The true cost of National's not so super duper super policy

Bill English has made a brave call on super, but is it mere penance for years of bad calls, will New Zealanders face the facts and has he just started a new inter-generational war?

I was talking with a colleague today about Bill English's plan to raise the age of eligibilty for super from 65 to 67 – in 20 years. "What are you," he asked, and I knew immediately what he meant. "Gen X," I replied. "But just old enough to sneak out at 65". He said he'd get caught, I said my wife would too. Then it struck me: This conversation was meaningless.

I'm sure plenty of New Zealanders today have been figuring out who would have to work longer before getting their pension, according to English's big new idea. In short, he's designed a super scheme where the age of eligibility for super will increase by six months each year from 2037 until 2040, just about in time for his 81st birthday. So no skin off his nose.

It's a long way off, but quite a rapid increase when it starts.

Plenty of people glancing at the policy will have been getting vexed, especially about the inter-generational unfairness of it all. But the fact is, I'd rate the chance of National's new policy still being intact by 2037 at about the same as its previous policy still being intact that year: Next to zero.

Look at those countries we typically compare ourselves to: Australia's pension age will rise to 67 by 2023, Britain's by 2028 and the US by 2027. Will any New Zealand government be able – or want – to hold out for a decade or more? It's unlikey. As I wrote back in 2009, my best bet is that some poor PM in the 2020s will be forced to deal with this issue properly, and quite possibly at some political cost.

So is Bill English's announcement completely facile and irrelevant then? Well, no. For several reasons.

To start, credit where credit's due. This puts Bill English's National Party on the right side of history. It's a brave and principled decision to engage with a looming and significant cost facing this country. At least, it would be if it wasn't for English's track record. But more of that later.

The point is that by announcing that the age must rise whilst in government, English has put a marker in the ground. It's actually a braver and stronger statement to make than Labour did in Opposition under Phil Goff, because of the power that comes with a government statement, so English has in this way at least drawn a line of statesmanship between him and John Key. (Something I've raised questions about).

So while it's not a plan that will ever likely be enacted – be it because the numbers in parliament will never be there or because, as I've said, some future government will be required to take a shortcut – it's still a clear and corageous signal to New Zealanders that things must change.

When New Zealand first introduced old age pensions in 1898, they started at age 65, sure, but only around three percent of the population were that old. Now it's over 14 percent and climbing. If you alive at 65 back then, you might have another 12 or 13 years left in you. Now, the average is more like 20.

So good on English. Because this move is a good, brave start, just as Labour's rejection of it after 2014 was, while perhaps useful politics, was cowardly.

But here's the problem. As Finance Minister English has spent years insisting this move wasn't necessary, saying the best he could do was grow the economy and delaying the hard choice. He's actively campaigned against Labour's attempt to move much sooner (in the 2020s), thus ensuring at least some baby-boomers contribute to the whopping cost of their collective retirements. And perhaps worst of all, he's flushed away an estimated $20 billion worth of savings in the NZ Superannuation Fund by stopping and then continually refusing to restart government contributions. The man who has lectured us for years about the importance of "savings and growth" has done sod all to save for New Zealanders' retirements and grow those savings.

New Zealanders have seldom heard an honest conversation just how much super costs us. Ironically, one of the most memorable for me was back on TVNZ's Q+A in 2012 when Bill English was describing raising the age as "a bit of a distraction". It was back when Labour was on the right side of history on this issue and its Finance spokesman at the time, David Parker said:

"Within the forecast period of this Budget, we spend more on superannuation than the total of eduction - that's more than pre-school, primary, secondary, tertiary combined... We are actually getting to the point that, through not addressing that issue, we're actually having intergenerational conflicts being set up.''

I've always been struck each budget when I play with the Maxim Institute's Tax Tracker. Type in your income to see where your tax is spent, and I bet most New Zealanders would be astounded to learn how much goes to super.

Put in the median New Zealand income of around $48,000, and you'll see that the median Kiwi paid $7420 in tax in 2015. Of that $152 goes to police, $171 on the dole, $545 to schools, and, the biggest part, $1304 on DHBs (ie hospitals and the like). But easily the second biggest budget line is super, at $1239.

Yet English has spent the best part of a decade saying 'nothing to see here'.

So, not so good on English after all. Perhaps, as a good Catholic, taking the political risk of raising this issue now is a form of penance for those past sins. But I'm not sure future New Zealand voters will be as forgiving of him and Key as his God.  

Yet those numbers remind me of one of my favourite lines when you're debating economics, and the economics of government most of all: "You can only spend a dollar once". 

 While I heard a Grey Power spokesman chastising Guyon Espiner on Morning Report for setting the young against the old, the fact is that National as been doing exactly that for eight years by delaying preparation for change. (And, as Parker indicated, Labour is doing the same now). The fact is that you can only spend a taxpayer's dollar once. So what are you going to spend it on?

Because every dollar you don't save now is a dollar you will have to spend on super later, denying future generations the choices we enjoy now. Every dollar you spend now on super, is a dollar you're not spending on earlychildhood, on infrastructure, on emergency houses and healthcare.

So, no, not every baby boomer had it easy. But as a generation, governments have asked less of them than the generations following behind (or most of the ones that went before, of that matter). And as much as they huff and puff now, given they are still not being asked to contribute more for their retirement even when their life expectancy is growing and their healthcare costs are rising, it's no wonder the following generations are getting angry and disrespectful.

Again, while New Zealanders are being rightly asked to wrestle with the costs of super, they are getting a pass. They are getting that dollar spent on them, which means it can't be spent on others. That's another reason English's decision is far from irrelevant. And why it may yet play a significant part in this year's election.