Super may consume 30% of the tax take!
The Post reports:
A new paper examining the future of New Zealand Superannuation has found that, if left unchanged, the scheme could consume more than 30% of the Government’s tax revenue every year by 2065 and will be unsustainable in its current form.
The paper, published in the International Review of Public Administration in late August, was authored by outgoing National Party MP Andrew Bayly, his former adviser Leonard Hong, and Emmanuel Jo from the University of Auckland’s School of Medicine.
We must make it more sustainable.
The paper is not intended to provide an intellectual justification for means-testing NZ Super, ending its universality or dismantling the system.
Instead, it settles on gradually increasing the age of eligibility, by one month every year from 2029 until it reaches 67.
According to the paper’s modelling, that would mean NZ Super’s share of Government spending would rise to slightly more than 25%, rather than more than 30%, because the increase in the eligibility age would begin earlier than previous attempts to raise it.
This is an interesting proposal. I have generally thought any change in the age must start well in the future, to give people tome to adjust. But a gradual increase of one month a year, starting in three years’ time is quite reasonable. So someone in 2032 would need to be 65 years and three months to start getting NZ Super – not a huge amount of extra time to wait.
The other major change proposed is to move from linking the rate of NZ Super to wage growth to linking it to the consumers price index, effectively tying increases to the general level of prices.
However, the paper recommends a review every five years to ensure CPI-linking did not cause the value of Super to fall too far behind wages.
We absolutely can’t afford to keep it indexed to the average wage, but having it purely linked to inflation could cause too large a gap. I tend to favour a formula say CPI +0.5%, so NZ Super would grow by 0.5% a year in real terms, but become more affordable.