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Peters on superannuation

Over the past few months there has been much written and spoken about the proposed New Zealand Superannuation Bill that is having its second reading today.

Tuesday, July 24th 2001, 3:56PM

Unfortunately there has also been a lot of disinformation and shallow analysis of a scheme which is far from perfect.

The back ground to this Bill is a New Zealand economy that is no longer able to finance what hitherto have been the legitimate expectations of its people in health, education, defence and retirement.

Lack of national savings has dramatically contributed to new Zealand's predicament.

In short we support the Bill because it has always been New Zealand First policy to have a dedicated personalised superannuation scheme. We are unique in that we are the only party in Parliament that has not changed its policy in this regard.

Act has said that the scheme was, and I quote "a back room deal with Winston Peters". This from the party that has used several Nixon-style secret slush funds to get around the Electoral Act.

There are micro economic and macro economic reasons to support the Bill, and there are also very important social reasons as well

Under the present retirement system, those in the workforce need to provide not only for themselves and their families, but also - through their taxes - for New Zealand Superannuation for those who have retired.

Under the current system there is no guarantee of the age of entitlement to a superannuation income.

Over the last few years we have seen the age of entitlement increase. We have seen surtaxes introduced and then removed. We have seen the rate of entitlement reduced itself. We do not think that this is fair, it doesn't give confidence in the future for present baby boomers.

In 1998 the National Party took a hammering after the break-up of the coalition when it made a cut in real terms to the rate of superannuation. Not just retired people but many New Zealanders were outraged by their actions.

Under the changes that we propose a family or individual will not lose their entitlement if someone dies before retirement age.

We do not agree with the suggestion that the individualisation of accounts is somehow unfair.

It is in fact fairer for women, Maori and low income earners than the present scheme. Right now if you die before retirement you get nothing for your taxes paid over the years.

Many people, we now describe as pensioners, worked and raised their families during a time when there was an established social contract between the State and the individual. That social contract in recent years has been reduced to tatters.

We also believe that the scheme is best for the New Zealand economy as a whole.

As a nation we are $108 billion in debt. Up from $16.2 billion in 1984 - and growing $33 for every New Zealander each week.

We have an imbalance of payments crisis because we import more than we export. It is an intractable crisis for which there must be an answer.

Today we are almost totally dependent on foreign money for investment.

Last year New Zealanders on average saved less than one per cent of their earnings.

In short, as a nation we have lived for too long on someone else's money.

We are like a one-income family with no savings, a plastic credit card over the limit and nothing left to hock off at the local pawnshop.

Those who are opposed to this scheme say that it will increase borrowing. It will not; the national accounts will actually improve over the medium and long term, that is an empirical fact, when people save then our national indebtedness will decrease.

Our National Debt and our iImbalance of payments will never be overcome until we face reality as other nations have - accept that national savings are critical to our future, economic development and the eventual freedom from dependence on foreign money.

Until New Zealand's capital requirements are met and our dependence on foreign savings is overcome, this money should be invested solely in New Zealand to create more exports, more growth and more jobs.

It bears remembering that in 1975 the Labour Party passed the New Zealand Superannuation Act, which was a compulsory savings scheme in the name of individuals who had saved. That scheme had defects that could have been removed by Parliament, but the scheme was never given a fair chance.

What would this country look like today had there not been a genuine attempt by Parliament to improve it over time? How different today would New Zealand be?

In 1997, as an initiative from New Zealand First, the surtax was repealed from 1 April 1998 and we proposed a referendum on a long-term savings strategy. There was an immediate stampede by politicians to politicise the issue.

New Zealanders voted down the referendum, but they did not vote away the problem.

It should be remembered that Norman Kirk knew that within Labour's ranks were significant groups who never made it to retirement age and at least an individual account would have the benefit of passing something on to one's estate should one die before retirement.

In short, a person was a saver with a life insurance policy maturing to a retirement policy when that person died.

It is fair and Norman Kirk knew that.

That is why personalised accounts, like Prime Minister Kirk's scheme, are important.

A pool fund can easily be attacked as Mr English threatens, whereas even the National Party would not be so stupid as to attack over 3 million personalised accounts.

An assessment of any entrenched clause protection is superficial whereas attacking personalised accounts would be political suicide for any group of meddling politicians.

One of the biggest flaws in the rhetoric of those who do not support the scheme is they say that the scheme would "gamble" with funds. They make it sound as if those in charge of the funds, who would be elected to an independent board by New Zealanders, would take the money to Las Vegas.

This makes for good soundbites, but it is simply not the case. It is not the way that investment works, and it is not the way that retirement schemes are run.

The fact is that right now retirement savings schemes make up the largest share of outright investment capital in the world economy. That is a fact, the stockmarket, property market, and futures market are at this moment held together by retirement savings schemes.

That is how the world economy runs, and is why fund managers are conservative in their investment portfolios. And I do not see the world economy being gambled away.

We are convinced that the scheme can be run equitably, profitably and soundly, the legislation itself provides for this.

The scheme requires that the Guardians establish formal investment policies, standards and procedures. They will be required to meet stringent accounting requirements on a regular basis, and their books will be open.

We also believe that the Greens' economic rationale is flawed.

They seem to believe that in the future the money required for superannuation will be able to come directly from tax—that would create an enormous fiscal gap between what was collected in tax and what is needed to be paid out at that time. We believe it is better to raise that money now, in the most economically advantageous way than to hope that we can raise it in the future.

The theory espoused by the Greens is also flawed it that it implies that money disappears and then reappears when it is needed. In other words they presume that the money required will be liquid enough for use in transfer payments.

I hate to sound like an economist—but that is not true, the raising of capital at a later date has far more costs associated with it than raising and saving that money now. In effect the Greens are advocating liquidating vast sums in the future that would have been capital investment to pay for superannuation.

Recently the New Zealand Council of Social Services in their submission to the McLeod Committee, reviewing the tax system, argued for a reduction of GST to 10% on food, power and local public transport, ostensibly to support lower income working families battling current food inflation at its highest for ten years.

That submission runs headlong into the Government's superannuation plan of building fiscal surpluses now to fund superannuation demands later.

What the Council is arguing against is charging today's low incomed to build tomorrow's superannuation payments. They want re-distribution of income now.

The Government argues that unless there is a savings pool now, to be drawn on later, policy alternatives fiscally will include slower growth in super payments, a real rise in taxation or a budget blow out, or a mixture of all of the above.

In reality the Government's stated position is no different from that which National argued when it attacked superannuation payments on 1 October 1998, as it did before in 1991, and as Labour did in a previous government in 1985.

In fact the existence of such a fund will make investment in this country more secure.

Under such a scheme the total stock of capital will rise significantly and the liquidity of that stock will fall. Long term infrastructral and futures investment will increase as this money comes into the capital market. That is also an empirical fact.

This will in turn make this country's balance sheet more attractive and more secure for investment.

That stock of wealth will not be able to be misused by inefficient government programmes, it will be in the capital market where it can do the most good.

One of the key reasons why growth in this country is so sluggish is precisely because we do not save enough and hence do not attract long-term and sustainable investment.

The Greens have shown their true colours on this issue, they are opposed to the scheme because they are socialists, they are green on the outside and deepest red on the inside. They do not believe in the capital system, they believe that government knows best.

But the media seem to have conveniently overlooked this fact because the Greens are their latest fad.

Their so-called plans require creating full employment, stronger communities, preventative health and combating climate change.

Let's look at the rationale behind that. What would they in fact do? One or all of the following: They would have to raise taxes progressively and regularly. They would have to print money at enormous rates and bankrupt the currency. Heavily borrow from either overseas or domestically. Cut rates for superannuation to below 50% of the average wage.

There is simply no other way that they can make the figures (what little they have provided) work.

They talk not only about full employment, but also about massive involvement in Green friendly industry. Everyone will have to work and shop at Nandor's Hemp emporium.

Their so-called alternative is not of this planet, it is from the age of Aquarius. Jupiter will have to align with Mars for their plans to work.

In short they have no alternative that is feasible. But the media has been woeful in giving the Greens any critical evaluation.

The government's books will also be sounder, it will become easier to budget for the future when the number of unknowns, namely the stock of assets, is more secure.

New Zealand's macro economy needs this scheme. There are also demographic reasons for this scheme.

New Zealanders are living longer and having fewer children. As a greater percentage of the population retires, the ratio of workers to retired people will grow smaller and smaller.
Later this century it will be harder to provide an adequate retirement income from taxation.

Today, just under 12 %, or one in every eight New Zealanders, is aged 65 years and over. In 50 years time around 25% of New Zealanders will be 65 year and over - one in four people.

To put this another way:

There are today around 5 people of working age for each person over 65 years. By the middle of the next century there will be just over two people of working age per retiree.

Fewer workers per retiree means that the taxation burden of providing retirement income will substantially increase.

This means that unless there are policy changes, age-related expenses will rise significantly in the next century.

For example, in 50 years the cost of providing New Zealand Super will double from 5% of GDP today to more than 10%.

In simple terms the population is getting older. The funding of super in the future through the cash flow of current taxes becomes more and more difficult.

It could argued, in obtuse terms that we can still afford to fund superannuation. But there are far too many 'ifs'. I want to put certainty back into retirement and into investment.

We can afford it, if: We cut the rate, as National have done numerous times. If we raise the age threshold, as Act proposes The age of Aquarius comes, as the Greens believe And if we introduce some other draconian measure like means testing or a surtax.

All of which is a poltical question. New Zealand First wants the question of retirement out of the hands of politicians, and taken away from the fashionable whims of Wellington.

As the American Humourist PJ O'Rourke said: "Giving money to politicians is like giving liquor and car-keys to teenage boys."

We want to eliminate those options for government and put the control of retirement back into the hands of those who are least likely to waste it, the people.

Our country needs to do this before it is too late.

« Every Cent of Super Fund Must Be BorrowedAMP & Good Returns launch superannuation website »

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