Long John signs off for 2016.

Long John is  our guest columnist, and will reappear again in 2017. Keep a look out next week  for a  Kaspanz view of Retirement Commissioner suggestions.

 In for the Long Haul  “Treasury” is a word with a nice ring to it.  For readers of a certain age, it might evoke memories of Scrooge McDuck sitting on a pile of gold coins in his vault.  This is nonsense of course – it’s the Reserve Bank that has all the loot. It would be better to think of the Treasury as the Jeremiah of the New Zealand public service.   According to Wikipedia (an impeccable source) Jeremiah was known as the “weeping prophet” who foretold a dismal future.  He was right on the money, but no-one listened to him either. As is required by statute, the Treasury last month published its 2016 Statement on New Zealand’s Long-Term Fiscal Position.  The Māori title is more poetic: He Tirohanga Mokopuna means “a grandchild’s perspective”.  That’s what we need, thinking about future generations.

 But whatever it’s called, the Treasury’s statement has been sunk with barely a trace. That’s a real shame.  Members of Long John’s extensive fan base will know that in a previous blog he wrote about some future Minister of Finance having to find an extra $6 billion a year in today’s dollars to fund the additional cost of New Zealand Superannuation.  In He Tirohanga Mokopuna, the Treasury has once again suggested a couple of ways of avoiding that pickle.

 The first idea is to raise the age of eligibility for New Zealand Superannuation, and the other is to index NZS to the Consumer Price Index rather than to wages. A lot of people think the first of these is a silver bullet, but according to  a 2013 Treasury paper, it will save around two of the six billion required.  So, four billion to go.  Indexation to the CPI would get us there, but is hardly likely to fly politically.  It would mean large numbers of older people falling further and further behind the rest of the population and (sadly) the old are keener to vote than are the young. Maybe the indexation could be somewhere between CPI and wages? Retirement Commissioners and that 2013 Treasury paper have all pushed the boat out on this idea.  If such a move were signalled far enough in advance, future retirees could plan to make up the resulting shortfall through their personal savings.  That sounds like a very rational idea, but it’s also very unpopular. Targeting of NZS, through means testing or a special tax rate to claw some back from high-income superannuitants, is also floated from time to time but rapidly strikes choppy seas and strong headwinds.

 The current Retirement Commissioner has suggested changing the residency criteria for NZS from ten to 25 years.  Long John suspects this has been run up the flagpole to see what people will say, and the real aim is something like fifteen years.  He has seen no estimates of how much this change would save.  Maybe those estimates are to come, in the Commissioner’s 2016 review which is due to report by the end the year. What else could be done?  Resuming contributions to the New Zealand Superannuation Fund would shave a few hundred million off that future bill, depending on the Fund making sufficient returns and contributions not resulting in an additional debt burden. In truth, the solution is probably going to involve a mix of the above, along with some of the extra cost being borne by future taxpayers.  But how much of it is fair and reasonable to pass on? What we need are a few different scenarios with modelling of the cost implications for each.  The Treasury has done this on some measures, but not all of them in combination. Whoever does this work should take heart from knowing that although Jeremiah the prophet was both ignored and persecuted for his views, things worked out OK for him in the end.


: Editors Comment  Increasing economic productivity would provide the answer, NZ has a very poor productivity record, ample room for improvement.

 

 

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