positive about this rather than just moaning about it on this site
Not a fan of the UBI John. Also much of what you suggests penalises people for saving and rewards people for spending. And then you lose it completely; "then tax every home-owner-occupier the imputed income from living rent-free in their own house" What unmitigated rubbish! Rent is paying for the right to occupy. For owner occupiers that includes mortgage payments, rates insurance and maintenance. If you want to complain that is not as much as rent, then you open the argument to taxing people who pay different levels of rent because someone is getting a house for less than someone else. Worse you will in effect re-create the awful social construct of 'landed gentry'.
Try thinking things through a bit better?
You miss the points, twice.
1. As both Eaqub and St John make plain, NZ Superannuation is a social welfare benefit to ensure that New Zealand does not have agèd beggars lining the gutters with begging bowls. Therefore, to maintain its affordability, a means needs to be found to confine it to those who need it and deter those who don't. Forget the word 'UBI'. The concept is simply to pay NZ Super as an untaxed benefit, but to tax all other income heavily, so that those with significant other income will be better off not signing up for NZ Super at all.
2. The concept of taxing the imputed income of living rent-free in the home one owns assumes increasing NZ Super for everyone to include an accommodation supplement intended only for renters. If the accommodation supplement continued to be separate, available only on assessment, forget taxing 'imputed income of rent saved'.
Both Eaqub and St John, as well as you, miss the most important point. Every retiree today was promised early on by politicians that they would be cared for in their retirement, that a portion of the tax they were paying was being put aside to pay for it.People of those generations accepted a higher tax rate because of that. without that justification the pollies would have faced a lot more pressure to keep taxes down. That the pollies betrayed those promises, and are largely not around to day, should not be a reason that retirees are ripped off. Which is essentially what you espouse. What you are arguing is other people will decide whether you have enough, too much or not enough to live on in your retirement. If you have been prudent and saved hard to provide for it, you're effectively arguing that you should be taxed for that in some way or form. You use bland, unquantified and ill defined terms like "other income", but trusting a bureaucrat or politician to set that boundary is like putting a fox in charge of the hen house.
And taxing any "imputed income" is a jealousy tax and is utter BS. As I indicate no home owner lives rent free. Owning their home comes with a cost and that cost can be called 'rent', it's just not paid to a private landlord. If you want to make housing affordable for retirees, regulate rents so everyone benefits!
Thanks John for acknowledging that I too was on the panel with a far more moderate and politically acceptable view. Goodness, we have escaped the horrors of an Australian/Ruth Richardson type means test lets not talk about bringing one as the answer- it is not. Rasing the age to 70 is a recipe for horrendous poverty among older people much worse than existed before the Muldoon changes of the 1970s. It is not politically even remotely viable.
Chris makes some good points but there is no evidence in the demographic projections that once the baby boomers die off the numbers will fall-- they wont. The points he makes about the NZ Super fund are plain wrong. It does not ease the baby boom retirement-- nothing comes out of the fund until 99% of boomers are dead in 2055.
Yep - he was right.
We dug up fossil energy, and applied it to food-production (half the nitrogen in your body is Haber-Bosch originated). We went from 1 billion living semi-sustainably, to 8 billion living anything but sustainably.
We'd have done well to listen to him - and I'm guessing you are talking hearsay? I'm betting you have never bothered to actually read his writings?
talks about fact checking historical claims, then claims Lange was a boomer.
Equab is correct - age of super entitlement in NZ is 65, yet average retirement age is almost 70... boomer's are having it all till they can't.
Morally, if you're going to work till you're 70, you shouldn't be claiming an out-of-work benefit.
Except your theory does not work for many. In far too many cases people are having to work (even when in poor health, may I add and after paying taxes all their life) well past 65 because, for whatever reason, they did not save for their retirement and can not afford to live on the pension alone. You're taking a far too simplistic view of who receives the pension, why many continue to have to work and at what age they receive it.
And that's before you even factor simple human choice into things. A lot of people when they reach 65 still feel like they want to stay involved in their work, because of the relationships they have formed there etc.
If it was a case of "keep working and get no super, or retire and get super" then many would likely retire, but that's not necessarily best for the economy either.
Err, I'm out of work while I nurse my 99 year old mother towards her inevitable death.
I'm saving the govt a bundle by keeping her cared for at home. I shouldn't be left bankrupted by doing so with zero benefits... it's been 5 years now on this Supported Living Benefit, and I'd be in deep financial excrement by now if I didn't have it.
Do you have the right to preserve your assets and capital during retirement whilst relying on a social welfare benefit to to cover your day to day living costs so that you have an inheritance to pass to your heirs and successors? If so, how much should you be able to die with in the bank?
Cracker argument - but no.
I see my 90-year-old mother complaining about making ends meet - but that is relative to previous years; how can I tell her she's living at the expense of her great-grand-kids? (which, via overpopulation, she is).
And whay do we do about it, as a society? Euthanasia instead of pensions?
Ok, there are some smart people on here so instead of bitching about it how about a list of possible ways to solve the unaffordability of the status quo.
Pdk has offered up euthanasia.
How about a time limit of 15 years.
Or a maximum fixed amount. The less you draw, the longer you can stay on it.
Or bring back the super surcharge or means testing. Or maybe means testing after you have been on it for 10 years.
Or death duties.
How would you have lived your life differently had you been born a generation earlier? How do you live now?
The earlier generations lived their lives the only way they knew how, based on the information available to them. Most of the information we understand today was simply not available to the vast majority if not all, back then. It is simple arrogance to claim they should have known better!
We now have that option (legally)...however as a boomer from the very end of the cohort I will note that most boomers have lived through one radical societal transformation and will view another with all the cynicism it deserves.
In a world desperately short on labour and more importantly ability, consideration of those facts should temper any rush to demonise a wealth of potential contribution residing within that group.
Shamubeel is correct that the arrangements are unsustainable and inequitable. You can’t have a pay as you go situation where a person pays for 1/6th of a pension in their working life and receives a pension based on working people paying 1/2. Which is what will happen by 2060 - going from 6 workers to each pensioner to 2 workers.
I disagree with his recommendations because honestly it’s too late now. You needed to make changes earlier for them to be equitable.
Chris is wrong about the just 8% of GDP in the affordability calculation. You also have to add the additional health costs associated with ageing which is massive. One of the reasons the health system is under so much stress now is the increasing numbers of people 65+.
Another point Chris is wrong about is boomers acting. Yes they set up the superannuation fund but Key and English undermined that by failing to invest during a period of record low interest rates and record equity gains. Yes they raised the age of superannuation - 60 would have been utterly ridiculous. Yes they introduced KiwiSaver.
But KiwiSaver was too little too late. It should have been compulsory, it should be at least 4%/4% minimum - look at the contributions in Australia. It should have been implemented in the 1990s when the referendum occurred (but not necessarily on those terms).The age should have started rising progressively in the 2000s and be at or close to 67 already. And the requirement for working in New Zealand to qualify should have been raised significantly in terms of the number of years. The people who didn’t pay in should get a reduced benefit.
The situation we are in now is the boomers have made it through. They paid relatively less when they were working and got the full benefits when they retired. Now any changes will impact millennials and younger generations. So they get to pay for the boomers over inflated costs, then when they get there there won’t be enough money so they will be means tested/have a higher age.
The eventual shock of the changes will be greater because the steps taken at the last minute will need to be more severe.
Hardly - Future generations can also enjoy a decent level of retirement too if they don't insist on means testing National Super or more cuts to taxes.
I support universal benefits like NZ’s Super scheme, as they are simple and economical to administer and operate. They avoid the very real equity issues around very high marginal tax rates when payments are abated. They are not more expensive to society than means tested benefits - but you need to also have a properly progressive tax system. Finally, universal benefits also tend to be well supported by people. Keep National Super and bring back universal family benefit, I say
It must be old age , I need to retire , but I am finding I agree 100 % with Chris Trotter's weekly articles ...
... had Robert Muldoon not cancelled Labour's first " Kiwi Saver " scheme way way back in the early 1980's the BB's would be self funded in their retirements ...
Had either Labour or National bothered to copy the Australian scheme when Paul Keating brought it in , we would be in a far stronger position than we currently are ...
... so , the state in NZ has given us no choice but to accept a universal pension from them ... it is what it is ...
It was actually 1977 when the original Kiwisaver was abolished. The voters at the time voted in self interest.
Apparently a portion of their income taxes would be put towards National Super. However, I think it was the taxes that disappeared in 1989 when the top marginal tax rate dropped from 66% to 33%. Very convenient timing, considering that's when Boomers started entering their "prime earnings" stages of their careers where they would likely be subject to the top marginal tax rate.
It's pretty regressive though since a worker on a higher income is going to have a better ability to save once the basic costs of living are met, vs a worker on minimum wage who has to spend their entire income just to exist basically. So in effect, the actual tax burden on the minimum wage worker ends up higher than someone who is earning significantly more. I guess you could somewhat get around this by eliminating GST on essentials like food, but that then adds more complexity to the tax system which opens up a whole new can of worms and costs.
Interesting that the vote was in 1977 - which means that the baby boom generation were aged 13-26, and the bult of the baby boom generation - given that my classes through schools were the largest in recorded history and I was 15 at the in 1977 and still 3 years away from voting, it was clearly not the baby boom generation who voted for these policies.
The baby boom generation did not start entering their prime earning years until at least 2000, and posibly even later. I'm guessing that none of the younguns here remember what it was like trying to get even a minimum wage job in 1980-84. The largest generation had just left school, and the job market was flooded with bodies. Wages were surpressed as demand outstripped supply. I finished my degree in architecture, and worked about 3.8 years out of the next 6 due to there being nothing on offer - it wasn't until i retrained in computer science that I was able to actually secure regular work.
I guess people want a scapegoat, and in this crazy revisionist time it makes sense to ridicule the largest group of people. Like anything in the media, why let truth stand in the way of a good narative.
Most of the other commenters are blinkered and can't see it. CT's only real error here is that he doesn't go back far enough to consider Muldoon's actions and the consequences of it. Most later generations apply their own distortions too, ignoring the environment and culture of the times when those changes were made. PDK is wrong too. But my question is this, as an economist making this rant that CT discuss's, is Eaqub in effect balming everyone else other than economists for the problems of today? Aren't economists and their theories front and centre when advising Government on policies?
Isn't the Age change already put in place ? I think it is going to gradually go up for retirees from this April.
Any such Universal Pension Scheme is bound to rankle successive generations, which feel that they are paying for the previous generation's welfare. But hey, one has to respect the elders and take care of them, right ?
And any change in the scheme now, will have as usual many unintended consequences. It may also affect long term migration of skilled, capable people from other parts of the world.
Yeah, I thought the same when I read that 'radical' claim of his. Funny how we means test all other welfare benefits, other than super. That's not to say I'm against universal benefits - quite the opposite - as I support a UBI (a universal basic income for all). And I'd add that super these days is not a basic income, particularly for those living alone on it with no other income source.
Means testing leads to crappy outcomes and punishes people who have saved so that those who spent down as much as possible or gamed the system get the most benefit. Plus unless we are prepared to vary it hugely, you're going to end up with perverse outcomes like Aucklanders with lower living standards getting hit while people living off the pig's back in Gore are going to still receive full entitlements.
The most equitable options are as usually tax-based (tax it upon exit, not entry, like almost every other country in the world), taxing the double-dipping for FTEs still working full-time (you can do this with RWT thresholds) and offering a sliding scale for people who defer retirement vs. people who need to take it early for health reasons.
There will be a sticking point though - old millennials will be trying to get loans that push them past the age of 67 to buy their first houses and banks may not want to give them to them. 40% of your after-tax income for 30 years is a huge commitment if you are suddenly expected to save enough to live off for 30 years with no super, and millennials are turning 40. The window for adaptation is fast coming to an end, even for high earners.
Yeah, I agree about the crappy outcomes - see them all the time with respect to social welfare claw backs and the high marginal tax rates that produces.
So, yes, good point in favour of a UBI. But without universality, the only other option is means testing. And I agree, it is the worst option.
I like a UBI for simplicity's sake. But to make sure you realise the maximum potential efficiency benefits from it, you have to commit to massively detuning the administration of the Wellington backend it and I can't see turkeys voting for Xmas in that regard.
But we'll get the most benefit from the small bits we can change now that don't require upending the entire tax system in the process. The fact they aren't the big sexy vote-winners aren't a reason to not do them - if anything it should mean we treat them as a bare minimum.
Very true about the Wellington backend - just think of the benefits of universality with respect to bureaucratic demise in the administration of social welfare and tax admin to a lesser degree as well.
Hear you on the 'small bits' - incremental change is easier and especially when it is the right direction - but it's what we've been doing for years (i.e., the winter energy payment) and that just inflates the bureaucracy.
UBI and land tax - both so beautifully simple, as well as being the most highly efficient solution.
We all know that raising interest rates to control inflation has a 6 - 9 month delay factor before impacting upon inflation, and it only targets a small number of individuals, only those with mortgages. If kiwisaver was compulsory another way to do this would be to have a mechanism that raises the percentage deductions for kiwisaver accounts by 2 or 3 percent, from companies and individuals for a short period of time just to get inflation tamed.. This takes money from people and companies, but is not lost to the banks profits, but is depositied into the kiwisaver accounts as per normal, so is not lost in interest costs but available to the general economy eventually, once the kiwisaver account has matured (or a mechanism can be produced to allow this to be returned to tax payers earlier). The other advantage of this is that money is removed from general circulation very quickly, and has a faster response to lowering inflation, we may with practise get to manage inflation within a 12 month period or faster. Smooth out the pecks and troughs. Also this methodology would have an effect on more people and companies than mortgage holders, so the percentages used could be reduced or shorten the time to take control of inflation
I've been hounding politicians on how gutless and unimaginative they are for many years. It appears that Treasury is the main blocker to anything new. At present, Treasury says "too hard" and then the discussion stops. Ergo - the head (heads?) at Treasury must be cleaned out so the failings with the status quo are addressed.
Good luck asset testing all our new citizens with assets locked away overseas.
How about ma and pa who funded the kids home - you gonna claw that back?
How long back are you going to look?
Is the farm in the mix, the whanau land, the trust, the house your are providing for your disabled child/parent?
Its a beast of a thing to write a policy on, let alone finding the assets.
Where Mr Trotter completely misses the point is that if we rebalanced the tax system to include the taxing of wealth then we really don't have much of problem. And who is standing in the way of this re-balancing? Why it of course those with the bulk of the assets ... Baby Boomers.
The TOP land tax, is a start but they miss too many houses by the restrictions they have, needs to be a broad tax base to work effectively, all houses and aprtments includung farms (but not the productive land just the 1000m2 around the farm house) and religious lands. There should be no exceptions
Such shallow vapid thinking.
The super scheme is a pay as you go system. I.e. the tax payers of today pay for the super recipients of today. What Shamubeel overlooks is that the baby boomers paid for their parents super and it was significantly more generous that what they receive. For a start off, the were funding it from the age 60.
The real blame lies in the immigration fueled housing/low wage ponzie scheme economy that has enriched the unproductive asset speculation sector at the cost of everybody else. And for this we have to blame successive governments of all colors. This is not going to change and is only going to get a whole lot worse when National take power next election. If you do not like it, your only choice is to leave the country. For most young first home buyers it is their only realistic option.
The baby boomers paid like 1/6th or 1/5th of a persons super, Generation Y are going to need to pay 1/3rd or 1/2 of a person super. You can’t say well I paid for super when I worked, so they can pay for my super. You aren’t paying the same amount, they are carry a load that is 2-3x as heavy.
The boomers did pay for previous generations but because there was a higher number of workers to each retired person they paid less.
Take these for hypothetical numbers.
Boomer:
Paid: 1
Received: 6
Generation Y:
Paid 3
Received 6.
Can you see why that might not be fair? Why you can’t just say we paid/you paid, everyone is equal. It means Generation Y will have to pay a significantly higher tax rate.
What should have happened? The boomers should have saved more money via the NZ super fund to prefund their superannuation or they should have retired later.
Periodically these "ideological burps" emanate, usually during election year. There's another economist on the same tune today trying not to be left out Cost of living: Economist Brad Olsen says NZ's superannuation age needs to be urgently reviewed | Newshub
Shamubeel needs to work in a physically demanding role - such as a roofer, or a cleaner for a year. He would then not be supporting a lifting of the super age to 70. An economist or a university professor can work to a far different age than a manual labourer. He ought to realise that - it's simple common sense.
I totally understand this point of view, but at the same time, a laborer or tradie will often have a four-year headstart on someone who has chosen to go into further education as well as not having to pay off a huge loan.
If we had something that gave manual workers a headstart on super that would also end up benefitting men far more than women as women don't typically work in as physically demanding careers apart from professions like nursing. Im not sure what the answer is to this, it's pretty hard trying to keep everything equitable between different individuals and professions.
It's a good point, but in today's terms many disabled individuals get their first significant pay rise when they turn 65;
Supported living allowance + Disability benefit = $397/week.
Single super = $496/week.
https://www.workandincome.govt.nz/products/benefit-rates/benefit-rates-april-2023.html
Another argument in favour of a UBI.
Down to Earth Kiwi has a different view
The problem today is our ageing population. That's not even the fault of "old, rich people" since most of them have quite a few children. It's the "fault", if you want to use that word, of the new young generation, who are barely having any children. In Italy, for example, the typical family is barely having one child. In NZ, the number of children has fallen to an all-time low, below the "replacement rate" of two. That means there are fewer young people to support the elderly under the PAYG system. The elderly are also living longer.
The problem is that people like to assign blame. That doesn't help find a solution. Susan St John suggested something. Although I studied economics under her I don't have a lot of time for her. But this caught my attention:
She suggested the pension could be paid as a grant to everyone who qualified and then a higher tax rate could be applied to all the other income of people who received it.
Her modelling showed that with a rate of $17,448 per year, with a flat tax of 39 per cent on all other income, the breakeven would happen when someone’s other income was $139,000 a year.
Interesting, like the concept, may have legs but probably needs adjusting for inflation since she promulgated that idea but may be susceptable to tax avoidence, I prefer means testing but the testing is done by the IRD rather than whatever WINZ is now called. IRD have a lot of historical data.
Absolutely. Less paying tax at both end, but more taking it out at retirement. Clearly more tax has to be collected somewhere. Putting up GST and or income tax will just cause a mass culture of avoidance. Accordingly there is only one scared cow left to tax...
Property. Land Tax would be the simplest, most regular, and the most difficult to avoid.
A land tax really does seem like the most practical option considering how demographics are shaping up. Unlike other forms of wealth, land can't be taken out of the country or hidden away in tax havens. And taxing it doesn't carry any of the deadweight losses we get with other forms of tax on businesses and individuals.
It's awfully difficult to put a roof over a family's head when both adults generally need to work full time jobs. I'm sure the "new young generation" would be having more children if the mother could afford to stay at home while the father worked. I suppose it's the "new young generation's" fault that society has arrived at these conditions?
Housing affordability again. People talk about the 3x multiplier as affordable, but that was based on a single income. These days people talk about a 7-10x multiplier but overlook that that is often for a dual income household, which means to compare the 2020s with the 1980s you have to look at a per person income. When you do that, NZ's housing starts to look REALLY unaffordable.
Yup. Not really a lot of money left over to save after you service the basics, so the prospect of the pension may disappearing (or you could be ineligible for it for something as simple as having a mortgage free house) is really a crappy deal on top of a crappy deal for younger Kiwis - who will still be underwriting pensions for older workers who aren't dropping out of the workforce and causing an opportunity bottleneck.
Remember, millennials are now turning 40. They are halfway through their working lives. Expecting them to pay down huge mortgages for something like a house (formerly payable on a single income) and have families and save enough to live off for 30 years post-retirement is one final double-dip from a country that seems happy to let one generation take one for the team over and over again.
The boring little stuff, but there's a lot we could do. Increasing the age of entitlement slowly over time. Changing the tax treatment of Kiwisaver to be upon-exit. An exemption threshold for RWT. Allow people who need to take retirement earlier to take it at a lower rate. The things that require you to have constant front foot discussions and be open to tweaking things as we go. It's not big and sexy like huge changes to the tax system but leadership and progress isn't all huge sexy slogans and nation-changing policy swings.
Going forward, I think anyone currently working now has the pension to fall back on as basic social contract. I'm also guessing we could reduce our issues by importing younger migrants and making it easier to afford to feed and house families, so people might keep having kids and adding them to our future taxpayer pool. Hopefully that way you end up with a temporary blip as the boomer bulge does down, but you need more people to keep having families and making it easier to house them. I blame urbanists here as they keep trying to sell the idea of a 90sqm apartment as a family home but it just isn't enough for what we need. So housing is a factor there too, because you can't spawn what you can't house.
Lots of little stuff, but it just needs to be done. Silver bullets sound great for political parties in election campaigns but there's usually good reasons why they don't work in isolation and too many fish-hooks that make them unworkable. And that's before you get into my crazy idea for certain IRD numbers using certain tax codes to tailor income tax based on projected future retirement assistance available to workers (e.g. lower tax if you're not going to get access to the same retirement systems that people have currently) depending on the age of the person they're given to.
So to summarize, increase the age, tweak/defer taxes, and import more people to prop up the system.
Importing more people to pay taxes just defers the problem until they line up for the super. I wonder if there would be many takers for foreigners to pay a large annual fee to NZ in return for the right to move here in the event their country suffers a nuclear attack. Basically an insurance policy. 200k people paying $50k pa would generate $10b pa.
Not GV, but implementing a land value tax would offer a more sustainable solution to fund superannuation costs, easing the financial burden on workers' incomes and allowing them to allocate more towards their own retirement savings. This approach would could help alleviate the situation where current workers bear the cost of not only their own retirement, but also the previous generations.
I can see why people aren't a fan of land value tax, or any tax really. But I really can't see any better way forward as the current setup clearly isn't tenable much more into the future. A land value tax means we could avoid any costly adminnistration around asset testing, and since land is impossible to move or conceal from tax authorities, it's a lot simpler to collect than other forms of wealth tax that can often see capital flight from countries that try to implement them.
But it also removes any incentives to help lower the cost of housing, of which land is a significant driver. We can't fix that problem now and there's a huge agency issue if you make Crown revenues contingent on it increasing (ahead of the rate of inflation, apparently) forever.
Let's also not forget the significant aspect of people in built-up cities with grotesque land price inflation paying far, far more than people who may well enjoy a much higher standard of living in other parts of the country that just generally don't have the same pressure on land values. A postcode lottery isn't an acceptable outcome in the health system so gearing your entire tax system to operate off one seems a bit confused.
Plus it creates a defacto situation where people who have high value land in urban areas are forced into state-mandated reverse mortgages and generally if your tax system requires people to rack-up huge debts against your future estate just to keep living in a house you've owned for years then it's probably not fit for purpose.
It seems like a good idea and it might work if we were coming from a sensible starting point but we've really buggered up housing and given the slow pace of change and land-use (as well as our inability to build infrastructure to enable those changes), tax incentives on savings are probably the place to start, if just to suck some of the pressure away from housing investment and to give people more of a passive return to live on.
I'd disagree on the first statement, there are currently no incentives for landowners to reduce cost of housing. A land value tax might incentivse people to be less NIMBYish as they would bear some of the negative externalities of rising land values that currently only put any hardship on those trying to get on the ladder or those forced into renting. Generally LVT seem to encourage development rather than discourage.
I imagine you could have a LVT set up in a way like rates, basically setting up a budget, know how much revenue you require and then distribute that proportionally amongst different land holdings to get your revenue alongside other revenue streams like income tax, business tax, gst etc.
Generally people living in build up cities have currently benefitted massivly from rising land values and have got to keep all of that gain, no capital gains tax or anything. I agree it's not great that they might get pushed out but it's currently a reality for many people who may of grew up in a city and can't afford to buy in themselves that are pushed away from their family and communities.
For the reverse mortgage situation, how TOP's LVT policy is at the moment, I made a comment yesterday that touched on this -
The proposed LVT rate would be unlikely to exceed the value of the property. If you had a property with a land value of 300,000, the proposed rate of 0.75 percent would be $2250, for that yearly cost to add up to the value of the property it would take 133 years. If your land value was to somehow drop 50 percent your it would still take nearly 67 years of stacked-up payments to exceed the value of the property, not even taking into account the fact that your LVT rate would of halved as well. And since it is only on the land value, not the entire property value the owner would still have some equity left if the total LVT bill came out to more than what the property is worth in this scenario.
Im still not sure if the maths is right there so if I am wrong feel free to correct me.
I agree with you in immediatly shifting everything to a LVT would be a disaster and as a tax system ithas it's very real flaws. You've bought up some really good points against it.
But I still think it could form a part of our tax system to help elleviate some pressure on income taxes and to claw back some wealth from generatons previously who have benefitted massibly from skyrocketing land values to pay for their own retirement. basically just bringing it into the mix so we are getting revenue from a more diverse range of sources rather than how it currently is where we are very heavily dependent on working peoples incomes.
Yes, I also found Equabs reasoning slightly out of wack.
From a first principles basis, there is really no difference to your entitlements at retirement, except for who you had trusted your money to until you retire.
So back in the day, you paid higher taxes, and part of that money was meant to be held/invested on your behalf by Govt., and was paid back as super payments when you retired.
Depending on what you earnt, you would either under or over-contribute to this, but all receive the same amount regardless on retirement. Thus some getting more than they had contributed over time, and some less.
The more modern version is you get taxed less but you pay directly into Kiwisaver, where the money is yours, ie to get exactly out what you put in. This more modern version means that those that have less to put in will get less at retirement, ie not enough to retire on, as there is no top from 'others'.
Since there are fewer and fewer workers to cover the aging population (which is not the fault of each demographic per se), then surplus funds to top up this shortfall will need to be found elsewhere.
As one of the reasons many people find a shortfall at retirement is due to the cost of housing, and others have captured the excess speculative profits on the reverse side, then it should be this form of an asset class that it is recovered from.
So back in the day, you paid higher taxes, and part of that money was meant to be held/invested on your behalf by Govt., and was paid back as super payments when you retired.
Was this ever the case? I was under the assumption that our system is a pay-as-you-go scheme that requires the current workers to pay for the previous generation. Apart from when it was initially started but got reverted to how it is today. The system works until your demographics invert and then it starts to become a bit of a problem as you have touched on below.
As one of the reasons many people find a shortfall at retirement is due to the cost of housing, and others have captured the excess speculative profits on the reverse side, then it should be this form of an asset class that it is recovered from.
I think you're on the money there. A broad base land value tax would probably be the most equitable way of funding the superannuation scheme as it is.
Re your first point, Yes it can be argued that current workers pay for previous generations, but that is more semantics and how the number crunches liked to spin it.
You can equally, and maybe more valid, say, fewer direct income taxes today, you are still paying for previous generations for super, and yet at the same time you are putting aside KiwiSaver to provide for your future self.
Simple maths says it does not add up.
Equab is wrong to say certain groups did not save. It might be better said they invested their money badly, mainly with the Govt.
You can equally, and maybe more valid, say, fewer direct income taxes today, you are still paying for previous generations for super, and yet at the same time you are putting aside KiwiSaver to provide for your future self.
I think that's quite a good way of putting it, I agree the maths simply doesn't add up.
Clearly, we need to find an alternate source of revenue other than workers' incomes as I don't know if that's going to be tenable to fund the scheme into the future as it is currently structured. It's basically structured as a pyramid scheme dependent on constant growth which is going to become a lot harder if future generations aren't having as many kids.
I think an annual tax on wealth is the only way to fund this Universal Super scheme we have, which has served so many elderly very well. If one takes a statistical analysis of the Super receivers, then one may be surprised to see that a majority, say around 66% are not having any assets and depend on the Super for their day to day living. Classifying every one born during a particular period as Wealthy Baby Boomers is a great mistake to start with, when such criticism of a good benefit is made.
https://www.scoop.co.nz/stories/BU2209/S00072/flood-of-boomers-selling-…
Ray White press release on Scoop. Hopefully it is correct.
RBNZ used to publish household balance sheet. Which I assume is all the wealth less all the liabilities divided by all the households.
Net wealth was 2.15 million per household. Obviously that is not evenly distributed and would be mostly held by older New Zealanders.
https://www.rbnz.govt.nz/statistics/series/households/household-balance…
Pretty amazing that there is enough money in New Zealand for every household to have 2 million in assets.
Generally a pretty sound piece from Chris. Eaqub is a self righteous guy who loves to get air play. There often isn’t much depth to what he says, and what he says often doesn’t stand up to scrutiny.
Others have pointed out some of the issues with what he is saying here.
STOP TELLING YOUNG PEOPLE NZ SUPER IS UNAFFORDABLE
https://www.nzinitiative.org.nz/reports-and-media/opinion/stop-telling-…
New Zealand is not well served by the calibre of its economists, it is as well that we don't rely on them for anything important like fixing our cars or our plumbing as we would then be in real trouble. Our economists only seem to be people who had no aptitude for doing anything meaningful with their lives.
Shamubeel is dead wrong to blame boomers. He would be better to blame the prevailing New Zealander culture of short term fixations and the quaint belief that if an individual can't afford it the government can. We believe we can have top class service without the means to pay for it. But the belief doesn't work
But Shamubeel is right to promote a long term transition into an adequate Kiwisaver. Yes it will suck cash real from your pocket, but who else can or should pay for your needs but you.
I guess there are those who don't want to plan and save. The simple solution for them is to die at sixty. And helpfully, it avoids them having to apologise.
The problem is that you're expecting working Kiwis now to keep paying for everyone else, save for their own retirement and somehow have enough let over for things like having families and living costs. That's not really justifiable under a 'pay for your own retirement' scenario if we're going to totally unwind super. And if you're going to use that logic for super, taking money from people who do work to give to people who won't becomes a bit indefensible.
So yes, maybe once we've slashed taxes to account for the tens of billions you'd be saving and rammed through huge Kiwisaver increases, that might work. But expecting workers to cover current retirees and then telling them they should stand on their own two feet isn't going to cut it.
@GV 27. I suppose you are saying when you are in the s*:t you have to stay there.
So yes it is hard, and the fault of rubbish pass the buck policy. But we still gotta do it. A 30 year (perhaps 50 year?) transition will ease the pain, and each year will get better.
Not really, just that there 'sucking it up' bit only seems to be a convenience when it's something we can pass on to someone else. Unfortunately that seems to have landed disproportionately squarely on the shoulders of one group of Kiwis most of the way through. That's not sustainable and you still need people to actually be able to afford to house themselves and having families, otherwise your problems just get worse and worse.
I mean, otherwise you'd say do it cold turkey now and just rip the band-aid off. From tomorrow, no more super, we all live with the social fallout - otherwise it becomes an exercise in picking winners and losers and I would contend that certain NZers have abused that option to the point it should no longer be a decision they get any say in.
Like I say - gradual, unsexy change that isn't drastically heroic and doesn't make for good electioneering is the answer, but you have to start the ball rolling and keep goin with it is the answer. Endless common room debates looking for unpalatable silver bullets is not.
IMO, he should be blaming the lack of tax on property over the years. So much tax revenue could have been earned to pay for things if extra taxes had existed and collected. I heard a blue voter on the radio who was a property investor, and they even said that they wished that there was more tax on property to help pay for the infrastructure over the years.
I'm also not sure whether intergenerational resentment would make it any less valid. Applying meaningful scrutiny to the relative positions of each cohort as they approach retirement is literally how you ensure the scheme stays for purpose. Trying to swat away aggressive critiques which are a natural consequence of a system that is more a political football than a sensible retirement framework are missing the point: if the system hadn't been treated as a vote-buying exercise and changed slowly over time, we wouldn't have an existential threat to it now.
Expecting endless shoulder-shrugging is easy when you're not the one who is going to be left paying the bill for everyone stuffing around or lining their own nest. So yes, I'd expect some resentment. If there wasn't any then it would make no sense whatsoever.
I think it's less resentment and more along the lines of not setting yourself on fire to keep others warm. It's all well and good saying "everything's fine no need to worry" but if the reality is that by the time younger generations reach retirement age and there aren't enough workers to pay for the system as is, they will be pretty screwed unless they have been able to save for retirement on their own which is a lot harder to do when you also have to pay for someone else's retirement at the same time.
Private pensions are my preference anyway as NZ super ties you to residing in select jurisdictions.
My thoughts on the super fund itself is that the fund only started in 2001, obviously someone who retires now should draw a much smaller pension than someone who retires today. Someone who retires in 2066 should get the full amount. As such it should be phased.
The bigger problem is that Kiwisaver is tied to the super eligibility age. IMO this is crazy. They need to remove this tie ASAP IMO, and set it so people can use their Kiwisaver and retire if they want to at 65. Everytime the government makes changes to things lie the super age, it also affects the Kiwisaver eligibility age. Many NZers wouldn't understand this, and it doesn't probably affect rich people at all. But it affects poorer people and those that are using Kiwisaver as their primary retirement savings vehicle..
Males will be negatively affected by this sort of change, as males don't live as long as females. Likewise Maori also have a lower life expectancy. So both will end up not getting as much and will mean an extra 2 years of working and saving. 70 for many is actually old. I think it is very political to bring this up now with months to go to the election, where it is already Nationals policy and plan to raise it to 67, which will affect many in their 40's and younger..
I just want to frame this slightly differently. What will this generation get, alongside their pension, that is funded by taxpayers. They will also get healthcare for free publically. Average ischaemic heart disease admission is for 4.4. days, cost $10500 dollars. They will get funded cancer treatment for free (click on this link for the specific cancer). Health care insurance will not cover this because the majority will not be able to afford the premiums, firstly, and secondly private health care insurance doesn't provide acute care.
https://www.moh.govt.nz/notebook/nbbooks.nsf/0/FAC55041FD6DBDADCC257F7F…
https://www.health.govt.nz/system/files/documents/publications/the-pric…
In addition to this, if they require carer/food support due to disability but not eligible for rest home care this will be provided free of charge (this is where most elderly are). When they do need admission for 24 hour care this will be provided free if they do not have the means and with a cap on how much savings can be used if they do have means. Sorry I can't find the link but I think it's around $1300/week for that.
These are important to note because a) the previous generation did not have the same level or sophisticated healthcare as this boomer generation will (ICU/HDU/New drugs) and b) the previous generation lived about 15 years less. It's also important because suddenly the thought of dying at 75 feels a lot less great the closer you get to it and the older you get the more healthcare you need.
So if we want to look at an average package of what people in their 70's onwards get we need to look beyond the pension and throw in everything else they get for free. And we HAVE to do that because this age group have so many health needs. Younger people with healthcare needs will not have the same access this group have had due to the healthcare system not being able to cope.
We have to get real about the real cost to the younger generations funding this boomer generation, not because it's agist but because it's going to get pricey in lots of different ways. That's not anyones fault. Workers are going to fund that, along with education of their kids, their education and apparently their pension. And without workers there is no funding and if workers can't get healthcare then they often can't work. The UK is currently finding out, by running the NHS into the ground, just how many people end up not working because they can't get their hip or knee operation for example.
I'm enjoying the commentary around this. And for those of you who feel bulletproof - you may get lucky. But healthcare is my game and I can quite confidently say the vast majority of you won't stay lucky. Most people are surprised when they suddenly get sick, even in their 80's.
Hi E46
How can Interest.co.nz or someone else help us get semi-organised as I like your ideas (well most of them), where we can get together on a platform where we are happy with security to talk openly with our actual names and contact points. We need to expand upon each others view points so we can lobby the appropriate people. We have a large number of like minded people on this site, we all want what is best for NZ.
I'd have to get back to you on that, I'm not sure what the answer is.
None of the following is really any kind of solution; it's more pointing out more problems. But I think if our parliamentary system had less of a threshold to get in or some kind of transferable vote, we would be able to see a lot more diversity of opinion and better debate in parliament, as people would be able to vote for who they really want, rather than who they think is going to get in. We are hamstrung by a two-party system with satellite parties that refuse to cross benches and compromise. We have an MMP system, and we need to start engaging with it in a way that utilizes it more effectively.
For me, I should probably actually try communicating with our representatives because I seem to skip that and just complain a lot instead lol. They probably won't listen to me, but it's worth a shot to try to get these conversations started where people can actually make a difference.
Hi E46
How about a web site that we can all get some ideas together on as we probably all live in different areas.
I have been discussing such a web site with a close friend, and he has already established a web site, and we just want to set up some rules, possibly along the lines of kiwiblog. We would need to join the NZ Press Council to cover our arse but might be able to do without moderators as we would know names rather than non-de-plumes.
You think for starters this might work.
Cheers
That was a bit of a rant Chris. I’ve seen you do better. We all have the problem of a pension formulae not designed for extended life spans and reduced birth rates
Shamubeel’s style won’t win hearts and minds either. Though he is better at presenting the data.
I’d like to see a clear debate on options and potential solutions without the politics or emotive injury. In a democracy you won’t see people voting to sacrifice money and their security (whether they need it or not) easily. Macron has taken the hard road. Perhaps we need a politician of similar strength.
The new tax IT system makes it much easier to differentiate tax levels. Pensions paid to people earning above $70,000 are already clawed back at 33%. (And 39% above $180K). Perhaps something more can be done there if consensus can be reached.
Any solution needs to
- increase the tax base (more immigration) and the economy
- tap housing wealth (without letting the banks tariff extortionately). Perhaps government based reverse mortgages without at lower interest to pay for home care (and health insurance) - link to government bonds perhaps
- ensure the wealthy and international organisations pay their fair share (without resorting to blame politics)
- find a way to build the infrastructure and housing needed at much lower cost. If need be create special zones/legislation allowing Chinese style approaches to be used in a controlled fashion.
- stop the protectionism that strangles our growth feathering nests while limiting the services the country needs
We need to rise above the debates that have stuffed us for years. We waste so much energy scrapping instead of solving.
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