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Chris Trotter - The “Why?” of Superannuation More Important That The “What?”
Chris Hipkins – Tax cuts or Super?
Claire Browning - Universal pension: universally fair?
Bernard Hickey - Why NZ still has time to debate its pensions crisis before the debt wave overwhelms us
In this week’s column on the Retirement Income Policy and Intergenerational Equity conference, I called for progressives who disagreed with Peter Harris’s position that the current system is sustainable to make their views heard. As it turn out, Chris Trotter was already doing just that in his Press column (later reproduced on his blog).
Trotter claims that, “Only a fool would suggest that the vast expansion of our over-65 population will require no adjustments whatsoever to the current delivery mechanisms.” He then casts doubt on the reliability of Treasury’s fiscal projections and says policymaking should be made on the basis of principles instead. Nevertheless, he concludes be saying that society should “do what it takes” to maintain an adequate Superannuation: “That may mean higher taxes. It may mean increased immigration. It may even mean adopting Dr Brash’s suggestion” (of allowing people to trade off the eligibility age against the rate of payment).
Very few progressives I know (of whatever stripe) agree with everything Chris Trotter says, but most of them accept that he does make quite insightful points from time to time. Is this one of those times? What do you think?
Actually, though, I found a statement he made in the depths of an (often intemperate) comment thread debate with Pundit’s Tim Watkin at least as interesting:
The work of people like Michael Littlewood and Susan St-John has clearly demonstrated that NZ’s super’ scheme is one of the fairest and most sustainable on Earth. The size of the dependent population remains about the same as it ever was in NZ – actual dependency has simply shifted from the very young to the very old. (In case all you pest-controllers hadn’t noticed there are far fewer children to take care of, house and educate than there were 65 years ago.)
(Trotter also responded to Watkin in a post on intergenerational issues this week.)
Chris Hipkins is part of the Labour caucus’s very strong ‘Class of ‘08′ and a frequent contributor to the Red Alert blog mainly produced by that group (and Trevor Mallard). His post picks up on my analysis and argues there is trade-off between Super sustainability and John Key’s tax cuts.
Claire Browning writes about green issues for the Pundit website. Her post is primarily reportage of the conference (much more comprehensive than mine — but best read from the bottom up, as it’s done as a series of updates). But she did set out some of her own conclusions:
I just don’t buy the argument that this is a Trojan horse, for antique treasures. This is not just an NZ thing; other OECD countries are recognising the problem and responding to it . . . Change to super policy will come, sooner or later, but it will come in the form of a little of everything we don’t much fancy, after working through some stuff that is hard: accurately sizing the problem, having some mutual respect and good will, a bit of a rise in the age of eligibility, maybe a bit of means testing, better use of capital assets in retirement, longer working lives.
Bernard Hickey is a financial journalist who runs the www.interest.co.nz website, “blogging on interest rates, economics and business in New Zealand”. He’s a pretty opinionated guy, and while I disagree with him at least as often as I agree with him, he’s usually got something interesting to say. Hickey has long been an advocate of the need to address this issue, but this post is primarily reportage of Gabs Makhlouf from the Treasury’s presentation at the conference. (He kindly links to my column, as well.)
What’s your view on this issue? What, if anything, needs to be done to secure the future of New Zealand superannuation? Will the policy need to change, and, if so, now? Leave a comment below!
Centre for American Progress – The Generation Gap on Government: Why and How the Millennial Generation Is the Most Pro-Government Generation and What This Means for Our Future
CAP is a US think-tank led by Bill Clinton’s former Chief of Staff John Podesta (Matthew Yglesias, oft-cited here, is also a Fellow of the Centre). I’ve been watching CAP’s Doing What Works project for a while and will write something up based on some of that work in the near future. In the meantime, however, I thought these survey results were worth sharing:
young Americans age 18 to 32 give the government more positive performance ratings and more strongly favor a significant role for government in addressing national challenges than does the public at large. (read more)
John Kay - Capitalism looks back to the future
Our friend John Kay reviews a new book Capitalism 4.0: The Birth of a New Economy by Anatole Kaletsky, editor-at-large of the Times, probably the least politically-aligned of the quality UK daily newspapers. It looks like an fascinating book about the past and future development of global capitalism, but I was also interested by Kay’s comments:
The collapse of Capitalism 2 [the Keynesian era] was not caused by Nixon, nor the collapse of Capitalism 3 [the deregulated era] by Mr Paulson: the collapse of these modes of capitalist behaviour was the product of their own internal contradictions, to borrow a phrase, and Capitalism 4 can only thrive if it resolves the contradictions of Capitalism 2 more effectively than did the politicians of the era of the Great Society and “you’ve never had it so good”.
Also:
Bryan Walker (Hot Topic/Sciblogs) – Technology advances, politicians hold back
LSE Centre for Economic Performance – Reducing Crime: More Police, More Prisons or More Pay?
Paul Hamer (Institute of Policy Studies) – The impact on te reo Māori of trans-Tasman migration
Tags: Bernard Hickey, Centre for American Progress, Chris Trotter, intergenerational differences, John Kay, New Zealand Superannuation
“To hear both the National and Labour Party leaders dismiss Dr Brash’s proposal out-of-hand was, therefore, extremely disappointing. Only a fool would suggest that the vast expansion of our over-65 population will require no adjustments whatsoever to the current delivery mechanisms. But, given the knee-jerk reaction of the two main parties, it’s difficult to conclude that they are led by anything else. ” ~ Trotter
I think everyone is missing the point. Only policy intellectuals like us take this issue seriously. For everyone else it’s like telling a teenage smoker that they are hurting the self that will be around in 30 years time.
Both parties are competing against each other to defend the status quo because as soon as one takes that position it forces the other party to match it.
So I think columns like this need to stop analysing and debating what super policy we should have and start discussing how it can become a politically tenable project to change anything in the next few years.
So it’s not the ‘what/’ or the ‘why/’ but the ‘how?’
Your point is a reasonable one, Achela, and well expressed. But I think this is an important issue, so I’m going to be a little challenging in my response.
I’m not totally sure I understand what you mean by ‘change anything in the next few years’. Do you mean changes to Superannuation only – in which case you’ve already accepted what I see as the key proposition requiring debate: which is that it’s necessary and/or desirable to change the current NZ Super policy settings. As I’ve noted, Peter Harris argues that that’s not true. One doesn’t need to necessarily agree with him, but I don’t believe his argument has been decisively refuted. So there is still need for debate.
Another interpretation of your statement is that even Peter says that keeping the current settings will require additional funding, which either means additional revenue (probably through taxes) or reduced spending in other areas. On this interpretation, the challenge is how to get politicians to make a choice between those three changes (NZ super changes, tax increases, spending cuts) and to be willing to defend that choice publicly.
I agree that that’s challenging. But I’d argue that one of the things that would help make that choice more tractable for politicians is to be able to ’size’ the amount of change required (e.g. how much would taxes need to rise and in what way) and have a sense of the practicality and likely acceptability of particular options. So, again, there’s still an important role for analysis and debate.
Or have I misconstrued your comment somehow?
I agree with Achela that the big issue here is “how” – not what or why. Those other questions are, I think, fairly settled among those people who like to think about this stuff but don’t make any decisions, including Chris Trotter in his main posts.
(To respond to Chris’ comment-based argument that dependency has simply shifted from young to old and hasn’t actually got more expensive, I suggest he finds out the annual health and education costs of the average kid, and compare them with the average health and superannuation costs of the average senior citizen. Public provision to a senior citizen is much more expensive than providing for a child, meaning that you have to lose two or three kids for every extra pensioner to make it cost neutral. Given the influx of baby boomers and their increased lifespans, you’ll run out of kids to jettison pretty fast.)
The “how” here is structured like a classic prisoners dilemma, where the players are National and Labour and the options are SQ or Reform. It would ultimately be better for the community if the players could both propose responsible reform, but each player gets an individual advantage by opting for the status quo. The textbook solution here is a coordinating institution, which NZ had for a while in the superannuation accord. While the super accord ultimately failed, a stripped down version involving only the two large parties could succeed. What needs to happen is for some of the Gen-Xers from both parties to be brave and lock themselves in a room together, and come out with a bi-partisan generational manifesto on this stuff.
The manifesto would likely involve significant change to age of eligibility, benefits, etc. It could involve a dedicated social security tax and/or commitments about funding NZSF, but probably shouldn’t include other tax-type positions (cos agreement on those would be really really hard). And, for the individuals to sign up for it, it would have to include a clause allowing the MPs to vote for whatever their current party policy is in the near future. But the hook would be a pledge from all involved to resign any Ministerial positions they may hold if, while acting as either PM or Minister of Finance or Minister for Senior Citizens (or others perhaps), they did not bring stand-alone legislation to the House to enact the Gen-X manifesto in their first six months in the office. Further, everyone in the group would pledge to resign as a Minister if they opposed the legislation in cabinet, and resign as an MP if they did not vote for such legislation when it arrives in the House, regardless of caucus collective responsibility.
That pact would not affect any MP immediately but, if bedded in as a pledge over a term or two, could act as a powerful bipartisan force for reform.
To do that, we need some brave visionary souls. I’m looking at you, Representatives Ardern, Hipkins, Robertson, Bennett, Bridges, Kaye, and others of your ilk. You are our leaders of the very near future: go get some (very high level) practice today.
David – So I think your second interpretation of Peter H’s argument is the better one – maintaining the SQ on super is physically possible but will require hard choices elsewhere (either more tax or spending cuts) in order to find the 10% of GDP that the scheme will eventually take up. If that is true, then in an important sense our current fiscal policy settings are not “sustainable” over the longer term, and a core reason for that is superannuation commitments. “Sustainable” and “cheaper than the other guy’s” are not the same thing, especially when you factor in the dedicated taxes that most OECD countries have raised for social security purposes going back many years. Having said that, however, his critique of the Brash taskforce’s depiction of New Zealand’s situation is a forceful one.
Lots to respond to in your comments, Rob, and I’ll aim to do so more broadly a bit later — for now, just a quick clarification: those were my alternate interpretations of Achela’s comments, not Peter Harris’s. I like interpretation 2 as well, but only Achela can tell us whether that was what he/she originally meant.
To follow up on a comment of David’s, I agree that there are three elements here: (1) super changes, and consequent changes to (2) tax and/or (3) spending. Getting any consensus between left and right on 2 or 3 is impossible, so those elements are what need to be shelved in this discussion. Which leaves the3 possibility of cross-party (or at least bi-partisan) agreement on (1) by the younger MPs, and an agreement to bicker later about whether to fund any residual fiscal hole through revenue changes, spending changes, or both. So I agree that getting one piece of the puzzle is a good start, and that sizing the problem is a good way to embark on that process, but I think that any focus on “tax changes” (or, indeed, “spending changes”) at this point makes an arrangement much much harder to come by.
Thanks, Rob, you’ve set out quite an interesting and detailed approach there! A few scattergun responses:
* From what you’ve written, I take you as broadly coming down on the side of agreeing with the proposition (contra Harris) that NZ Super will need to change (although other fiscal changes might be needed alongside that to pay for an ageing population). Is that primarily from a view about the fiscal pressures involved in maintaining the status quo, or (reading into your argumentation a bit) is there a political dimension to it as well – that you feel some reduction in the fiscal cost might be needed to get bipartisan buyin from conservatives as well?
* Re your mention of cheapness of NZS v other countries’ prefunding, it may still be that NZS is sufficiently cheaper to offset our relative lack of prefunding. One stat I heard at the recent conference was that the % of GDP that NZS is likely to peak at is about the same as what many countries are already paying on pensions.
* Re your point about age dependency being more expensive than child dependency, I’m not totally sure this is self-evident. As well as health and education, there are also income support costs to children (including Working for Families), and there is probably more economic activity being undertaken by the 65+ agegroup (esp 65-70) than the 0-14 group. In any case, I don’t think Chris Trotter’s depiction is any more misleading than the one sometimes presented by Treasury than omits to mention the decline in the youth dependency ratio!