The recent Dialogue page exchange between Simon Upton and Michael Cullen on superannuation policy was a depressing variation on old themes in superannuation politics.
The major party in Government claims that only its policies can produce a sustainable superannuation programme, while the parties out of power criticise these proposals as unnecessary or counterproductive. Government and Opposition point fingers at the other for past transgressions against the elderly or fiscal good sense.
New Zealand needs to escape from the cycle of excessive promises at election time followed by cuts imposed under urgency that have so poisoned superannuation politics.
This 25-year period should teach us that both bidding wars for the electoral support of senior citizens, and Treasury efforts to use superannuation cuts for short-term budget-balancing purposes, are disruptive and counter-productive.
Several modest steps should be taken to provide a new direction.
The first is restoring a multi-party accord. In disestablishing the Super 2000 Task Force, the Government argued that it was not needed because it had a superannuation policy. It is not, however, a policy that enjoys support on the other side of Parliament.
The experience of the 1990-92 Todd Task Force suggests that an independent body can help to build a multi-party agreement. And experience since then suggests that building consensus is not something that politicians are capable of doing on their own.
To rebuild consensus, the Government should move up the next scheduled report of the Periodic Reporting Group on the (semi-defunct) retirement incomes accord, scheduled for 2003, to next year. To build confidence in this body, the Government should gain the agreement of National and the Alliance—and preferably other parties—on the group’s membership.
Secondly, governments must stop using urgency to pass superannuation law. It has been used repeatedly over the past two decades to avoid criticism and obstruction by opposition parties. This is not only undemocratic but has caused governments to make judgments of monumental stupidity. Policies that proved to be politically unsustainable, most notably in Ruth Richardson’s 1991 budget, were pushed through.
To restrain such policy changes, Labour has floated the idea of entrenching superannuation legislation, making it amendable only through special parliamentary super-majorities or a referendum.
If, however, the present arrangements for changing superannuation policies are too flexible, Labour’s proposal would make them too rigid. There is a sensible middle-ground: going into urgency on superannuation legislation should require the support of 60 per cent of MPs.
The Government could still enact superannuation legislation through normal channels. It could even repeal the new rule if it wished – but there would be an added moral and political sanction against doing so. This change would result in more deliberation before action was taken, better legislation and less voter cynicism about broken promises.
Thirdly, a modest, phased-in superannuation surcharge should be reimposed. No element of superannuation politics has been more controversial than the surcharge. Many people were justifiably outraged about the instability of their pension incomes as governments repeatedly altered the structure of the surcharge. And a small number of better-off seniors, after a lifetime of paying taxes, received no superannuation benefit at all as their benefits were clawed back.
Again, a middle ground is possible. New Zealand should consider reimposing a modest surcharge on the incomes of better-off seniors, but with three important limitations.
It should be modest in scale, no more than 20 per cent above normal income tax rates, and with a substantial income disregard before it takes effect. It should be capped: instead of taxing back all superannuation benefits, well-off recipients should retain a minimum of one-third of their benefit.
And a surcharge should be phased in gradually, applying only to future retirees. Today’s retirees should not be subjected to a cut in their incomes for which they would not plan.
In short, a surcharge should be part of a broader effort to build a univeral, sustainable and equitable New Zealand Superannuation—not as part of an effort to balance governments’ books in the short run.
Modest retirement savings incentives should also be established. New Zealanders receive three very inconsistent sets of signals about the importance of savings for retirement.
The Office of the Retirement Commissioner runs a campaign telling them that such savings are extremely important. The Treasury says that while saving in general is important, retirement savings are not more important than any other form of savings (such as paying off a mortgage) and, therefore, should not receive any special incentives.
And the tax system discourages retirement savings by taxing all employer contributions to registered superannuation schemes at 33 per cent, even for employees in lower tax brackets.
Is it any wonder that employers increasingly have decided simply to give employees cash rather than making contributions to superannuation schemes?
New Zealanders need to receive more consistent signals about the importance of saving for retirement. A modest step in that direction would be to tax the first $5000 in employer contributions a year to a super scheme for each employee at the lowest income tax bracket, rather than at the highest rate. This would not provide an adequate supplemental income to retirees, but it would be a start, and it would get them in the habit of saving.
None of these steps, individually or collectively, is a panacea for superannuation policy. The country still faces a very serious funding crisis as the baby boom generation retires after 2015.
But panaceas are not what New Zealand needs now. It requires small, solid steps to restore confidence and to dampen the poisonous atmosphere surrounding superannuation that the country’s politicians have created.