The problem is demography. While retirees currently number around 800,000, between 2060 and 2070 they are expected to approach 2 million. At that time, the number of workers per pensioner, will fall from around four to one today, to just two to one.
Thursday’s Budget is likely to reveal that Labour’s gross mismanagement of the economy has made the problem much worse. Due to their reckless borrowing and spending, our economic situation has deteriorated significantly.
This means the financial collapse predicted by Treasury will arrive sooner than anticipated – unless there is a change of heart by the Government and a major change in the direction of policy.
Sir Roger Douglas, the New Zealand Minister of Finance who saved the country from bankruptcy following the disastrous reign of Prime Minister Robert Muldoon, wants to rescue us again.
For the last 50 years Sir Roger has attempted to replace our unsustainable pay-as-you-go pension scheme with an individualised savings scheme that would provide security in old age.
In this second of his two-part Budget series, Sir Roger recounts his frustration at trying to persuade political colleagues of the need for change:
“Most politicians are tribal, they support their political party right or wrong, often in the hope of getting a ministerial job down the line. I never fitted into that category of politicians. For me, policy always came first – that is policy I believed to be in the best interests of New Zealand.
“I got sacked from the Labour Party front bench in the early 1980’s for writing an alternative budget.
“Today, I still find it impossible to stay silent… I make this point, because the policy I have laid out, will be opposed by every existing political party in New Zealand. However, I believe very strongly, that the policy points I make, need to be made, in order to give New Zealand a chance to move forward in a positive way.
“In 1972 when I introduced my Private Members Superannuation Bill to the House, every Labour Party caucus member supported it. Why? Because they wanted their voters to have what Members of Parliament had – a superannuation account in their own name. They were aspirational for their voters.
“Unfortunately, David Lange egged on by Helen Clark, Michael Cullen and some of his staff led by Margaret Pope, would not have a bar, of any major social policy changes to education, healthcare, super, or welfare. I was simply unable to convince David, that constructive personal choice was basic to human dignity, and further, that the removal of dependency within the welfare system would be a huge step in the right direction.
“With Lange opposed to any major changes to the social services area of the economy, nothing meaningful was done to it between 1987 and 1990, nor I might add in the years since then. So, 34 years later, in 2024, New Zealand’s performance in social services is far worse than it was in 1987.”
So, what can be done?
The reality faced by New Zealanders is that while we pay tax into a system to fulfil our half of a social contract – that guarantees the State will look after us when we are sick, deliver a good education for our children, and provide a living income when we retire – the Government hasn’t kept its part of the bargain.
For most families, decisions over where children are educated, whether medical treatment is available, and what level of income assistance is required, are made by bureaucrats who know very little about them, and care even less.
And that’s a real problem – most of the institutions that deliver social services to New Zealanders have become bureaucratic empires that are costly, self-serving, and staggeringly inefficient.
Is it any surprise that within such an environment, more money does not deliver better outcomes? Is it any wonder that the lot of the most disadvantaged in our society continues to deteriorate? How can providers be subjected to the discipline of consumer choice when social service systems are dominated by state monopolies?
The end result is children being forced to attend failing schools; patients no longer getting the medical treatment they need; and our young people having no guarantee there will be a pension for them in old age.
New Zealanders are also extremely vulnerable to the changing whims of politicians.
When it comes to superannuation, one government might promise to keep the retirement age at 65, while the next might pledge to raise it.
In education, while one government might allow parents to send their children to the school of their choice, another might restrict access through zoning.
In healthcare, while one government might prioritise funding to clear hospital waiting lists, another may prioritise cycle lanes.
In welfare, while a government that encourages reliance on the State by not requiring the able-bodied to get jobs might claim to be compassionate, their actions can have devastating consequences as vulnerable beneficiaries slide into the trap of intergenerational dependency, limiting their potential and putting their children at grave risk of poor life outcomes.
And for those living in a state house, who were wooed by political promises of a house for life, not only are they left extremely vulnerable in old age with no real security and no valuable asset as a buffer against adversity, but they have no inheritance to pass onto their children to give them a step up to a better life. As a result, their poverty risks becoming intergenerational.
While most New Zealanders are vulnerable to such policy changes, some Kiwis are unaffected. In general, these are families that own their own home and have the financial resources to send their children to an independent school of their choice, to purchase health and income protection insurance, with funds left over to invest to generate a passive income in old age.
The reality is that if New Zealanders didn’t have to pay so much tax many others would do the same – send their children to independent schools, purchase health and income protection insurance, and contribute to a super savings scheme to generate income in their old age.
In other words, instead of having to accept inadequate services from the government, they too would have the capability to find alternatives that would deliver better value for their money with more direct benefits to themselves and their families.
In effect, this is the basic objective of Sir Roger’s plan for reform. He wants to create a low-tax future where New Zealanders are empowered to send their children to a school of their choice, acquire health and unemployment insurance, secure their own home, and build themselves a multi-million-dollar retirement savings scheme.
Many countries already have such policies in place.
In 1955, Singapore established the Central Provident Fund of individual savings accounts, to provide a pension annuity on retirement, health insurance, and funds for home ownership. Due to the power of compound interest, Singapore has been transformed from a third world backwater with few natural resources into one of the most prosperous nations on earth.
Other countries have shown that a child’s education is improved when parents are empowered by choice. By funding a child, instead of a school directly, parents are able to send their children to whichever public or private school best meets their needs. Sweden now has a thirty-year track record of school choice and in Holland a vibrant private school sector has emerged since the state monopoly in education ended in 1917.
In New Zealand, while parents and students are free to choose the provider that best meets their needs at preschool and tertiary levels, this does not apply at primary and secondary schools. Instead, they largely operate as state monopolies, with parents having little choice of where they can send their child – unless they can afford private education.
When it comes to healthcare, in many countries around the world, including Switzerland and Germany, citizens enjoy excellent health care through a universal health insurance cover that eliminates hospital waiting lists and provides cost-effective medical treatment.
In Singapore, the health insurance component of their Central Provident Fund’s contributory savings scheme provides excellent health care at a very low cost.
Many countries, including Germany and Switzerland, operate unemployment insurance schemes, and others such as Denmark and the Netherlands also provide accident cover.
Meanwhile, the on-going decline in social services in New Zealand is impossible to ignore.
A new report from the Institute of Economic Research shows a quarter of all new primary school teachers hired during the period Labour was in government could not pass the basic compulsory maths required of 15-year-olds, while 58 percent fell short at Level 1 science.
In the health sector, thousands more patients are now waiting longer for surgery and appointments than they were 18 months ago. The number of people waiting longer than four months for a first specialist appointment has almost doubled to over 68,000 in December.
This is a direct effect of Labour’s disastrous health reforms that gave greater importance to power sharing with iwi leaders than it did to patience outcomes.
In retirement, most New Zealanders not only have little or no nest egg to protect themselves from adversity, but growing numbers no longer even own their own home. New Zealand used to be a home ownership nation, but that has fallen from 78 percent in the 1980s, to around 55 percent today. As a result of the declining affordability of housing only 38 percent of people between the ages of 55 and 64 are now mortgage free. For those of retirement age, around 28 percent are either still paying off a mortgage or are renting. This is having a dramatic effect on wealth disparity.
And a new paper from the OECD shows New Zealand now has one of the highest rates of homelessness in the developed world!
While democracy was founded on the principle of government of the people by the people for the people, in New Zealand, we now have government of the people by the government for the government. That’s leading to poor outcomes across the board. The question is what is the best way to return control of our democracy back to the people it is intended to serve?
And the answer to that is surely to give people greater control of their future.
Sir Roger’s reform programme would start with an individualised super savings scheme. Thanks to the power of compound interest, once the system reaches maturity, every New Zealander could look forward to having around $3 million dollars in their individual savings account on retirement.
Such a savings scheme would also include all-of-life health insurance to guarantee quality medical care when required; an income protection scheme to cover unemployment, sickness, and accidents; education accounts so children can attend the school of choice; an opportunity for home ownership for everyone who works; as well as one of the lowest tax rates in the world – 12.5 percent for personal income tax, company tax and GST.
This plan would transfer power away from government-based institutions to individuals and families. Such a scheme would not only be sustainable, but would provide an enduring solution to poverty, disadvantage, and inequality.
If Sir Roger is right in his prediction that none of the existing political parties will support the proposed reforms because they don’t want to relinquish their tight-fisted grip on power, then we will need an army of Kiwis who are prepared to help us create the momentum we will need for a change of this scale.
If you would like to join us on this journey, please make sure you let us know HERE.
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THIS WEEK’S POLL ASKS:
*Do you support the concept of replacing the present pay-as-you-go pension scheme with a savings-based system for all New Zealanders?
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