Welcome to the topsy-turvy world where no-one cares what Treasury says and only the only party that seems to give a toss about sustainability is... ACT

The past week in New Zealand politics has been the argument I have every Christmas writ large; and has been just as unedifying.

I'm in my early 30s, which puts me firmly in the millennial camp. And as a millenial, I wasn't all that outraged I'd have to wait two more years to get my super, as Bill English confirmed on Monday.

That’s because I actually can’t fathom how the age won’t have already shifted higher by 2053. As for universality? Well, let’s just say people my age are starting to get used to having boomers slam doors in our faces. Student loans, entering the job market in the middle of a financial crisis, extortionate house prices, I could go on.* And after a few wines and some roast pork around my parent’s dinner table, I usually do.

English has done slightly more than the literal minimum (cf John Key) on a slow moving, grey-haired, financial tsunami coming our way. Looking around the Parliament chamber there’s not a lot of hope of some kind of grand coalition to ensure intergenerational fairness and the country’s economic sustainability.

Labour leader Andrew Little said 18 months ago that the rising cost of Super scared the bejesus out of him, but he’s not so scared any more. In fact, in his first long-form TV interview for the year on The Nation yesterday he says everything’s fine and dandy:

"The cost of superannuation for New Zealand right now as a proportion of our GDP is one of the lowest in the OECD. I don’t get this issue about suddenly it’s all become sort of impossible and unaffordable. I don’t accept in terms of the long term projections what Treasury is saying about, you know, GDP growth. It will be better than what they are projecting. Here’s the thing – if affordability was really the issue, then the Government right now would resume contributions to the New Zealand Super Fund. They’ve got the means to do it. They’re generating surpluses. They could do that right now." 

There’s quite in a bit to unpick in that answer, so forgive me while I get nerdy for a second.**

Let’s start with the OECD comparison. While that’s technically true, it’s actually a bit more complicated. If you take a look at the report (based on the latest available data, which is almost four years old), it takes into account all mandatory pension schemes for private sector workers no matter whether they’re public or private. So because the New Zealand government pumps (relatively speaking) a lot less into Kiwisaver than, say, the Australian government does into its massive mandatory scheme, we come out smelling like roses in the OECD tables and politicians of all stripes get a convenient figure to bandy about.

I’m just going to ignore Little’s comment about superannuation affordability suddenly becoming an issue, because we all know his own party wanted to raise the age of eligibility just three years ago and financial commentators have been screaming into the void about it for decades.

Which brings us to long-term projections, GDP growth and the Treasury.

Last year Treasury put out a statement on the long-term fiscal position, He Tirohanga Mokopuna. It says by 2045 NZS is going to account for 7.2% of GDP, more than education, more than welfare, more than anything else we’re paying for except that notorious money pit, health. Debt will be 94% of GDP – it’s 25% now.

But it gets worse: if we carry on with the same spending patterns we have now, by 2060 net government debt will be 206% of GDP. To fix this, they lay out a couple of options: raise taxes or cut expenditure.

Now, OK, things change, financial crises happen, earthquakes happen. Not even the greatest minds at Treasury can predict that stuff, but what they have done is looked at the way we’re going and concluded we’ve got a problem. Little’s arguing we shouldn’t believe the wonks because Labour’s going to get into government, raise the GDP and everything’s going to be fine. To that I say: I’d like to see some numbers please.***

The Cullen Fund is not the hero of this story either. Stopping contributions in 2009 during the financial crisis may or may not have been the best thing to do, but the longer we go without restarting contributions the more the issue compounds. We’ve missed out on an estimated $20 billion already, and contributions aren’t due to restart until 2020. But even if the government had never stopped paying in, by 2060 drawdowns from the fund would only account for 7.2% of the total cost of super.

Under the current settings it’s projected to pay for 5.5%. It was never designed to be the saviour of the economy, only to provide a top up to the government of the day.

Don’t get me wrong, I’m not singling out Labour here. John Key had eight years and the political capital to waste on doing something about super, but point blank refused. English has moved to differentiate himself from his predecessor with a policy that will have minimal effect (and if you don’t believe me, believe Brian Fallow).

Winston Peters is rubbing his hands together with glee over the fact we’re even talking about it in an election year. The Greens, despite their emphasis on sustainability and appeal to the youth vote, are in much the same camp as Labour.

Well, a pox on all their unaffordable houses.


* Yes, I know, 20% interest don’t @ me.
** As a disclaimer, I’m a producer for The Nation and spent a lot of time last week emailing Treasury.
*** Also, does the ragging on Treasury remind you of anyone? No, me neither. 

Comments (12)

by Tom Semmens on March 12, 2017
Tom Semmens

No one believe Treasury because a) it always gets things wrong because b) it is a temple of neoliberal ideological rigidity long over-due a root and branch restructure like the ones it has forced on practically everyone else. The next left government could do worse than stripping Treasury of all it's forcasting powers and crating a new department for economic advice and forecasting.

Super is affordable, we just have to put taxes up. I guess Nicola is going to vote for ACT, let's see how that works out for her.

by Murray on March 12, 2017
Murray

As tradesman in his early 60's ( the body is certainly not what it was) it is interesting to watch this debate. I was in my 20's when a certain government trotted out the Red Cossacks and I assume that the older age group at the time  sunk Labour's scheme. It seens like the chickens are coming home to roost. I personally think complusory Kiwi saver is the way to go and that it should be a requirement that for any Government to reduce it has to have 75% of votes in the house. In regards to student loans you are not the only group hit. Trade apprentices are required to also pay ($10000-$15000) for their courses, OK they are getting a wage.Depending on the employer a training wage upwards.

In regards to cost of super where does Kiwi saver figure, I always thought that the idea was that Kiwi Saver would replace super as we know it.

Murray

 

 

 

 

by Katharine Moody on March 13, 2017
Katharine Moody

ACT's policy "Raise the retirement age. Starting in 2020 we will raise the age of entitlement to Super from 65 to 67, at a rate of two months per year, finishing in 2032."

http://act.org.nz/superannuation/

is interesting in that it does nothing in this next Parliamentary term either.

So, aside from Labour, who said they'd restart contributions to NZSF (which I assume NZF and Greens would be happy with too) - no other party is actually doing anything but talking about a future they may/may not be in control of.

There are so many other policies/settings that need urgent addressing in the next term (i.e., housing/homelessness, immigration, mental health/health, wages etc.) that I hope the super debate (a non-issue for the next three year term) doesn't get a great deal of airtime.

 

by Chuck Bird on March 13, 2017
Chuck Bird

I wonder if Andrew Little would borrow money against his house to buy shares?

by Charlie on March 13, 2017
Charlie

Nicola, thanks for a balanced article on Super.

A couple of additional thoughts from me:

As someone closely approximating the magic age of the Gold Card I wouldn't mind too much if I was asked to push back my retirement age by say 6 months or maybe a year. I'd grumble a bit for sure but I would accept it because somehow we need to make the numbers add up - just as you said: Sustainable. Making even a small change early would make a big dent in the NZ Super overhang. But it's not going to happen because there is no leadership in Wellington, with the exception of ACT of course.

If we're 'into' sustainability all of a sudden, then we need to sort out student loans too. It's a bigger problem than NZ Super by a wide margin.  Even casual scrutiny of this scheme will show it is a gross distortion of the economy and a trap for many young people who get themselves in debt to gain qualifications that have little or no marketable value. So before you Millenials beat up the Boomers, look in the mirror.

 

by barry on March 13, 2017
barry

Chuck, I would borrow against my home to buy shares if I could borrow at zero % interest, had a guaranteed income and didn't have to pay tax on the profits.

and all:

The problem is not super, but the fact that the governments have willingly cut their earnings.  It has been proved over and over again that cutting taxes makes nearly everyone worse off.

by Tim Watkin on March 13, 2017
Tim Watkin

Chuck, I've long meant to write a whole post on that argument. In fact I may have and not be able to remember it. But I've always struggled with that argument.

Lots of people buy shares (or even baches) before they're mortgage free. You could easily argue they're using debt to invest. Others borrow against their house to start a business or invest in another's. In fact most people who have gotten very rich have leveraged debt to do so. So I don't see the sense in people making this 'you don't borrow money to put it in the Super Fund' argument. People do it all the time, don't they?

by Tim Watkin on March 13, 2017
Tim Watkin

Thanks Charlie and Katharine for your interesting points.

by Chuck Bird on March 14, 2017
Chuck Bird

Tim, you sort of enquired how much my income was.  I did not mind.  I am retired but have a good income off investments.  I got burned in 87 with borrowed money on the share market.  I was not alone.  However, I am back in with about $700k unlike others who never went back and loaned money to finance companies instead. 

I have made money and lost money on the share market and the dividends supplement my income.  However, I have never lost on a property investment either residential or commercial.  That is why banks are happy to loan for property but not shares as they were in 87.

I did not finish high school but I know how to read so I studied how markets work.  One thing I learned was that even experts cannot predict when a crash will happen but they sure will happen and the higher they are the bigger the fall and the longer they can stay down.

I recently went to an investor day at CraigsIP.  I learned a lot and will keep on learning and consider advice from experts but make my own decisions.

I have recently taken out a short term loan to by share in syndicated properties in Christchurch and Hamilton.  I am doing up a property and when I sell it I will pay back the loan. 

The world share markets are at record highs.  Would you borrow against your house to invest in the share market?

 

 

 

by Nicola Kean on March 14, 2017
Nicola Kean

@Tom: Super is affordable, we just have to put taxes up sounds quite similar to what Treasury is saying, but they're always wrong, so I'm confused about the point you're trying to make. Also, please don't presume to know who I vote for. Some people make voting decisions on what they think will be better for the country rather than just themselves.

@Murray: thanks for sharing your thoughts. I was paying less attention to public policy and more to The Smiths at the time Kiwisaver came in, but I understand it was a way of getting New Zealanders to save money for their own retirement, anticipating the trouble ahead. We're pretty terrible at it.

@Chuck: I see where you're going with this. Here's what Treasury told me when I asked them about it last week:

“Of course in this scenario [assuming payments into the Super fund were not suspended in 2009] where there is no contributions holiday (in the past or in the near future), the government would have incurred an extra $13.5 billion of extra net debt to date, and would need to borrow approximately another $7b in the next few years, to sustain the contributions required to achieve such an outcome.”

We know that we're at least $20 billion behind where we could be with the Fund if we hadn't suspended payments in 2009. I'm not really sure what the right answer is, so I'll leave you to draw your own conclusions there.

@Charlie: I'd respectfully like to point out that it wasn't the millennials who implemented the student loans scheme, and without it I wouldn't have been able to afford the education that's got me where I am today (although I will admit journalism may have been a poor career choice). The job market isn't the same as it used to be, for many positions you now need a tertiary qualification - you can't really wind that back.

by Tim Watkin on March 15, 2017
Tim Watkin

Chuck, many do just that, as I wrote. I have some shares but am not mortgage free, so in some sense I have. We as a country have savings while also carrying debt. Now I don't believe there's much similarity between households and nation states, but at the risk of repeating myself, people borrow when they are in debt all the time. That's why I don't think that argument holds Much water. 

by Charlie on March 17, 2017
Charlie

Nicola:

@Charlie: I'd respectfully like to point out that it wasn't the millennials who implemented the student loans scheme, and without it I wouldn't have been able to afford the education that's got me where I am today (although I will admit journalism may have been a poor career choice). The job market isn't the same as it used to be, for many positions you now need a tertiary qualification - you can't really wind that back.

You're right Nicola. Helen Clark brought in interest free loans....to buy Millenial votes.  :-)

So now we've shown that all generations vote with their wallet!

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