A Long-Term Fiscal Statement (LTFS) is produced every four years and generally can be quite useful. The latest was a huge opportunity for our brightest minds in Treasury to open up the public debate on many issues, including whether we need to change NZ Super and if so, how we could do it.
Unfortunately, it looks like a case of ‘fools rush in where angels fear to tread’ which has a long history in New Zealand. While government’s s true intent is to reduce the size of government to reach an arbitrary 30% of GDP, now Treasury has given it the ammunition to justify the next round of belt tightening, all in the ‘worthy’ name of protecting the next generation from financial ruin. This concept can be glorified as achieving ‘intergenerational equity.’
There are many nuances in superannuation policy, none of which is reflected in the report He Tirohanga Mokopuna – Long-term Fiscal Statement 2025. Instead, we are fed some outrageous proposals in a menu that focuses on cost saving, modelled under some untenable assumptions.
The modelling goes 40 years into the future. It is interesting to think back 40 years ago. In 1985. most of us were just grateful to survive 1984 given the dire predictions of Orwell. That was the year the surcharge was brought in by Labour with various other changes to NZS set to follow. The year 2025 would have seemed an impossibly long way off to pontificate about.
Under the heading Reducing the fiscal costs of pensions the LTFS begins:
..the cost of New Zealand Superannuation (NZS) NZS has already increased from 3.9% of GDP in 2006 to 5.1% now, and without policy changes would grow to 8% by 2065 in our OLG model (or 7.8% in the LTFM).
Instead of accepting that as older people become an increasing share of the population, the ratio will rise, implying we need to be sure NZS is carefully designed, Treasury declares that we should be aiming to hold NZS expenditure as a percentage of ‘GDP’ constant.
….the modelling suggests the cost of NZS could be kept stable as a percentage of GDP by increasing payment rates in line with inflation rather than wages, or through steadily increasing the age of eligibility to 72 by 2065. Means testing would need to kick in at relatively low levels of non-NZS income to generate similar levels of savings.
Obviously working out who is worst off and who gains is exceedingly complex but Treasury states confidently;
The three scenarios all reduce the lifetime consumption of (some) earlier generations but make future generations better off, with lower future taxes and the cumulative impact of higher economic growth on incomes.
Here are some gems in what passes for a distributional analysis:
- CPI indexation scenario has a negative impact for most people already born
- Raising the age of eligibility boosts consumption for those people already receiving NZS, such as those born in 1950. Treasury explains this is because NZS remains linked to after-tax wages in this scenario, which means existing NZS recipients benefit from the lower taxes feeding through to higher after-tax wages and higher NZS payments
- people closer to retirement, such as those born in the 1970s, would face lower lifetime consumption if the age of eligibility was to increase.
- People in the higher income bands of the earlier generations experience a smaller percent decline in their lifetime consumption under both scenarios. Because apparently, they are less reliant on NZS as a source of income.
- higher income people born later benefit most from the lower taxes and higher economic growth.
- people born in 2065 are better off, irrespective of their income level.
Bully for the last 2 points—but what incredible assertions. There is little indication of any pain at all from lowering the relative pension level despite international evidence that shows elder poverty will accelerate as pensions become increasingly out of touch with real living standards. Likewise, to state the obvious, raising the age affects a large group who cannot maintain full time paid work until age 72. Many struggle now in their 60s, and draconian means testing which surely will destroy the incentive to stay employed and to save.
Intergenerational equity is a very vague concept in this report. To share the transitional costs of change across generations, which presumably would be fairer than not sharing, the report says quite bizarrely;
fully compensate ‘transition generations’, the amount of debt required would be quite large, equivalent to the implicit debt associated with current superannuation obligations, effectively shifting all the cost of change to future generations.
In my opinion, the options are unhelpful, not costed properly, and will create confusion and accelerate ill thought-out decisions. The underlying assumptions such as that NZS spending as a % GDP must stay constant are unjustified, as is the theory that lower taxes as % GDP will raise GDP growth.
Let’s take a closer look at means testing;
The Treasury’s microsimulation model (TAWA) explores a narrow and broad scenario where NZS was abated by 40 cents per dollar earned over $60,000 or $10,000 respectively.
So those earning over $60,000 would have a gross income with married gross rate of about $85,000- so marginal tax rate on everything over $60,000 would be 73%. Even worse in the broad scenario, all other income over $10,000, would be taxed 57.5%-73%. Yikes, can you imagine that? It makes the old surcharge smell of roses.
And let’s look at reducing the relative level by price indexation. Today we know that for an increasingly large group of superannuitants poverty is a real issue. If the economy grows and CPI adjustments are used, we can expect the kinds of poverty levels we saw in the early 1970s to re-emerge.
Sadly here is what a leading commentator said
it was notable that NZ Super was the only form of benefit that was tied to wage inflation.
That sort of inconsistency does lead to some pretty odd outcomes over time when you have one set of money being given out to a group in society that accelerates and grows at a much different, much faster rate than the support and money that you give to another group in society.
It would seem to me more sensible that if the government is giving out money in general, that as long as it is maintaining its purchasing power, ie inflation adjusting it, that seems if it works for one group, it should sort of work for them all.
The recent change to benefits from wage indexation to CPI under the Coalition government is extremely retrograde and poverty enhancing and cannot justify any change to the indexation of NZS.
Treasury joining the boomer bashing mob .How ever there is a looming problem because so many tax payers have left the country or have joined the boomers on welfare .Then there is the issue of the tax cuts over the last 40 years and the major swing to making the lower paid pay for all the things the rich demand such as Trans gully which is costing $180 million a year for the next 30 years on top of the $1.2 billion to build it .
There is an urgent need to change direction and rebuild NZ from the bottom up as clearly the top down plan has failed big time ,hence we have arrived at this point in time .
Seems like the treasury doesn’t look at the whole system.
The starting point surely is, what does the Super payment need to be now so that retirees have a quality life at 65 without having to continue working? Is the current payment enough? Is payment supposed to be ‘generous superannuation’ or a ‘barely adequate pension’.
Clearly the current payment is not enough. For a single superannuitant its about $500 and a single bedroom apartments start at about $400. A retiree should not have to run cap in hand and jump through bureaucrats hoops to access a landlord subsidy.
Currently super is about 38% of the average wage. Looking to the future, how will retirees continue to be provided for so their income remains relative to the whole society so they don’t fall into ‘relative poverty’ let alone poverty.
Then treasury would need to come up with a ‘plan’ (like a business would) for the whole economy to ensure the country has growing living standards and fair taxation rather than just saying laissez-faire, laissez-faire, laissez-faire.
Treasury really needs a serious spanking. Willis didn’t come up with the stupidity that crashed the economy on her own, it came from those stupid backward and greedy Brash-appointed clowns.
They were supposed to be growing the economy, that’s why all their suggestions were humored – but they’ve been busy with ineffectual ideological claptrap. Every educated economist knows that tax cuts are the least effective kind of stimulus measure – they need to do much better if they are to be more than another corrupt island of unaccountable bureaucracy.
One of my old professors did some research in the 1980s and found that if the government planned ahead they would be able to cope with the increasing numbers of older people in the population. But let’s face it, New Zealand governments are not great at planning ahead are they?
They have zero incentive to think beyond the next election cycle.
I also note another suggestion included was a massive hiked to GST. This, plus hiking super simply means workers and low income households would bear the brunt of Treasury’s prescription. No suggestions of a wealth tax which, if calculated properly, would bail us out of this mess pretty quickly while keeping super at 65.
I think it’s too late to get any of these policies over the line before the next election. Nationa/Act should fight for those votes and let’s see the left come up with some smarter proposals that ensure the tax burden is fairly spread for all.
It is bananas that I should get super. It’s a benefit and all other benefits are income tested. I earn more money than a lot of the taxpayers who are supporting me. I am a total hypocrite as I take it anyway. The “paid taxes all my life” thing is true, but irrelevant as my past taxes are all gone – among other things they paid for my parents’ pensions.
there is a costed proposal to fix that Ian using a moderate income test that does not change the principle of it being available if you ever do need it
St John, S (2025) New Zealand Superannuation as a basic income. PIE working paper 2025-1: March 5th 2025: The modelling illustrates that significant savings maybe achieved from a suitably progressive separate tax schedule for those who opt onto the basic income, called here the New Zealand Superannuation Grant (NZSG). Alignment of the various rates of NZS may generate additional saving.
You paid for your parents’ pensions, and your kids pay for your super. Apparently, this is intergenerational fairness. Your grandkids will pay for your kids super.
Labour set up a prefunded scheme back in the 1970s and pensioners would be enjoying a tremendous retirement now if National hadn’t canned it for a pay-as-you-go scheme. National were all about protecting the private superannuation industry and the situation now shows it was just another example of National’s economic mismanagement over generations. Kiwisaver is Labour’s attempt to clean up National’s mess.
The mom & pop landlord’s phenomena is individual taxpayers heeding the warnings of Don Brash and the Treasury that the next generation will run out of money and not honour the commitment to provide for the elderly. Can a government ever run out of money?
The future big deficits and debt blowout is based on inaction.
Labour and National could agree on
A
1.increasing the age of super to 70 by 2050.
2035-2038 66 2038- 2041 67 etc.
2.paying those not working 65-70 super rate benefits (to reduce hardship)
B
a 1% tax surcharge dedicated to health care wealth fund to provide for future health care costs for those over age 65
C
a 1% mortgage surcharge on landlord mortgages (excluding new builds) and place the money into a fund for Kainga Ora – income related rent over 65, disability housing, emergency housing, transition housing, old age care villages etc.
Governance is not hard if the partisanship and catering to lobbying is removed.
An increase from 5.1% of GDP to 8% of GDP in 30 years is massive. And can’t be wished away. Any government is going to have to do something. The easiest is a moderate age increase. The second easiest is some level of surcharge.
I would think future governments will want to keep the total cost at under 7% of GDP.
You have to put it into context – our birth rate is well below replacement – largely because cost of living is so outrageous that having families is contraindicated. Wages ae pitiful, because low wage migrants suppress wage growth. So how is our population growing? Well, no-one would come to NZ for the wages – so government hands out citizenship like a pedo hands out sweeties. This is where all those excess old folks come from. And why? Well, a property bubble always needs more bodies.
It’s a racket – and once the public work it out the Gnats will face a punishment of biblical proportions. Richly deserved too.
The whole concept of a 40 year out fiscal statement the way Treasury does it is ill conceived. Any exercise of what does it look like in 40 years if we keep doing what we are currently doing is just stupidity multiplied. Even worse when the exercise is looking just at costs, ignoring the benefits of ‘investment’, changes in wellbeing and wealth, and exaggerating net debt by not accounting for the assets of the NZ Superannuation Fund and ACC (and overstating the cost of super as a % of GDP). We are facing some potentially big changes and challenges over the next 40 years which have a high degree of uncertainty eg climate change, breaching 7 of 9 basic planetary biophysical thresholds, planetary resource use overshoot, rising inequality, novel pandemics and diseases, earthquakes, etc. The fundamental reality for a currency issuing country like ours that a public deficit is a private sector saving eludes the Treasury in their analysis (if we can call it that). Instead of persisting with this requirement of the seriously flawed fiscal responsibility section of the Public Finance Act surely it is better to set up a ‘Commission for the Future’ (remember them) who can run different scenarios, using different assumptions of size of state, etc, so we can have a range of informed scenarios to choose from in our forward planning.
One thing overlooked is the assumptions.
If there are to be 2 million more homes in Auckland – for whom, presumably a million (or more) new workers. That impacts on the demographics.
Thank you for the informed comment Andrew. Treasury appear to worry more about what kind of pensions babies born after 2065 should have in the name of a vague concept of intergenerational equity, than addressing the real and obvious problem of equity between the old and the young today. The issues around assets in NZSF and ACC are ignored as one side of the balance sheet – core net debt is the focus. I do remember the Commision for the Future, and when it was abandoned commissioner Dr Brian Murphy saying ‘ the future has been cancelled’. You are right we need a broad based multi-disciplinary Commision for the Future with treasury economists one input among many.
Many towns where super spending is the main source of younger peoples income.
About all that is left of the redistribution that we had in the 60’s.
It is obvious that it it about all that is left propping up many communities, and the country, as the Government by short sighted cost accountants cuts, or flogs off, as much investment in the countries future they think they can get away with.
Ways to rort the system – medical etc. have a part to play in provision of government services for the citizens needs.
This USA example is good – and if you have a small CC at the bottom of your images and press that you can see the words as well as hear and get the point quicker.
https://www.youtube.com/watch?v=Rv8fKGvGzbc
(Gets really interesting after about 2 mins.) Atrioc
There’s More To The Story
YouTube · Big A
31K+ views · 4 hours ago 11.02
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