Michael Cullen Address to Waitakere Grey Power.

Thank you for your invitation to speak to you today and to continue my long association with Grey Power. As a former Social Welfare Minister, as the Labour Party spokesperson on superannuation and as Minister of Finance I have attended a huge number of meetings with Grey Power members and representatives.

During that time, I have detected four themes that keep rising to the top of the Grey Power agenda: superannuation, or perhaps more broadly income security in retirement; health care; personal security in the home and drivers’ licences.

Those are the issues, but I think there is something bigger that sits underneath them: the integrity of the political process. In the past, parties sought office by promising more than they could reasonably deliver. What that meant was that they often broke promises. On the other side, interest groups in the community felt that they didn’t need to feel limited in asking for what had been offered: it was almost as if once the election was over all bets were off and it was each to their own and may the devil take the hindmost.

I am very proud to say that the current government has kept its word. We have delivered what we said we would deliver. Just as important, we have not tried to play favourites by delivering more than we said we would deliver to what might be seen as electorally sensitive segments of the population.

That is very important in maintaining a stable and orderly society and in creating a platform on which we can make economic progress and improve the living standards of all New Zealanders. We have made realistic promises, we have given clear signals about where the money is going to come from to pay for them and most of all we have put a balanced programme to the electorate.

Our balanced programme recognises that we have to bake the cake before we can eat it. We have managed the public finances carefully and prudently. We have worked with local and regional government, and with the business community and the trade unions to develop an integrated programme that will allow the economy to grow, and to generate more jobs and higher incomes.

We have recognised that some of the policies we inherited were putting avoidable stress on sections of our community, and we have eased the pressures: reintroducing income related rents for low income state house tennants; suspending interest payments on student loans for those in study; and working with the universities and polytechs to make sure that tertiary education was relevant, accessible, affordable and of a high standard, to give you a few examples.

We have put a lot more money into education at every level: from early childhood to centres of excellence in the universities. We have not simply thrown money at education though. We have worked to get a better fit between what is taught and the needs of the students and the labour market.

The government has also been careful about timing. We have not tried to do everything at once. Instead, each year we have brought down budgets that build on their predecessors, in line with what we assess we can realistically spend on the next highest priority for the nation. Frankly, anything less is not sustainable, as we have learnt to our cost in recent decades.

I am giving you this very brief overview because I don’t think it is realistic to look at one part of our programmes – such as government support to senior citizens – without locating that in a wider context.

Let me turn now to the more specific agenda of Grey Power.

Retirement income was one of the first areas to get more funding after the change of government in 1999. We have also recognised that fair and sustainable policies in superannuation have to be fair and sustainable for today’s retired people, and for today’s working generation who are beginning to plan for their retirement in ten or 20 years time.

We therefore worked on both fronts. For the currently retired, we reversed National’s decision to reduce the New Zealand Superannuation floor for a married couple from 65 percent to 60 percent of the average, after tax, ordinary time weekly wage. The effect of that was to increase super payments to a retired couple by $21 a week, at an extra cost of around $210 million per annum.

Our second major step forward has been the establishment of the New Zealand Superannuation Fund. The Fund will play a major role in making New Zealand Superannuation financially secure for the next 50 years.

Throughout my years in Parliament, I have been pointing out that we cannot ignore the fact that, starting in about the year 2015, a permanently higher proportion of the population will become eligible to receive payments of New Zealand Superannuation. This change arises primarily from increasing longevity and declining fertility in the population, and is exacerbated slightly by the passage of the 'baby boom' generation into retirement. As Rachel Hunter would say, it won’t happen overnight, but it will happen.

There is no getting away from this. That population structure will not change with things like higher levels of immigration. Even high levels of immigration do not change the total population much, and migrants have to have a sufficiently different age composition from the existing population before immigration starts to make a difference. Even immigrants grow old.

It is unforgivable for political parties to say they will deal with the problem when it arrives. By then it will be too late.

The Superannuation Fund will prepare us to both fulfil the expectations of retired New Zealanders and to maintain stability in tax rates and in other areas of essential spending. It will build up a portfolio of Crown-owned financial assets over the next few decades while the annual cost of New Zealand Superannuation remains relatively low.

The estimates are that by the end of next month, the Fund will have around $1.9 billion, and that will grow rapidly to $12.4 billion (or 8 per cent of GDP) by 2007. The Fund will peak at around 50 per cent of GDP in 30 years time. Those assets will progressively be drawn on to supplement the annual budget as the Crown's finances adjust to a much higher level of ongoing expense for New Zealand Superannuation. It is a smoothing mechanism for what remains fundamentally a "pay as you go" universal benefit.

The New Zealand Superannuation Fund represents one of the most significant political initiatives in decades. For the first time we are planning how to finance our commitments over the long term.

In addition to our undertakings on superannuation, we made a variety of other promises before the last election. And we have delivered on each one.

We have recently confirmed the timetable for the removal of all asset-testing on long-term residential care.

To reiterate the details of the decision: from 1 July 2005, single people and couples with both partners in care will be able to keep up to $150,000, including property and savings, before their assets are used to contribute to their care costs – up from $15,000 for single people and $30,000 for couples.

Couples where one partner is in care will retain their current exemptions of a house and car (whatever their value), and their cash asset exemption will rise from $45,000 to $55,000. The exemption thresholds for all groups will then increase by $10,000 a year, progressively removing asset testing.

The new policy means that five and half thousand additional people will be eligible for subsidised residential care from 1 July 2005, taking the proportion of those in care who receive the subsidy to 70 per cent.

I appreciate that many people cannot see why the implementation needs to take such a long time. The reality is we have had to balance competing demands for spending against the huge costs involved with this programme – starting at more than $100 million in the first year and rising to $345 million by 2020/21. We simply don’t have the resources to remove asset testing all at once, which is why it will occur over time, beginning on 1 July 2005.

Having said that, I don’t need to remind you that a National-led government introduced asset-testing, and the parties on the right have made no commitment to remove asset testing, either now or in the future.

One of the key competing priorities for money is health.

An inescapable fact of ageing is an increased need for health care. Promoting healthy lifestyles can go some way towards reducing this need. But as a nation we need to get smarter at providing health care in a way that provides quality of life without placing too much strain on our ability to finance it.

We realise that there will always be more expectations in health than can be delivered. No country in the world has developed a health system that satisfies all the demands placed upon it.

At the same time, the explosion in medical technology means that more and more expensive interventions are now feasible. There are more people, living longer, and more treatments available to them. It is precisely because this is an international phenomenon that almost all of the inputs into a modern health system – health professionals’ salaries, pharmaceuticals, and medical supplies and equipment – are priced according to international benchmarks.

Other countries are competing for health resources. So it is easy for costs to spiral out of control; and when that happens it means ultimately that somebody misses out on treatment, or has to wait longer than they would wish.

Over the course of the last three and a half years, this government has made significant injections of new funding into the health system. In December 2001 we announced a package of $3 billion of additional spending, spread over three years. This budget rolled that escalating funding path out another year and added to it.

To be fair, since the mid 1990s, successive governments have poured money into health. Year after year, allocations to health spending have increased by more than allocations to government spending programmes as a whole. The result is that the health share of the government spend has risen steadily, and over a decade, spectacularly. In 1993, health absorbed less than 14 per cent of the budget. In 2004 it will absorb around 20 per cent. This was at a time when total government spending was rising, with extra allocations to superannuation, education and law and order.

The effect has been that in about a decade, the health slice of the public spending cake has increased by nearly 50 per cent. Those are spectacular numbers, and yet we do seem to have got the funding under control. This is a major problem for all governments in the developed world.

The thing that should perhaps worry us is that in demographic terms, these are the golden years. We have relatively few young people and relatively few old people: the two sectors of the population that tend to dominate the consumption of health costs.

As the proportion of the health care dependent older group doubles, there will be more pressure than ever on the funding of health services. This means we have to get more effective delivery of service.

In this regard the primary care initiatives we have taken are particularly important. It has long been acknowledged that good quality primary care is the key to creating a health system that meets our needs without breaking the bank. Building effective fences at the top of the cliff is preferable to funding an increasingly expensive and over-burdened ambulance service at the bottom.

Governments in the 1990s failed to grasp the nettle on the need to make investments in primary care that would only pay dividends in terms of reduced pressure on hospital services after years and possibly decades. One of our specific pledges was to transform the health system so that problems were tackled earlier, thereby reducing the impact of ill health and in time also freeing up resources that would otherwise have been spent on more intensive forms of care.

We have grasped that nettle, and are investing an additional $400 million in the Primary Health Care strategy. A good example of the new strategy is the pilot project being run, with government funding, by Presbyterian Support in Dunedin and Hamilton. The service is called ‘Community First’, and it is designed for older people who have been assessed as being eligible for rest home care, but who would prefer to stay in their own homes (as do most older people, given genuine choice).

The services are individually tailored to the older person’s changing needs and, most importantly, designed in consultation with them and the people close to them. They might include assistance with personal care and housework, social and recreational activities, rehabilitation services, respite care, carer support, and links with other health and disability providers and community groups.

Community First puts older New Zealanders and their families in the driving seat in a way that has not been possible in the past. It is another way in which government policy can support positive ageing in a practical way. Of course, there will always be a place for residential care. Indeed, we are addressing a funding shortfall in that area. Over the last two years, we have injected an extra $25 million into residential aged care services, with at least $22.7 million earmarked over the next two years, on top of funding for volume growth.

But entering residential care should be a choice made when other options have been explored and found to be impractical.

I will talk only briefly about personal security, because I do want to leave time for your questions and comments. I realise that one of the strengths of Grey Power is that it provides a platform from which you can have your say, not just a soapbox from which politicians can lecture you.

In law and order we said we would crack down on burglary and youth crime. The results have been promising. The number of recorded burglaries has dropped by a fifth since the government took office. This means that we have prevented 270 burglaries a week on average. Burglaries are disturbing for any victim, but particularly traumatic for older people who are often living alone and therefore especially vulnerable to this violation of private space.

We haven’t sat back and rested on our record. Action against crime has to be ongoing. This month’s budget commits $192 million operating funding and $64 million in capital funding over the next four years on a range of initiatives to reduce crime and the impacts of crime, improve the effectiveness of youth offending interventions, implement law changes and maintain core services. An example of the last of these is the funding for an additional 50 Auckland based police officers.

If you will indulge me for a few minutes more, I just want to comment on our ability to put even more money into these areas: superannuation, asset testing, health and law and order. In some ways we have become the victims of our own success: being berated now for managing the books too well and accumulating too much by way of financial surpluses, rather than spending more.

Let me write this large. I do not have $4 billion dollars to spend.

The $4 billion that has been dominating media coverage of the budget is, in crude terms, the difference between cash in and cash out. Accounting conventions mean that contributions into the Superannuation Fund effectively come out of this surplus. Next year we will put $1.9 billion into the super fund.

There have also been unrealised paper losses on some government funds like the Government Superannuation Fund and the Natural Disaster Fund. These losses may reverse out as stock markets recover, but they may not, so we do need to be prudent in case they don’t.

The future costs of ACC liabilities and GSF pensions are estimated to have gone up. As interest rates change, those estimates may reverse out, but again they may not. We cannot just ignore them.

We are also spending significant amounts of money to upgrade the infrastructure: roads, schools, hospitals and the like. If we do not finance some of that out of operating surpluses we have to borrow, and the government is determined to make sure that government debt doesn’t get away on us. If it does, more is spent paying interest on debt and less is available for our other economic development and social programmes.

Finally, and most important, the surplus is a small difference between two large numbers: total revenue and total spending. Small changes in both can have big impacts on the difference between them. Experience in Britain and the USA shows that healthy surplus projections can vanish before your eyes. In a very uncertain world it would be extremely dangerous – to paraphrase the late Sir Robert Muldoon – to spend the lot.

There is possibly a bit of financial headroom in there – say $400 million or so - but we will need to monitor the finances over the coming year and make a judgement about whether the fiscal position reflects an underlying strength or is just driven by the normal ups and downs of the economic cycle.

If we are in a position to move more assertively next year, I have already signalled that the priority is to make improvements in the level of family assistance to low and middle income families and in the incentives to move off welfare benefits into employment.

There is one last item on the Grey Power agenda that I have not mentioned: drivers’ licences. When it comes to driver’s licences, I have to declare the limits of my competency. You will have to invite Paul Swain to talk to you on that.

Members of Grey Power, there will be other things you may want to talk about, from dogs, to leaky buildings to electricity. I will therefore thank you for your attention and invite you to raise these other matters of unfinished business with me.

Thank you.

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