NZ Super is like an old-fashioned wobble doll
NZ Superannuation is like an old-fashioned wobble doll, Susan St John says. She asks whether Labour plans to give the doll another quick thump or if it's trying to put sand in the base to give it some much-needed stability.
Tuesday, December 7th 1999, 12:00AM
New Zealand Superannuation is a bit like the old-fashioned wobble doll. It has taken many a thump from politicians in the past decade. But like the wobble doll, after some gravity defying oscillations it returns to much the same position. Our unique and sensible approach of a basic, flat-rate, taxable, individual state pension, no compulsory private saving and no tax incentives has been remarkably stable.
Yet many younger people do not trust these arrangements to be secure when they retire. Many ill-considered, non-consultative, unilateral attacks have been pushing the doll closer to the edge. Here’s what the Institute of Fiscal Studies, London said in Older getting Wiser, a 1999 report on international pension policies:
The experience of 'reform' in New Zealand has been especially unhappy, protracted and frankly absurd. A full description of all the reforms, proposed reforms, counter-reforms and about turns read like an implausible script for a farce
The worst assault came in 1991, when the ‘mother of all budgets’ tried to make National Superannuation into a welfare benefit for the poor. But that sharp lunge did not permanently damage the wobble doll. The watchdog of public opinion quickly resulted in a reversal of the legislation. After the first Todd taskforce, the 1993 Accord was forged between the major parties, supposedly to prevent such lurches ever happening again.
The Accord heyday between 1993 and 1996 while not nirvana, was the closest thing we have had to a stable and certain policy environment. Originally crafted with lot of pain, dollops of goodwill and the unfamiliar relinquishment of political opportunism, the rot eventually set in. Neither National nor Labour could resist negotiating on matters of superannuation in the 1996 coalition talks.
The frantic bid to accommodate Winston Peters through the referendum on compulsion delivered a body blow to the Accord. But the outcome was at least a clear indication that the public preferred the status quo. With political leadership, the resounding ‘no’ vote might have been used as to forge a new consensus around existing arrangements. The 1997 Periodic Report Group (PRG) chaired by Jeff Todd strongly recommended reconvening multi-party talks.
Unfortunately, instead, the political posturing continued. The abolition of the surcharge was nothing more than a pretend agreement leaving the pension vulnerable to future attack. In late 1998 National reduced the wage band floor to 60 per cent of the net average wage and in doing so shattered the last pretences of an Accord process. National then established the expensive Super Taskforce 2000 with much same objectives as the ignored 1997 Periodic Report Group (PRG). Taskforce 2000 was doomed by not having the backing of National’s major Accord partners.
Now we have a new government. National’s affronts will be reversed; the taskforce disbanded and the wage band restored. But has Labour learned the lessons of history? Will the script for a farce continue?
Many experts are suggesting that Labour’s policy of a dedicated tax and a fund to pay for Superannuation is flawed. At very least the objectives have not been well explained. In 1989, Labour announced a similar scheme, the Guaranteed Retirement Income. Barely remembered now, the dedicated GRI tax sank without a trace, with hardly any one understanding its point.
However there may be some real merits in Labour’s new proposal. For example, seeing some assets on the Crown’s balance sheet to back NZ Super may restore some of the next generation’s shattered confidence that the state pension will be actually be there for them. However there are many pitfalls in any funding proposal, and wide consultation both with experts here and abroad is desirable. Certainly, the announced implementation date of 2001 is premature. History suggests we must have broad public consensus for major change and that instability will result if one or more major party is shut out from the policy development process.
The 1997 PRG taskforce reports should be dusted off and the recommendations for establishing a framework for a new muliparty agreement reviewed. The PRG suggested appointing a skilled negotiator, such as the Retirement Commissioner, to map out areas of agreement and focus on achieving compromise on other issues. His office needs to be given resources to service the multi-party process and provide the needed research. More independence might be gained if he was made an Officer of Parliament.
Also suggested in the PRG report was a range of measures to improve stability while giving parties enough freedom to express and progress their own policy ideas. For instance, there could be a sunrise clause for matters incapable of being resolved through an accord process. This would require the passage of sufficient time to include a new election before implementation of any new legislation
It is tiresome to hear that multi-party agreement is too difficult. The prospects are now quite benign. The divisive indexation change will go, and the inequity of the loss of the surcharge is now tempered by the prospect of more progressive taxes. If Labour and the Alliance are capable of a working together after their difficult past, why could not Labour, the Alliance and National? The public has spoken clearly on innumerable occasions. They want the politicians to dampen down the oscillations of the super wobble doll, put some sand in the base, and stop indulging in any more quick punches.
Susan St John is a senior lecturer at Auckland University's Economics Department and was the deputy chair of the 1997 Periodic Review Group.
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