Should Super be means tested?

May 12th, 2014 at 11:00 am by David Farrar

Stuff reports:

Tens of thousands of well-off pensioners are claiming up to half a billion dollars in every year.

With government debt at more than $60 billion, critics say the wealthy are asking their children and grandchildren to fund their so-called retirement.

Ministry of Social Development figures revealed more than 26,000 people with total income of more than $70,000 a year claimed superannuation last year. At current rates, this could add up to $570m a year before tax..

These figures, released under the Official Information Act, come as the country wrestles with how to pay for our growing retirement-age population and looked increasingly isolated in offering universal super.

The Australian Government recently announced plans to raise their retirement age to 70 in a bid to ease the growing financial burden of the ageing population. They already means test pensions.

University of Auckland business lecturer Susan St John said there were likely to be far more than 26,000 well-off people claiming super, as many were able to hide their earnings through investments and trusts.

She said the country had become far more generous to retirees at “the top end” in the past few decades. In the 1980s, a surcharge was used to rein in super payments for high earners, but that had been abolished in the late 1990s.

“There is a case for redesigning the tax system to gently claw back NZ Super, at the top end – without affecting the living standards of the bulk of people who might genuinely only have small amounts of additional supplementary income.”

I think all benefits should be income tested.

St John has proposed such a system to the Treasury, that would effectively claim back the bulk of super payments in tax from the wealthy.

Brian Gaynor, of Milford Asset Management, said New Zealand was an exception and most developed countries, including Australia, means-tested super payments.

“There are people who are very wealthy, and I don’t see why they should be eligible for NZ Super,” he said.

“They do pay higher tax on it than someone who has no other income, but that doesn’t justify it. It doesn’t seem to me to be the best use of the country’s resources.”

Means testing can be both income and asset testing. Useful to be specific about which we are referring. Incidentially a reader pointed out to me by e-mail that in the 1950s the means test included how many pairs of underpants you owned!

But Grey Power president Terry King said retirees who have saved to supplement their income, even by $60,000 or more a year, should not be penalised by income-testing policies.

“If they’ve worked hard through their lives, through business or whatever – superannuation is an entitlement, not a benefit.”

I disagree. Far better to have people pay less tax when they work, rather than over tax people during their working lives – to then give a fraction of it back to them when they turn a certain age.

And while Labour has mooted raising the retirement age from 65 to 67, neither of the main parties nor the Greens were interested in giving less public money to retirement-aged people who had a little extra cash.

Not quite correct. The fine print of Labour’s policy is that they will effectively income test NZ Super from age 65 to 67. That sets a precedent for extending to all ages.

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42 Responses to “Should Super be means tested?”

  1. dime (9,607 comments) says:

    “With government debt at more than $60 billion, critics say the wealthy are asking their children and grandchildren to fund their so-called retirement.”

    also asking “future generations” to fund shit bags who are too lazy to work, any hair brained scheme the left can come up with etc

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  2. smttc (710 comments) says:

    They pay the lion’s share of tax. Why the hell shouldn’t they get Govt Super?

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  3. smttc (710 comments) says:

    What dime said as well.

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  4. Neil (569 comments) says:

    Why should I who has slaved away saving for my retirement have to forgo GRI and to subsidise those who have never thought about saving.
    When I see Susan St John’s name it equates to information provided by Jane Kelsey

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  5. Huevon (206 comments) says:

    We shouldn’t means test National Super. We shouldn’t even have National Super!

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  6. s.russell (1,578 comments) says:

    This would effectively be a tax on savings. After people paid tax on their income some decided to save. Then when they retire the Govt says “sorry, we’ll have that” and takes the money by abating their pension. (As opposed to those who spent the cash, to whom the Govt continues to pay out).

    Not only is this morally wrong, it creates extremely bad incentives for peoples’ behaviour.

    Another way of looking at this is being just another scheme to increase taxes on the so-called rich, who are again, punished for daring to be successful, for working hard, for saving instead of spending.

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  7. Chuck Bird (4,734 comments) says:

    In the 60s prior to Kirk’s super there was a means tested super at 60 for those unable to work due to age. At 65 there was general super which not means tested. This what we should have now but with higher age thresholds. 65 should be means tested and non means tested super should be gradually increased. This could allow Key and out on his ill considered promise.

    I wonder how means testing would address the issue on family trusts.

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  8. Sb (58 comments) says:

    If I was 66 and earning 70,000 working 160 hours a month I would be paying approx 23K in tax.
    My Pension would be 19K so the tax system would still be getting (23-19) 4K a year from me.

    You say that I can’t have that pension because I earn to much – well then I just stop working. I now get the 19K,
    I also get 160 hours a month of my life to do stuff with. The tax system looses 23K ( I am no longer paying 23 but I am still drawing 19, 19+4 = 23)

    How is this policy financially sane?

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  9. SPC (5,472 comments) says:

    The age adjustment is the first issue to address.

    My own preference is an increase in age from 65 to 70 but

    1. a long period of notice.
    2. phased in slowly.

    Thus no change until 2030. From 2030 to 2050, a 3 month extension each year.

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  10. Grendel (966 comments) says:

    Firstly lets acknowledge the dog whistle from extreme left ‘lecturer’ st john. the fact that many older people have investments or money in trusts is utterly irrelevant. if they do, then the money is either being paid to them, so paid at their marginal tax rate, or its left in the trust and paid at the higher trust rate (unless they are paying themselves enough to earn over the threshold, which would be very very few people).

    that dogwhistle is just to try and rile up the usual sentiment about ‘evil rich pricks’ with trusts. ignoring of course that almost all the labour mps have trusts.

    while i agree that its weird that you can be well off and still get NZ super, (i find it particularly hard to swallow when i meet 70 year olds, who are about to retire who have either travelled on their super from 65 or pocketed the lot in term deposits, they certaintly did not need it), its not that simple.

    the problem with means or income testing for super is the moral hazard. if you tell me that i can only have $500 000 of assets (will they count family homes?), or whatever the number is to get full super, thats what i will have, i will spend every dollar over that before you test me, or stop saving when i hit that level, unless i am so rich as to have multiple times what the threshold is.

    if you tell me i can only earn so much from my investments, i will scale my investments accordingly.

    from memory (well memory of research, i am not that old), the surcharge was abolished mostly for that reason (and presumably not a small amount of politics for votes). the cost of administering it was not worth what they were not paying out as people arranged their affairs and spent the extra to ensure they got the full whack of super.

    but if you decide you are going to do this, where do you start. the clients i am advising in retirement ‘need’ or rely on the super money, as they built it into their expectations becuase they were told they could. anyone over 50 has probably expected to get full whack from their super and may not have time to alter their savings to fix the drop off they might get.

    even if you can live on 50K for a couple plus super, knocking 20K a year off that is going to be a big hit.

    so its a nice idea, its a great lefty stab to soak the ‘rich’ (or those who actually saved for their retirement), but the moral hazard is likely to make the point moot. if it was to be done, you have to look at the flow on effects and the ability of people to adjust who dont have 30 years to save another $300 000 to cover the gap in lost super (especially with the extra taxes Grebour want to lump us with).

    funny how the left went apeshit at don brash when he said it was ridiculous that he was eligible for super, and now they are saying the same thing.

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  11. tom hunter (4,538 comments) says:

    Rather than Keynesianism I’ve often wondered whether English and company were indulging in a mirror form of the Cloward-Piven strategy:

    The Cloward–Piven strategy is a political strategy outlined in 1966 by American sociologists and political activists Richard Cloward and Frances Fox Piven that called for overloading the U.S. public welfare system in order to precipitate a crisis that would lead to a replacement of the welfare system with a national system of “a guaranteed annual income and thus an end to poverty”.

    The first time I ever read about this Far-Left theory I wondered why overloading the public welfare system would not produce the opposite result – a reversion to private, individually-based systems?

    I don’t think Dim was advancing anything novel when he points out that:

    There’s a reason left-wing political parties are moving towards universality or very high income levels for state welfare, despite the fiscal insanity of such policies. Universality protects a policy politically.

    That’s always been the case with any of these policies, but I don’t know why superannuation is the focus here in the wake of the creation of Kiwisaver, when it’s aged healthcare that’s really going to be killing us in the next few decades, along with the rest of the West.

    In any case it’s clear that a $60 billion debt is insufficient: we need $100 billion at least to spur reforms.

    Vote Labour-Green – for fiscal insanity.

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  12. Jack5 (4,785 comments) says:

    I think a tiered system is in order, both for age of eligibility and for means testing. Pity the tradies for whom their lifetime work can be too hard and heavy from around age 60. They count, too.

    In the past, NZ has had a two-tier old-age benefits scheme. I take this from a Wikipedia article on NZ welfare , link below:

    A means-tested old age pension for those 65 years and older was introduced in 1898. This established some key features of public pensions in New Zealand, such as the use of general government spending rather than individual contributions, and a “pay as you go” rather than actuarial approach to funding.

    The 1938 Social Security Act lowered the age for the means-tested pension to 60, and introduced a universal (not means-tested) superannuation from age 65.The universal pension catered to a strong demand for universal payments, while the lowered age for the means-tested pension provided for the likes of manual workers who were worn out and still poor at the age of 60.

    The third Labour government introduced a compulsory superannuation scheme in 1975 where employees and employers each contributed at least 4 per cent of gross earnings. Robert Muldoon’s third National government abolished the Labour scheme the following year, and in 1977 created a universal (not means-tested) scheme called National Superannuation that paid 80% of the average wage to married people over 60.The age of eligibility was lifted to 61 in 1992, then gradually raised to 65 between 1993 and 2001.

    http://en.wikipedia.org/wiki/Welfare_in_New_Zealand

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  13. alwyn (397 comments) says:

    “I disagree. Far better to have people pay less tax when they work, rather than over tax people during their working lives”

    That may be so David, but for many retired people that was not an option they had during their working life.
    During the days of the late, unlamented, David Muldoon the maximum tax rate was over 60% and applied, if my memory has not totally failed me to incomes that were only about twice the average wage. I saved a very large part of my income during that era in spite of those levels of tax. Now you say that I cannot get back National Super in order that younger people, paying only half that maximum tax rate I did can pay even less tax? Sorry but if that is going to happen I want to get back all the excess tax I paid in the 60s, 70s and early 80s. If you change one part of the implied contract change the whole thing.

    There is a group in society who are treated in a very kind manner. That is the retired Civil Servants, and older politicians who are members of the various defined benefit superannuation schemes. They get their Super completely free of tax, don’t they? I believe the excuse is that it is a return of capital, and is therefore not taxable. It isn’t of course, as the “investments” made never did make that sort of return, with people often getting super where each year they get more than they paid in in total during their lives. I presume that the Greens plan to start taxing this when they bring in their capital gains taxes?

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  14. Simon (706 comments) says:

    People on National Super are subsiding younger people through lower investment returns on their savings due to State pricing of interest rates. Younger people tend to have large loans benefit from lower interest payments while saver lose from having lower deposit rates.

    Its just one government fuck up heaped upon another govt fuck up.

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  15. SPC (5,472 comments) says:

    “Not quite correct. The fine print of Labour’s policy is that they will effectively income test NZ Super from age 65 to 67. That sets a precedent for extending income testing to all ages.”

    That is also not quite correct.

    Is not the idea that after the age reached age 67 for super, those who are not employed age 65 to 67 and who would be reliant on a benefit, would get income support to the level of Super. This presumably might exclude those who had high level of assets or savings income.

    However as this means/income tested payment made to those aged under the age to receive Super, the payment would not be NZ Super, but a super rate benefit payment.

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  16. Cunningham (828 comments) says:

    “I disagree. Far better to have people pay less tax when they work, rather than over tax people during their working lives – to then give a fraction of it back to them when they turn a certain age.”

    But will they reduce tax? That’s the issue. I’ve sacrificed a lot to get where I am but they will implement means testing while still taxing the shit out of me.

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  17. ROJ (96 comments) says:

    Have to totally agree with Chuck Bird – I’ve been saying this for some time.

    I recall one grandparent who was on the pension as opposed to super as it was means tested but available earlier. The amounts might have been small compared with today’s scheme, but it did what welfare should do – provide the safety net.

    Putting a buffer period of 3-5 years between the means test onset and full availability does seem to give Key a good out – and somehow has a fair match to the labour promise to up the age while still allowing some to get it earlier when appropriate. Back to the grand concord on superannuation, anyone?

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  18. peterwn (3,192 comments) says:

    Why has Dom-Post suddenly made this an issue? I suspect the Labour Party ‘War Room’ is responsible for this. There are probably five red telephones installed there – to APN, Fairfax, RadioNZ, TVNZ and TV3.

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  19. Jack5 (4,785 comments) says:

    An interesting side point to the debate: retirement and aged welfare were first introduced by Otto von Bismarck in Germany in 1889, so NZ was only nine years later with its old age benefit and was among world leaders (link below).

    IMHO, the villain in NZ’s old age benefit policy was Muldoon, who quashed Rowling’s compulsory superannuation scheme. Muldoon, with this and things like price control, was to the left of Labour.

    http://www.ssa.gov/history/age65.html

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  20. SPC (5,472 comments) says:

    If I was designing a system for fairness, rather than just affordability (based on a rise in age to 70 for super because of longer lifespan).

    Age 60 to 65 super rate benefit if unable to work. Income tested.
    Age 65 to 70 super rate benefit if unemployed and looking for work. Income tested.
    Age 70 universal rate super.

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  21. davidp (3,551 comments) says:

    alwyn>During the days of the late, unlamented, David Muldoon the maximum tax rate was over 60% and applied, if my memory has not totally failed me to incomes that were only about twice the average wage.

    Your memory has failed you as to the identity of the PM at the time.

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  22. flipper (3,766 comments) says:

    David…
    You went on about his yesterday on the paid parental leave issue….. and got hit for six.

    Give it up.

    Are you suffering from altitude sickness???? :-)

    It is NOT going to happen, even if Labour buy their way into Government. Moreover, you know that. But it is a nice STRAW MAN TO STRIKE DOWN, IS IT NOT?

    Given the Australian “pension” crisis, and the draconian action that will be required to met the Gillard/Rudd/Swan economic mess, those sort of measures (including assets as well as income (in its widest sense) in the means test) would need to be repeated here. And you know full well that will not happen. Still, it does get some folk hot under the collar, and exposes the idiots ;like the one who said there should not be National Super.

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  23. alwyn (397 comments) says:

    davidp @ 11.43am

    Oh dear. I was thinking about David Farrar’s comments and carried the David over.
    Robert, repeat Robert Muldoon.
    Can I claim David was his second name and that makes it technically correct?
    Under Piggy the maximum rate was 66% in the early 80s It had been even higher in about 1971.

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  24. JC (929 comments) says:

    To take a more pragmatic stance lets remember the Bolger Govt that tried to surcharge the excess income of the aged. He lost and his Govt was a lame duck for another two terms. It got Peters his base group of people as a new and potent pressure group and later a political party.

    Its quite possible that MMP wouldn’t have been introduced without Peters joining Anderton to put on the pressure.

    As I said on Danyl’s site back in the early 90s the elderly were fewer, poorer and less well educated, but they did Bolger like a dinner.. good luck trying it again today without a vastly more compelling argument and due recognition that people were taxed quite heavily for decades to pay for Super.

    Policies have consequences because people plan their lives around them over decades. Change to Super is possible, but only over decades to allow people to adjust, and a change to people saving more specifically for their retirement (and health and education) also requires a total rejig of taxation and a much much smaller Govt.

    JC

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  25. chris (584 comments) says:

    The problem with means testing super is it once again says if you’re in the middle of pack and work hard and responsibly, then screw you, you get nothing.

    If, on the other hand, you are irresponsible and waste your money on this that and the other, have more kids than you can afford, and get propped by the aforementioned middle of the pack, you get it.

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  26. Scott1 (479 comments) says:

    1) being old doesn’t mean you worked hard, everyone gets old, even the laziest and most obnoxious of us. So pensions don’t target that money at all.

    2) If you did work hard you have ALREADY been paid for that work asking to get paid again for the same work is double dipping. As per David – what should happen net is that you just pay less tax.

    3) You are double dipping with different people – the younger generation will almost certainly get less generous benefits and those that pay for most of it will probably get no benefit at all.

    4) Just calling something an entitlement doesn’t make it an entitlement. Unless the person talking is the recipient…

    5) Rich are being “punished” for saving by abatement on super in the same way employed people get punished for working by abatement on benefits and wealthy people are punished by the fact that the salvation army doesn’t send them rags from the 2nd hand shop. It is true as far as it goes – but not a very compelling argument.

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  27. Changeiscoming (154 comments) says:

    The fundermental question that needs to be answered by all NZers is: Is Super a benefit or a right/entitlement?

    I agree with you DPF in that it is a benefit and should be treated as such. eg means tested etc. In some industies 65 is not that old to still be working and I know of one guy that still works in an office earning $60k plus and getting the super.

    John Key’s approach of not even discussing super is a poor one I believe. We should never be afraid of at least discussing something.

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  28. Scott1 (479 comments) says:

    Alwyn,
    I hate to break it to you but you underpaid in tax… That is what all that debt was about and the panic that labour was in when it got into government.

    What you should have done is not voted for Robert Muldoon (or you can take it up with the people who did). That is a bit like a generation buying a lotto ticket and complaining that they wants the $12 back if they loose.

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  29. Judith (8,242 comments) says:

    I don’t think super should be means tested, but it should be income tested.

    The difference being, that if you have savings you have the means, but then why, because you have worked hard, and saved, should you be penalised?

    Income testing means that you are obviously still able to work, and are therefore not ‘retired’. However, there should still be a realistic level that is able to be earned, before the chop off.

    Hard work and careful budgeting is meant to be the aim, and people that have made the effort should not be adversely affected at the end trimester of their life.

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  30. kowtow (7,871 comments) says:

    In essence “stuff” is saying that because govts spend too much money,money they don’t have,they,want to penalise older ,more well off folk.

    These are the people who have worked all their lives,paid tax,never ‘benefitted’ hugely from our overblown welfare state.

    I thought we were all about “equality” these days,that’s progressive, the right side of history!

    But when it comes to the real world ,not the airey fairey world of sexual identity politics ,we’re happy to be regressive and penalise the good folk of this country.

    Fuck the bludgers who didn’t work or save. We need a complete overhaul of our ‘welfare ” system.Why should some one who never worked and was on benes all their lives suddenly be “entitled” to others peoples’ money cos they turned 65? Fuck that!

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  31. tvb (4,234 comments) says:

    It should be means tested between 65-70

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  32. Akaroa (552 comments) says:

    Means testing?

    I just signed over everything I own to my son and daughter.

    I consequently own nothing and am destitute.

    Please carry on paying me Super at its current, or future increased, rate.

    (PS. I’m lying. Just wanted to illustrate the fallibility of means testing – a system long since discredited as ineffective and subject to manipulation)

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  33. artemisia (219 comments) says:

    alwyn (361 comments) says: May 12th, 2014 at 11:28 am ….. That is the retired Civil Servants, and older politicians who are members of the various defined benefit superannuation schemes. They get their Super completely free of tax, don’t they? I believe the excuse is that it is a return of capital, and is therefore not taxable. It isn’t of course, as the “investments” made never did make that sort of return, with people often getting super where each year they get more than they paid in in total during their lives. I presume that the Greens plan to start taxing this when they bring in their capital gains taxes?
    ================================================================================

    Not so. Their annuities used to be gross with tax payable. But moved to ‘free of tax’ and were actuarially reduced. In fact these people are worse off now as the tax rates on which the adjustments were made are quite a lot lower now.

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  34. gump (1,538 comments) says:

    The age of entitlement should definitely be tweaked to reflect changes in our life expectancy. It needs to be pushed out to 70 now, and then pushed further out as time passes.

    We can’t sustain the current number of elderly who are bludging a living from state benefits. They’re destructive parasites who are slowly strangling their host.

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  35. Liberty (245 comments) says:

    Oh dear more socialist dribble. The old “ It is wrong to be rich” whinge
    Get a life and move on
    It is only about 10% of the work force who pay tax in real terms and if they make it to 65 then good on them. Let them enjoy rewards of hard work.
    If the state can’t afford to pay super it is very simple. Reduce the size of public service.
    A good start would be compulsory retirement at 60 of all public servants receiving over $100g
    After all if the state can’t afford to pay $19g super to someone who has worked 40 odd years
    It can’t afford to pay $100g. To some public servant who is more them likely surplus to requirements.

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  36. Scott1 (479 comments) says:

    Liberty,
    Would that not just result in you replacing the best people (the ones making the most money) with maybe twice as many worse people just because of their age? It is a big mistake to think you can just replace a good employee with the next person in the line as if it is just a matter of bums on seats.

    Also being 60 doesn’t automatically make you surplus to requirements, especially if you are good enough to have been promoted to the top pay rates. You wont be out there lifting tyres and breaking stones on 100k per year so the fact your body might not be that of a 20yr old doesn’t matter and your mind is likely to be much better than that 20yr olds with all the experience.

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  37. Colville (2,150 comments) says:

    Sure income test me in 25 years time when I am able to apply for super but warn me now that it is going to happen and tax me less NOW!

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  38. burt (7,948 comments) says:

    Only in socialist la la land would ANYBODY think it was acceptable to have it collected on general taxation and delivered back with a means test. The people who pay the most toward it are denied the same return as the people who’ve never contributed in their entire life.

    The crime against the roots of the Labour party here is that for generations Labour policy was higher taxation now and you’ll be looked after in retirement. Cradle to the grave. The party faithful must be livid that Cunliffe is effectively admitting that core Labour party policy planks are unsustainable.

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  39. smttc (710 comments) says:

    Akaroa, unfortunately you do not understand how govt meaning testing works. Usually (WINZ being the precedent) it involves look back periods (usually 5 years) where any gifts made during that period in excess of allowable gifting (usually only $6,000 per annum) is treated as if never made.

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  40. prosper (137 comments) says:

    Aside from the fact that the pension barely covers the wine bill, how the hell anybody would live off it I don’t know, it has been bought and paid for. Leave it alone. Of course we can afford it. Just cut out working for families, interest free student loans, paid parental leave, DPB and so on., start drilling for oil, gas, iron sands, selling coal.

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  41. Scott1 (479 comments) says:

    Burt,
    You should not let the delusional people (those who think that you can just cradle to grave everyone) define the terms of the debate for pretty obvious reasons.

    Prosper,
    All of the below taken from news articles, admittedly not the perfect source but best I can do for now.

    Superannuation – 9 billion now – 20 billion per year in 2031
    WFF 2.8 billion
    Interest free student loans – about .5 billion a year
    paid parental leave about .5 billion – 1 billion
    DPB about 1.5 billion
    digging up stuff – that is not an expenditure reduction, it is realization of an asset.

    It would seem you are writing cheques you can’t cover, rather like some on the left would love to do.

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  42. ChardonnayGuy (1,169 comments) says:

    I see Australian Treasurer Hockey has raised Aussie’s minimum old age pension age to seventy, albeit phased in incrementally, within the Australian federal budget. Interesting.

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