Putting Superannuation on the Agenda
Speech by ACT Leader Don Brash at Novotel Tainui, Alma Street, Hamilton
Wednesday, November 23 2011
In the long term, countries are only as successful as the policy choices they make. If we look around the world today,
we can see the results of denial and unreality in Greece and Italy. If we look again, we can also see the results of
forward-thinking, rational economic policy in countries like Singapore, Canada, Australia and Hong Kong.
Our choice this election is one of which way to jump.
There is no shortage of suggestions from the left that will lead to the ‘Greecification’ of New Zealand. Wild spending
promises, 1970s style monetary and employment policy, government getting back into the business of picking winners with
your taxpayer dollars, outright bribes of $1000 after the election. You name it, they’re offering it.
The alternative is to have a stable centre-right coalition prepared to make policy choices for the long term benefit of
The first thing that has to happen is that ACT has to have a presence in the next Government. ACT is the right partner
for a John Key-led Government, not just this election but in 2014 and beyond. And it’s encouraging that many people
recognise that - several polls suggest that ACT is the preferred partner for a National Party Government.
The second thing that has to happen is that ACT must have not only a presence but a strong presence in the next
government. Strong enough, that is, to significantly influence the policy direction of that government.
If you doubt the need for that, consider our problems: debts, deficits and diaspora.
As I have said in many speeches in this campaign, we find ourselves competing for people, jobs, and investment with all
countries but particularly with Australia.
We are slowly losing the battle.
If we don’t act decisively then our future as a first world country with first world public services and first world
opportunity for the next generation is at risk.
Just yesterday Adam Bennett of the New Zealand Herald reminded us that we have not acted decisively in the past three years.
The exodus to Australia that John Key campaigned on stopping just three years ago has not stopped but accelerated. It
averaged 21,500 net long-term departures annually under Helen Clark, and has increased to 25,000 per year under John
Key. The Christchurch earthquakes are partly responsible, but the exodus was not significantly improving before they
The wage gap has not closed, it has widened. In the past three years, New Zealand wages have increased by 11 per cent,
compared to an Australian increase of 12.6 per cent.
National would tell you that the tax cuts of the past three years mean that after-tax wages have grown faster here. That
may well be true, but when the Government is borrowing $300 million every week to keep its spending going, such a claim
We cannot continue to avoid reality. If we are to succeed, we must get government spending under control and create the
conditions for much faster wealth creation. We must reduce government spending and taxes to make work and investment
more attractive, and idleness less attractive. As the Treasury recently reported in its 40 year outlook:
Returning from our current position of deficits to one of surpluses will require tough decisions about reprioritisation,
which will then need to be followed by equally hard decisions further out. The trade-offs become harder and the changes
required get more severe as each year of inaction passes.
This is not a case for despair, but for beginning to act soon. The largest single driver of the fiscal position is the
policy choices governments make on behalf of society, which means that we have the power to make the necessary changes.
ACT is committed to New Zealand’s long term future. We are prepared to push for the tough choices that the Treasury and
anyone who is honest with themselves about our situation know are necessary.
Today I’d like to address one area of government expenditure in particular, New Zealand Superannuation.
The more you look at this issue, the more that raising the age of eligibility becomes a no-brainer.
At the most basic level, we know that people are living longer. Life expectancy has increased by approximately two years
per decade for the past 50 years. Although this rate of increase is slowing, it hasn’t stopped. It’s likely that
somebody aged 65 in 2050 will expect to live four years longer than a 65 year-old in 2008.
Add in the impact of that particularly large cohort in our population, the baby-boomers, and you have a demographic time
Over the next 40 years, we expect our population will increase by 25 per cent. The over 65 population will increase six
times faster, by 150 per cent, and the over 85 population by a whopping 400 per cent.
The result is that, where we now have five workers supporting every pensioner, we will have only two by 2050.
This year’s Pre Election Fiscal and Economic Update shows the cost of New Zealand Super increasing from $6.8 billion in
2007 to $12.5 billion by 2016. The demographic time bomb is ticking louder every year.
What can be done in the current political environment to defuse it?
Some would say that we should decrease the amount we should pay each person.
Certainly, that would relieve the fiscal pressure, but it would be almost impossible politically. More importantly, it
would defeat the purpose of having the scheme.
New Zealand currently enjoys amongst the lowest levels of elderly poverty in the developed world, and dealing with the
demographic challenge by reducing payments to people who have worked and paid taxes their entire lives would be unjust.
Another view is that the pension should be somehow means-tested again. Labour introduced a surcharge on income other
than New Zealand Super in the late 1980s, but it was simultaneously unpopular and ineffective.
It sent the signal that saving for your own retirement was a mug’s game, and it was so easy for those with astute
accountants to avoid that the surcharge became effectively a voluntary tax.
Not surprisingly, the surcharge was abandoned by National in 1998 and it seems unlikely that reintroducing it would be
politically possible or fiscally useful.
Others would push for a compulsory retirement savings scheme. While this has clearly worked in Singapore, there are
serious difficulties in administering such schemes, and compulsory schemes have been rejected twice by the New Zealand
electorate over the past 36 years.
In 1975, Robert Muldoon campaigned on dumping Labour’s compulsory scheme and won two further terms of government after
doing so. In a 1998 referendum, the New Zealand public rejected compulsory superannuation by 92 per cent to 8 per cent.
Moreover, introducing a compulsory scheme when we already have a pay-as-you-go system would be to ask the present
generation of workers to both pay tax to fund superannuation for those already in retirement - and those close to it -
while funding their own retirement.
It is particularly surprising that Labour would propose such a scheme. Of course, Labour might claim that it is
employers not workers who would pay into the proposed compulsory retirement scheme, but any student of Economics 101
knows that while employers might write the cheque, it is workers who would end up paying for those contributions in the
form of lower wages.
And that is without giving any consideration to the unfairness of requiring young married people to contribute to a
compulsory savings scheme when they would be much better off, financially and in other ways, by paying off their
Yes, there may be some benefits in a compulsory scheme and it’s hard to avoid the conclusion that Singapore’s scheme
works very well – though of course Singapore never had a pay-as-you-go scheme to begin with. But in my view, given where we are starting from, the disadvantages of compulsion outweigh the advantages.
The most obvious way to manage the fiscal costs of New Zealand Super is to raise the age of entitlement.
What are the political and fiscal implications of doing so?
First, there is good reason to believe that New Zealanders would support raising the age.
It might be best to start by asking those most directly affected. Those at the current retirement age of 65.
In 2008, the Ministry of Social Development did just that, and the results were a surprise for those who believe the
pension at 65 is a political sacred cow.
57 per cent of those surveyed at age 65 were working, and a further seven per cent said they intended to work in the
These figures were closely similar to the general labour market participation rate and unemployment rate for the 15-64
year-old working-age population, which were 65 per cent employed and five per cent looking for work at the time of the
Clearly, people at the current retirement age are interested in working.
Of those working, 92 per cent said they liked being busy, 90 per cent said they liked their work, 90 per cent said they
felt they had something to contribute, and 83 per cent said they worked because they liked the contact with other
In addition, the survey reported that:
The employment of older workers provides positive benefits for the older workers themselves, for society in general and
for government revenue. Work at older ages is likely to lead to higher retirement incomes and standards of living,
improved physical and mental health, social connectedness and interaction, social status and respect, possibilities for
lifelong learning and development, and the ability to stay active.
It seems that the broader population also favours raising the age of eligibility.
In May, a Herald Digipoll reported that 52.3 per cent of voters favoured raising the age. Even amongst those whom you might expect to
most strongly oppose raising it – 40 to 64 year-olds – there was 44.5 per cent support for raising the age.
A later Herald Digipoll showed a slight softening of support for raising the age, with support at 48 per cent compared to 47 per cent
opposed, with 5 per cent refusing to say or undecided.
Fiscally, not only would raising the retirement age increase tax revenue from more work and reduce spending on pensions,
it would also reduce government spending on healthcare and on the welfare system by helping to keep over 65 year-olds
healthy and engaged.
Clearly this is an issue that is in play with the New Zealand electorate. As the fiscal realities of New Zealand Super
with an aging population become larger and clearer, support for raising the age will almost certainly rise.
After assessing the issue, the Retirement Commissioner Diana Crossan has proposed raising the age of eligibility from 65
to 67. Her proposal would raise the age by two months per year starting in 2020, so that the age would reach 67 by 2033.
However, even according to Ms Crossan’s own report this is a very conservative proposal. Many other countries are also
moving the age at which people become eligible for their taxpayer-funded retirement income schemes, some more quickly
than the Retirement Commissioner proposes here.
The United Kingdom and the Netherlands, for example, will both raise the age of eligibility to 66 by 2020, the year we
plan to start raising ours. Ireland will raise its age to 67 by 2021 and 68 by 2028. Australia will raise its retirement age to 67 by
2023, as will Denmark and the United States by 2027 and Germany by 2029.
Clearly there is good reason to think that we too should raise our retirement age somewhat more quickly than the
Retirement Commissioner has proposed. Many countries have already started, yet her proposal has us marking time for the
The difficulty is one that pervades the economic policy debate in New Zealand, as Damien Grant of the Herald on Sunday recently opined about our lack of initiative on economic policy, ‘Blueprint ready, Bravery Lacking’.
The single biggest impediment to raising the age in line with demographic and fiscal reality, with the advice of the
Retirement Commissioner, and with the movement of many of our trading partners including Australia is the Prime
Minister’s public declaration that he would rather resign than raise the age.
We find ourselves in the position where an Opposition leader who is otherwise extremely unpopular - and who is
advocating some seriously bad policies - is on the right side of the superannuation debate, and an extremely popular
Prime Minister who is on the wrong side.
I have already promised that ACT will provide Confidence and Supply to a National-led Government. I believe it is
crucial that New Zealand has a viable centre-right Government to prevent a drift to the ‘Greecification’ that a
coalition of the left would deliver.
But the long term consequences of superannuation are too large to slip through the cracks of today’s politics. I hope
that National will remain in Government for several more terms, but New Zealand cannot wait that long for a proper
In my campaign launch speech 10 days ago, I said that ACT would put the issue of superannuation on the agenda.
Today I’d like to announce that, in order to do that, ACT will ask that the issue of raising the superannuation age be
put to a public vote.
In any negotiations over Confidence and Supply with the National Party next week, we will push for a referendum to be
held on the retirement age in the coming year.
The question could be very simple. For example:
‘Should New Zealand match Australia’s retirement age of 67 by 2023 by raising the age of eligibility six months every
second year starting from 2017?’
This referendum would take this question and its long term consequences out of today’s politics and put New Zealand’s
fiscal destiny in the hands of New Zealanders.
I very much doubt that New Zealanders, faced with a proper debate on this subject, would choose to continue evading
fiscal reality. It would give John Key a strong mandate to begin raising the age.
Anybody who objects to the cost of such a referendum should consider that the last referendum, on smacking, cost $8.9
million. Next year, the year of the proposed referendum, New Zealand Superannuation will cost $9.5 billion, or more than
a million dollars every hour. In other words, having a proper public debate about superannuation would cost less than
nine hours’ worth of current superannuation spending.
In my opinion, that’s worth every penny.
Ladies and gentlemen, New Zealand faces stark choices about its economic future. We can choose to continue with a
dangerous do-little approach while our incomes continue to fall behind, our people continue to leave, and our economic
policies stagnate. Or we can face up to reality.
A vote for ACT is a vote for New Zealanders to take control of their destiny. It is a vote for New Zealand to get back
on track towards remaining a first world country, with first world opportunity for the next generation.
Ladies and gentlemen, to retain a John Key-led government and put the burning question of superannuation on the agenda
for the next term, give your party vote to ACT this Saturday.