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.