New Zealand goes it alone in Superannuation policy

1
New Zealand goes it alone in Superannuation
policy

• Susan St John
• University of Auckland

2
Unique features ofNew Zealand Superannuation

• Simple, flexible and fair
• Tax funded
• Flat rate, taxable
• Individual basis
• Basic adequacy for those in good health and home
  owners
• Voluntary private savings with no incentives
• Broadly sustainable

3
(No Transcript)
4
Policy field Litany of woes

• Broken surcharge promise in 1990
• 1991 attempt to make NZS a welfare benefit
• New tighter surcharge in 1992
• 1993 Accord
• 1996 Coalition gets rid of the surcharge
• 1997 compulsory scheme rejected
• PRG 1997 report, sidelined
• Failure to solve the tax problem 1998 (Tolis)
• Unilateral change to NZS indexation 1998
• Expensive new Taskforce set up.

5
Implausible script for a farce?

• Remarkable durability
• Provides access to an adequate share of output
  while minimising
• Intergenerational inequity
• Distortions which impede growth
• Fiscal bankruptcy

6
Is NZ Superannuation sustainable?
7
But the poltical saga continues

• 2000 Indexation provision reversed
• Super task force abandoned
• Overtures re multiparty talks scorned
• NZ Superannuation Fund Bill

8
Prefunding
No PreFunding Taxes9GDP
With PreFunding Taxes 6 GDP
9
NZ Superannuation Fund

• Funded from projected surpluses
• Builds up for 25 years
• Runs down to ease the transition
• Managed at arms length by the Guardians
• Invested using best practice

10
Rhetoric surrounding the fund

• Minister of Finance
• The Fund will allow us to maintain a universal
  pension that guarantees a basic minimum standard
  of living for superannuitants.
• It will finally give superannuitants some
  certainty about what the government will be able
  to provide for them.
• Consensus follows not leads

11
Rationale for the fund?

• Prefunding enhances national saving by preventing
  inappropriate tax cuts
• Lower interest rates
• The current account deficit falls
• Business confidence rises
• Share market supported
• Quality of investment improves
• Economy improves.

12
Political fallout

• The Green party opts out
• National undecided
• Criticisms of fiscal conservatism, opportunity
  costs, damage to the economy
• Winston Peters to the rescue!

13
Private superannuation

• Between 1990 and 1998
• membership of employer-sponsored registered
  defined benefit schemesfell 25,
• defined contribution scheme membership fell 9.5

14
Problems for tax neutrality
15
39
33
21
15
16
Problems with NZ model

• Potential for instability
• Inequity of universal pensions
• Penal arrangements forprivate superannuation -
  tax neutrality chimera
• Inadequate attention to paying for old age care

17
What of the future?

• New Zealand Superannuation likely to remain
  relatively unscathed.
• Political conflict will continue.
• Private superannuation issues will become more
  pressing.
• Tax incentive arguments not likely to find
  favour.
• New Zealand unlikely to follow in the path of
  the Australian model.

18
(No Transcript)