Long Term Fiscal Forecast for NZ
June 29th, 2006 at 2:21 pm by David FarrarTreasury has done a 40 year out fiscal forecast, and not surprisingly it finds that the ageing population will lead to health and superannuation costs exceeding our projected income.
Some on the left are saying this is why we should not have tax cuts today, because in 25 years one may have to start increasing taxes. I personally reject a strategy based on constantly increasing tax rates as our population gets older.
On the income side, even a 0.5% annual increase in average GDP growth will make a big difference to future surpluses. A focus on lifting economic performance is vital.
For superannuation, I have no doubt the the superannuation eligibility age will over time increase from 65, and this will reduce costs. Even Dr Cullen has hinted that this is a legitimate future option.
Personally I would also means test superannuation as it is ridiculous to pay a pension to multi-millionaires. But there is no chance politically of this happening.
Health costs are more difficult. For 15 years all Governments have shied away from defining what health services will be publicly funded and what won’t be. No-one wants people dying early because they can’t afford an operation, but can we afford as a society to say fund liver transplants for 109 year olds so they make 111?
No tag for this post.
June 29th, 2006 at 2:38 pm
I think we will see the age at which people are still working move well above 70. To some extent this is already happening, my father is still working full time at 67 and my father in-law still works part time at 69. It is inevitable that governments will raise the age of eligibility for a pension to 70.
However with an older population I think higher funding levels for hospitals will become even more essential. It is simply not possible or affordable for all older members of the community to be able to afford private health insurance as premiums sky rocket as you get older.
And if you are reading this thinking
Vote:June 29th, 2006 at 2:43 pm
There is a significant issue here of not just falling birth rates but also living longer.
Vote:Generally to live longer a population has to enjoy better health.
I saw an early photograph of a New Zealand pioneer; he looked like he was at least 90 years old… he was in fact 56. Scary stuff.
It is therefore reasonable to predict there will be a corresponding drop in health needs at a certain age. Everyone over 75 might not need to go to an old folk
June 29th, 2006 at 2:44 pm
what business does the government have taxing me to pay for expensive surgery and pills in my old age when I would rather spend the money on health foods and gym membership to prevent the onset of degenerative diseases?
Vote:June 29th, 2006 at 3:05 pm
Means testing just creates marginal disincentives. What’s wrong with a multimillionaire getting a few thousand dollars? Tax cuts aren’t exactly means tested, just consider it that.
Vote:June 29th, 2006 at 3:10 pm
Anyone who thinks they can see 40 years into the future in this time of rapid technological change is an utter dreamer.
We still have to make plans, though. WRT paying for the elderly this is just a line in the sand that has always existed and always will. At some point old people will die no matter how much cost is sunk into them, and society’s tolerance stops at varying levels, typically dependent on the levels of the various demographics.
One thing I do think is almost certain from past trends is that health care for the aged will improve as medical technology improves. Another is that productivity will generally increase, although I do wonder about the steadily increasing cost of energy. So whether tax increases will be necessary to maintain current levels of aged care is just unknown. Most likely even if we just kept to a static proportion, that care would steadily improve, as it has done for decades. Also the average person’s productive life is also gradually extending. Many rue this, seeing work as a drudge that no one should have to endure more than about 40 years of. Others have found that there is still satisfying and productive work out there even for the very elderly, and it gives their lives meaning and purpose, as well as greater comforts than a miserable pension. This a natural consequence of the other great demographic change of our lifetimes, the gradual increase in education levels and the moving of work from manual and boring to knowledge-based and fulfilling.
I’m pretty sure society will survive the coming decades without slipping in anything except dated perspectives of the good life. I would rather live now than 40 years ago, and they would have said the same then, and so on back to pretty much the start of the industrial revolution.
As a general trend, that is – I’m sure pockets of the world wish it was still how it was, such as Palestinians. And elderly people naturally remember the time of their good health fondly, even if objectively they can acknowledge that their inevitable hard-luck stories reflect a society that was less desirable. And then there’s the ‘good old days’ idealists who wish they lived in some more romantic time, neglecting to notice that the odds are they would have been a serf or working in a mine, or being used for cannon fodder, or even subsisting in a prehistoric state.
Vote:June 29th, 2006 at 3:11 pm
I new this years back, but in fell on deaf ears.
Vote:If you invest wisely you can stop work when it suits.
The ones that will be hit hard are the Middle class if their home if not in trust. This assett will be one the state can grab to pay for your super, after the bank accounts are bled.
The only ones that will do ok are those folk with Nothing and those with loads of $$$$$$$. The state will provide for the poor from what they can take from everyone else. Anyone with trusts will be OK, and the Rich like DPF, will be saying what Pension? while sitting at the resort hotel under the umbrella with drink in hand.
June 29th, 2006 at 3:14 pm
Some have been banging on about this to mainly deaf ears. Consider the voting bloc we baby boomers are going to be. We will be the largest single bloc with 2 priorities medicare and super.Any political party that wants to govern will be forced to give us what we want.Thats why super is a bigger issue than most people realise.At present over 50% of 50 yr plus only have their home as an asset. They will be forced into reverse annuity mortgages if they want better than a subsistence income.The other issue that is only now being recognised is the future lack of enough skilled workers to earn enough to pay the taxes.For years some have been predicting this and the pollies and civil servants have been in denial.We have almost reached the point of no return.Our population is growing in all the wrong places Consumers of welfare rather than payers of tax in excess of their demand.We missed a golden opportunity in 1998 when 92% voted against Winnie the Pooh instead of voting for a complusory super fund. Look at Aussie. Introduced scheme in 1992 Now each citizern has a $40K account that is growing by the day to the extent they are buying NZ up in big chunks.Baby boomers of my age in Aussie will retire with an account of A$200K plus in addition to any other assets than have.
Vote:Oh well how sad too bad the dumb arses prevail again
June 29th, 2006 at 4:30 pm
the other thing those socialists are going to have to grapple with is the flight to greener pastures – the way it is going now the best and the brightest will have left the shores for the better living standards in australia –
at what point will a crisis be recognised and when will a governement stand up and take some responsibility –
there will come a time when some hard decisions will need to be made in the interest of the country – not in the interest of labour corupting themselves to ensure they have power for three more years.
Vote:June 29th, 2006 at 5:18 pm
Peter, it’s easily solved by opening the immigration doors a fraction wider, if it’s a problem at all. I can’t see that it is, having always been a feature of NZ society as long as I can remember. Certainly the people who leave solely to drop their tax rate are hardly going to be sorely missed by the economy, being most likely the kind of people who do everything in their power to avoid tax anyway.
Vote:June 29th, 2006 at 5:44 pm
Ben I feel sorry for you. If you beleive people just leave this country for a lower tax rate you are indeed sir a person in denial. This country is losing it’s best and brightest in greater rates every year because they have given up on New Zealand. May I suggest sir that you start saving with a passion because the way things are going there will be no tax payers left in this country. I wish you good health and good luck in your old age because you will bloody well need it.
Vote:June 29th, 2006 at 6:47 pm
“Certainly the people who leave solely to drop their tax rate are hardly going to be sorely missed by the economy, being most likely the kind of people who do everything in their power to avoid tax anyway.”
Yep, a pretty retarded sentence right there. If they arent paying tax then why would they leave to lower their tax?
Vote:June 29th, 2006 at 7:38 pm
Personally I would also means test superannuation as it is ridiculous to pay a pension to multi-millionaires. But there is no chance politically of this happening.
and it would be pointless in real dollars. Not enough of those to make an impact on the bottom line by withholding Super.
Vote:June 29th, 2006 at 7:54 pm
My Grandmother is in a retirement home with about 40 others. Of those 40, over half are paid for by the Govt the rest pay their own way, like my Grandmother.
Because my Grandmother had “assets” (freehold house but ZERO cash) worth more than $20k she had to pay her own way – typical oldie asset rich but cash poor.
We were forced to sell the house (not in a Trust)to pay the resthome fees because as a rental it would still not cover the bill.
What sort of society do we live in where even the family home is not safe from the Govt? Yet those people who squandered their money over the years get a free ride in their twilight years.
I agree with you Cadmus (oddly enough) that only the poor or the very rich will have a comfy ride in retirement. Those in the middle class just better shut up! The Govt (whichever side you sit on) needs to think about things here a little harder.
BTW the asset threshold is now at $150k – but still too low in this day and age with house prices at a median of $300k.
Vote:June 29th, 2006 at 7:57 pm
Side Show, I don’t say that tax is the main cause of emmigration. I only say that people who leave for that reason won’t be missed. So your sympathy is misplaced.
Kimble, you can also avoid tax in ozzie.
Vote:June 29th, 2006 at 8:16 pm
Why should a millionaire not get national superannuation? She or he probably paid more in tax in one year than half the population in 10 – and no tax evasion arguments here. I guess you’d deny them public health care through means testing, after they have spent years fully funding families through taxes?
Vote:June 29th, 2006 at 9:26 pm
“This country is losing it’s best and brightest in greater rates every year because they have given up on New Zealand.”
Any factual basis for this? Many Kiwis I have spoken to over here can’t wait to get back for the clean air, space, lack of people, low crime, lack of bureaucracy and lack of the extreme poverty you find here in the UK. The quality of life is MUCH better in NZ.
Only the die-hard have given up on NZ, because there are bigger fortunes to be made overseas of course. But this is the nature of globalisation.
Vote:June 29th, 2006 at 9:35 pm
“Why should a millionaire not get national superannuation?”
Personal responsibility. They should stand up on their own two feet, rather than running to the nanny state to pay for every whim.
Vote:June 29th, 2006 at 11:06 pm
Cadmus you are mistaken if you think only the rich and poor will do well out of pensions.
A simple Family Trust is simple and in the long term it is a cost effective way of protecting assets.
A Family Trust is not the exclusive property of the rich. If any person is in a position to purchase property they are in a position to purchase it in the name of a trust. Any half decent property Solicitor will advise a ‘middle class’ purchaser of this. The extra legal fee is a drop in the ocean when you are purchasing an asset worth 3 or 4 times your annual salary.
The ‘middle class’ can protect their modest homes from the government upon retirement just as easily as the rich.
Vote:June 30th, 2006 at 8:21 am
Golden Wattle, I said just that
“The ones that will be hit hard are the Middle class if their home if not in trust.”
You will find one thing in life, the Middle Class battler pays for everything in a Western Society. The rich don’t mind if the Middle Class pay for everything, and the poor don’t care were the money comes from as long as their benefit is in the account on the right day.
Vote:Lets sum it up the DPF,s of this world are cunning enough to know the loopholes. The govt don’t mind the rich getting getting off because they are only a small percentage, say the top 5%
Then the poor who have no assetts, rent etc, say 15%, the above 2 groups do spend on basics and that money goes back into the economy, gst on goods. Then we have the “Kiwi Dream Team”, the Middle income earner, that 80% that get the blood sucked out of them by the Govt Money machine. One to pay for the Taxes the Rich should Pay, and to pay for the poor with nothing.
It’s a funny old system, The Right blame the poor, the left blame the Rich, but nothing changes, bit of a laugh if you think about it.
June 30th, 2006 at 9:24 am
Well said Cadmus.
Vote:I must be ill as I am agreeing with you fully.
I feel like one of those battlers.
June 30th, 2006 at 9:46 am
The idea of a Treasury ‘long term forecast’ is a joke. They cant even get the forecasts right for the next years revenue, the next 2 or 3 years economic growth or anything else they put their mind to. Its like the ‘intelligence’ for WMD, you end up finding what you want to find.
There are whole industries that have bloomed in the last 10 years, excluding tlecommuncations and technology, that dont seem to figure in Treasurys numbers. I can think of Education for foreign students, wine, creative/film and surprising Coal. The boys at ‘T’ still are counting the blocks of cheese and worrying about house prices yet letting the Aussie banks generate house price inflation which only benefits banks profits.
They are very bearish about the future GDP % of super payments but hey interest payments on government debt used to massive but went away quite quickly ( but could be back under spend and borrow Rob Don)
Vote:June 30th, 2006 at 10:20 am
My late Dad encouraged me to set up a family trust early on .Reason. All the pollies have one. As Dad used to say do what they do. You can guarantee they will never change the law to harm themselves. I have encouraged everyone I can to set up a trust and do it early so you can get the gifting programme completed before you retire.And to those that complain HEH its the law Its not illegal But it is immoral to see governments who force people who have worked hard and paid taxes having to sell off their assets or take a reverse annuity mortgage in their later years .Remember Jim Bolgers mother who was in a rest home with the State paying whilst there were millions of dollars of assets in the family trust.Of course you can call that getting back some of the taxes you have paid during your working like.
Vote:June 30th, 2006 at 10:33 am
I’m against asset and income testing for superannuation. The multimillionaires getting a benefit is always brought up but they pay their Super back in income tax. It is those on the borderline who really are affected. People who have worked hard and achieved often going without while paying off loans or building up businesses find they are penalised in retirement. Those who have achieved little or nothing get Super. The Australian experience is that this leads to an avoidance industry.
I would like to see a lower rate of pension paid. Certainly that might not be enough to live on but people will get the message to save for retirement. In the case of real hardship pensioners can get a top up similar to income supplements.
Vote:June 30th, 2006 at 1:45 pm
Part of the problem is that the current generation of working adults have been brought up on the promise that a universal NZ Super will be there for them. Combine that with a tax system that promotes home ownership over retirement saving and the end result is the typical asset rich-cash poor dilemma.
Not only does the promise of Super need to be revamped, it needs to be signalled long enough ahead to ensure that young adults start saving as soon as possible. That will need cross party support, and cntinued support at that. Given the way politicans pose, preen, and publicise, I am very doubtful that we will ever achieve the necessary consensus.
Back to the LTFP in general. Perhaps the key thing to note is that they are extremely sensitive to the underlying assumptions, particularly on growth. The same is true of the LT Super model. A tiny change in the assumed trend growth rate allowed the government to shave $200mn off its contributions to NZS. The LTFP is a base scenario, on which varying scenarios can be planted to see what the effective change would be. It also serves to highlight the need for some long term planning (again, the Super is a key issue). But it really says nothing about where we will be in 30 years time.
Vote:June 30th, 2006 at 6:36 pm
UK Kiwi not sure how long you have been out of the country mate but I think you may find things have changed.
Yes we may have clean air and great veiws but that hasn’t stopped about 600 people jumping ship every week.
You say you and your mates can’t wait to return, then what is stopping you?. I’m sure the Dear Leader and Dr Sullen will welcome you with open arms, there is nothing they like more then new tax payers.
Vote:June 30th, 2006 at 8:48 pm
As it happens a Labour letter arrived today addressed to my parents From HC.
This should be of interest to
TOM TOM
This is word for word, leaving out the begining blurb.
Asset Testing
From 1st last year, the phase out of asset testing began. And from 1 July this year, single people and couples with both partners in care will be able to keep up to $160,000, including property and savings,before they are expected to use their assets to contribute to their care costs.When we came into government, the thresholds were just $15,000 for single people and $30,000 for couples. The exemption threshhold will keep increasing by $10,000 each year, progressively removing asset testing.
I don’t know if the info helps
Vote:June 12th, 2007 at 12:42 pm
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