Gordon Campbell on affording National Super (and ignoring child poverty)

It may be called “National” Superannuation, but the relationship between the National Party and retirement income has rarely been a happy one, over the last three decades. In the mid 1970s, Robert Muldoon torpedoed the Kirk government’s compulsory superannuation savings scheme which, had it lasted, would be worth in the region of nearly $300 billion today, with all the subsequent investment advantages to this country. (Some have called this the worst political decision that New Zealand made in the entire 20th century.) Instead, Muldoon offered a universally available scheme paid out initially at 80% of gross ordinary time wages. The country has been stuck with the hangover from that unaffordable electoral bribe ever since – to the point where the current government still seems to be living in denial about our capacity to pay for it.

Even by 1979, it was clear that the original scheme was too generous to survive – and that year, the payout was changed to 80% of the net ordinary time wages, after tax. It still wasn’t enough to make the scheme sustainable. The 1980s Labour government added a politically unpopular surcharge – essentially, a system of means-testing for what had been a universal benefit. Even though the surcharge affected relatively few in any serious way – at the time, only 10% of wealthy superannuitants had to pay back their super in full, and only a further 13% in part – the surcharge came to be treated as political poison among the entire bloc of elderly voters.

So much so that arguably, National’s political fortunes in the early 90s came to depend on Jim Bolger’s firm promise – “no ifs, no buts, no maybes” – to abolish the surcharge. Instead, National broke the promise and enacted a short-lived cross-party accord on superannuation – and the surcharge survived, in effect, until Winston Peters joined National in government after the 1996 election, with the aim of pursuing the NZF dream of a compulsory super scheme. Peters’ pet project was eventually routed in a national referendum. Reality however, and the usual issues of sustainability, continued to surface. Jenny Shipley, Bolger’s successor, unilaterally cut the superannuation entitlement from 65 per cent of the net average wage to 60 per cent, and raised the age of entitlement to 65.

Come the Clark government in 1999 and Labour got rid of means testing and raised the payout entitlement to 66 per cent, which is in effect, where it remains today. At the same time, Labour unveiled the New Zealand Superannuation Fund (aka the Cullen Fund) which would use its investments to help to pay for the looming costs of retirement income for ageing baby boomers. Its efforts to do so continued to be a political football. At a Wellington superannuation conference in 2000, National’s then-finance spokesperson Bill English threatened to ‘plunder” the Cullen Fund once National got re-elected, and to spend the contents on tax cuts. (In 2009, National chose to freeze the government’s contributions to the Cullen Fund. Rather than plunder the Cullen Fund, it borrowed to finance its tax cuts.)

Given how politically radioactive the issue of retirement income has been for National – and Winston Peters is still on the scene to reap the electoral rewards of any change to the entitlements of the elderly – it is understandable why Prime Minister John Key chooses to put his hands over his ears and go “la la la” whenever the likely unaffordability of our current retirement income scheme is raised with him. At Monday’s post Cabinet press conference. Key gave a virtuoso performance of denial on this point.

The immediate trigger had been a suggestion from Labour that perhaps the issue merits some exploratory cross-party discussion about solutions. For all the obvious short term political reasons, Key was having none of it – “We took the view that in the short term, there is no need to do that” and in his view, the sustainability of National Superannuation was not an immediate priority. “It may be for another day,” Key said, “but not for today.” The exchanges between the press gallery and the PM on this point are worth listening to:

Playing manana politics with National Superannuation seems irresponsible. Last week’s Budget numbers for instance, gave a pretty chilling indication of the weighty locomotive that’s now headed our way, on retirement costs. The forecast spending on National Superannuation, as business commentator Rod Oram reminded us on RNZ yesterday, will rise by 30% in the next four years – from $9.6 billion in this financial year ending on June 30, 2012 to $12.4 billion in the year ending June 30, 2016. “For people who think this National Super issue is a long way off,” Oram said, “It’s not. If we were looking at any other Budget item that was going to rise 30% in four years – apparently unchecked – then I think questions would be [being] asked about that.”

Indeed. Further questions should also be being asked about the happy co-incidence of economic events that is required if the baby boomers are to be kept in the manner accustomed, during their sunset years. Such outcomes will be affordable only if trade volumes rise steadily and if commodity prices hold up, and if the economies of Australia and China stay in good shape – and then, in happy sequence, if people keep on saving and paying down debt but find a bit of extra room to spend more, and if this spending then enables business to create more jobs and pay more tax and if wages then rise, if and when the demand for labour increases….why, in that case, bob’s your uncle. The scary thing is that this kind of wishful thinking is all we seem to have in lieu of a national plan for the economy. Key is gambling on a series of happy dominoes when he says we can pay for the current costs of National Superannuation, and can afford to pay for it in future, because the economy will be growing so strongly! And that will be happening because…????

Not a concern, as he said at this week’s post Cabinet press conference, at least not today. That’s a problem for manana…or (more likely) for the next government. Meanwhile, as long as National Superannuation still consumes so many of our available resources, this will continue to foreclose our ability to deal with our troubling record on child poverty, and with the childhood diseases related to poverty. Children however, do not vote – and the parents of the children most at risk of diseases like rheumatic fever do not tend to vote National.