An email from Politik says Finance Minister Steven Joyce is expected to join Prime Minister Bill English at the post-cabinet media conference at 4pm to make an announcement on superannuation.
Labour is attacking National for not following Australia’s lead of raising the age of superannuation eligibility.
Australia will be raising the age to 70, Labour plans to raise it to 67.
What Labour is showing is that their plans will either mean less income and/or other priorities for spending.
. . . Finance Minister Bill English said New Zealand can afford to keep the retirement age at 65, despite Australia’s plan to raise it to 70 by 2035.
He said the Australian government, which is dealing with huge deficits, is in a different position to New Zealand, which will return to surplus in the Budget this month.
Mr English said the Government settling the question of the retirement age has allowed the Government to focus on reducing other costs, such as long-term welfare dependency.
Superannuation can be affordable at the current age of eligibility providing the economy keeps growing and money isn’t wasted elsewhere.
Most people would regard superannuitants as a higher priority than younger people who could work and support themselves but don’t.
Increasing the age isn’t Labour’s only policy which will negatively affect older people, their tax increases will too.
National’s tax cuts boosted superannuation rates because they’re based on after-tax income.
Tax rates will increase under Labour, reducing after-tax income and so reducing increases to superannuation.
People will not only have to wait longer to get a pension, they’ll get less when they reach that age than they would under a National-led government.
What will Winston Peters and his followers, who Labour is trying to woo, think of that?
Australia’s compulsory superannuation scheme is often held up as an example we should follow.
However, this exchange during Question Time yesterday threw up a little-known fact:
Hon David Parker: Does he accept that Australia’s successful universal workplace savings scheme, introduced a decade after National axed ours, is why Australia owns its banks and ours, and why Australians have higher wages?
Hon BILL ENGLISH: No, but I do know that two of the effects of it in Australia are that Australians have less money invested in businesses than New Zealanders—
Grant Robertson: Rubbish.
Hon BILL ENGLISH: —no, it is true—and its rise in household debt directly parallels its rise in nominal household savings. But if the member believes he wants the Australian system, he should be open with the New Zealand public that he is going to strictly means test national superannuation. There is nowhere in the world that has compulsory superannuation and universal national superannuation.
How many people who urge compulsory superannuation know that nowhere that has it also has a universal scheme?
If superannuation savings can be either compulsory or universal how popular would compulsion be?
Hon David Parker: Will the Minister now admit that National was wrong to vote against KiwiSaver, which it now supports, and to call the Cullen fund, which it now supports, a dog?
Hon BILL ENGLISH: No, but if the member is going to advocate what he calls universal but is actually compulsory superannuation, he needs to explain what impact that will have on New Zealand superannuation. I think those who have been in this Parliament for a while will recognise that we have spent—what—20 years in vigorous discussion over the nature of national superannuation. It ended up universal because that is what the public wanted, and Labour is now advocating the Australian scheme, which involves strict income testing of national superannuation. I invite the member to announce that at the next Grey Power meeting he goes to.
. . . Hon David Parker: Is the Minister able to table any document that he has received that proves the assertion he made in his last answer, which was that the Labour Party is moving to a meansbased superannuation when that, in fact, is not our policy?
Mr SPEAKER: Order! It is quite a different question, but carry on.
Hon BILL ENGLISH: If I could find a coherent, rational, sensible Labour Party document on this matter, I would table it. But I cannot, so I will table the results of the 1975 and 2008 elections, where these issues were litigated.
What we do know is that Labour plans to increase the age of eligibility for superannuation.
It also plans to tax more and spend more which will aggravate inflation which will erode the real value of wages making it more difficult to save and erode the real value of any savings, be they voluntary or compulsory.
Prime Minister John Key says the current superannuation scheme is affordable:
Mr Key, who said before the 2008 election he would quit parliament if the age was raised under his watch, says the government has carefully considered the scheme.
He says it’s running at 4.5 percent of GDP while in many other countries pension schemes cost well above seven per cent.
“Ours is likely, at the height of all the baby boomers getting super, to cost somewhere between seven and eight percent of GDP,” he said.
“We’ve modelled it, it’s affordable… we’ve made our choices about where we want to spend money and raise money.” . . .
Choice is the operative word – this government is choosing policies which promote economic growth which allows more choice on spending.
Money spent on one thing isn’t available for another. Labour’s choosing to offer welfare to families earning up t0 $150,000 when they have a baby and thereby restricting its ability to fund superannuation at the current rate.
It and its potential partners on the left are also choosing policies which will curtail growth which will further restrict choices for spending.
And he doesn’t see any merit in means testing for national super.
“Some countries means test but that would just discourage older New Zealanders from staying in employment,” he said.
“In New Zealand 20 percent of people over 65 continue to work, in Australia where it’s means tested it’s only 11 percent – it doesn’t make much sense for the economy to take those people out of the workforce.” . . .
Five of our staff are 65 or older – two of them are in their 80s.
They’re doing what they enjoy, staying active, earning money and paying tax on it.
Why disincentivise that by means testing their pensions?
Winston Peters has let his distrust of business and ignorance design a flawed superannuation investment policy:
A new superannuation fund to save billions of dollars for KiwiSaver contributors over the next thirty years will be a central plank for New Zealand First at the 2014 General Election. . . .
Mr Peters told delegates that private funds managers were sucking the lifeblood out of KiwiSaver, and in five short years had already taken $325 million in management and investment fees.
“Independent forecasts show that over the next thirty years these funds managers will take more than $22 billion from KiwiSavers and there is no government guarantee that the remaining funds will be safe.
“There is huge pressure from the finance industry to get their hands on more retirement funds. The figures show these companies will make spectacular profits at the expense of people saving for their retirement.
“Our plan is to change KiwiSaver so that it is a truly government-backed and managed retirement fund. Because of the economies of scale, and the elimination of hordes of ticket clipping fund managers, costs will be greatly reduced. People who pay into KiwiSaver will get their full return.”
Has he any idea of the cost of this? Can he guarantee the bureaucrats who will be managing the funds will be any less expensive and any better at investing than private fund managers?
Under the New Zealand First plan, KiwiFund will be government-guaranteed and it would invest substantially in New Zealand.
“People saving through KiwiFund will be buying back New Zealand. KiwiFund will invest in buying back farmland, state assets and critical infrastructure. Funding will also be provided to support smart local companies to develop new products and create jobs.
A government guarantee passes the risk to taxpayers.
Super funds invest overseas for very good reasons. Funds based only, or substantially, in New Zealand would be vulnerable to natural or financial disasters here, some overseas investments insulates funds from that.
Having financial eggs is several baskets is a sound and sensible investment strategy.
Landcorp, the state owned farm company, makes less than 1% return on assets. How will KiwiFund’s farms do better than that?
Who will pick these smart, local companies and what guarantees will there be that they will provide sustained returns necessary to make superannuation sustainable?
“We have to invest in our own future. Overseas pension funds and corporate investors can hardly believe their luck – and are buying up everything they can in New Zealand.
“New Zealand First says its time to stop this sell out. We are already well down the road to serfdom in our own country.” . . .
Other people risking their money in our businesses isn’t a sell-out. It’s welcome inward investment which boosts share prices.
How much does he think these assets would be worth without overseas investment?
Mr Peters warned there would be “howls of outrage” from the private funds managers who would “fight to the death” to retain their $22 billion gravy train.
“In the United States, private funds managers lost billions of dollars of pension funds during the 2008 financial crisis. We simply cannot afford to let that happen to the retirement savings of New Zealanders.
And how would he guarantee that public funds wouldn’t do the same in the next financial crisis?
“KiwiFund will enable us to build a high performance economy from which all New Zealanders will get the benefit,” said Mr Peters.
KiwiFund would nationalise private savings.
It would jeopardise superannuation and threaten its sustainability by increasing the risk and reducing returns.
Investment policy must be based on sound financial sense not xenophobia and populist bias against business.
Peters says KiwFund will be a bottom line in coalition negotiations.
Labour and the Green Party might be stupid enough to agree to it, National wouldn’t.
But history tells us what Winston says is a bottom line now and what actually is if he’s in a position to negotiate after next year’s election won’t be the same thing.
I’m not opposed to the idea of increasing the age of eligibility for superannuation.
When it was introduced it wasn’t universal and life expectancy was quite a bit lower than it is now.
Jacqui Dean: What does the report say about the costs of meeting superannuation, and how does this compare with the benefits of sound fiscal management?
Hon BILL ENGLISH: The report shows that increasing the age of eligibility from 65 to 67 for national superannuation makes a difference of around 0.7 percent of GDP by 2030. The report also shows that maintaining the Government’s fiscal strategy of returning to surplus with moderate increases in spending and investment and better public services through to 2020—just 7 years from now—will reduce net Government debt from around 50 percent of GDP to under 10 percent of GDP. So, clearly, managing Government expenditure well has a much bigger impact on our future debt loading than small adjustments to national superannuation.
This strategy isn’t without risks, however.
Jacqui Dean: What alternative strategies for fiscal management would put the Government’s progress in reducing debt at risk?
Hon BILL ENGLISH: Well, of course, we get to reduce debt once we get to surplus, and once we get to surplus we need to make sure that we do not spend those surpluses on ineffective public services but that we do spend them on reducing debt. Alternative strategies that would make it harder would be those that we inherited as a Government from when Government debt was forecast to reach 50 or 60 percent of GDP simply on the basis of loose and wasteful spending by the previous Government.
If we want first world services and support we need first world incomes and that requires policies and management that foster an environment for growth.
Those disenchanted with the government like to say there’s no difference between National and Labour.
But the National-led government is doing a far better job of managing public money, while maintaining services, in difficult financial times than Labour managed when the rest of the world was booming.
A surplus is in sight and once it’s achieved we have some choices over what to do with it.
LabourGreen want to spend more, National wants to reduce debt to ensure the economy is on a much stronger foundation to weather future storms than we were for this one.
Even if Labour can sort itself out, does anyone seriously think they’d want, let alone be able, to reduce the burden of government while maintaining services as National has?
Discussions on the affordability of superannuation focus on the aging population and likely costs.
That is only a small part of a complex issue.
Prime Minister John Key pointed out in Question Time :
Of course superannuation is an issue, but one thing that is worth noting is that increasing the age of eligibility has much less of an impact than commentators might imagine. For instance, moving the age to 67 makes a difference of about 0.7 percent of GDP, and that is not until 2030. So it is an issue, but growing the economy and fixing some of the other issues we inherited from Labour are more significant.
Pete George has started a BADASS (Bloggers Advancing Debate About Super Solutions) campaign.
I agree with him on the importance of having the debate but no solutions will be found if we concentrate on superannuation alone.
It is a major, and growing, part of government expenditure but discussion must look at all other expenditure and revenue.
The country can afford superannuation as it is if it spends less or makes more elsewhere.
One question to ask is, whether we want superannuation as it is.
Regardless of the answer to that discussion then must consider at what we need, what else we might want and whether the government is the best provider of it all.
It must also look at government income. Tax increases and more user-pays charges are the left’s usual answer to increasing that but more taxes and higher tax rates can and do reduce the tax take
The PM’s answer provided the only sustainable solution – that’s growing the economy.