Sir Roger Douglas: New Zealand's Retirement Pension

Michael Littlewood’s ‘Guest Post’ for David Farrar on pensions, and his belief that our social welfare system is fit for purpose and doesn’t need change, reminded me of why New Zealand is currently well on the way to bankruptcy, and why our brightest young people are leaving the country in droves.

It all started in earnest when Sir Robert Muldoon and the National party in 1976, voted in one of the most generous retirement pension systems anywhere in the world, if not the most generous. They did so without voting in the taxes needed to pay for such a generous scheme.

They got the support of those who benefited in the immediate future (10-20 years) 

without any of the kickback they should have got from the majority of taxpayers.

 

It was a strictly a win-win situation as far the National party and their state welfare politicians were concerned. They simply did not care about future retirees, like today’s, who instead of retiring with the million dollars+ in investment capital they would have received under Labor’s NZ Superannuation scheme of 1975, retire with very little, if anything at all. 

 

It was and still is, a strictly lose-lose situation: for the country, and for today’s taxpayers, who are faced with an increase in government welfare expenditure of more than 8% of GDP over the next 40 years ($120,000 million or $40,000+ in extra taxes per worker). 

 

That this disastrous situation will come about, unless something is done about it, or NZ’s growth rate improves in a spectacular manner to overcome the inevitable, has been known for more than 30 years (See Act’s 1994 paper ‘Commonsense for a Change’ & Treasury’s unofficial 2004 paper on Health, for example).

 

This dire situation has happened because politicians like Muldoon (Pensions), Clark (Health & Education), Key (Pensions, Government Debt), and Ardern (who simply left it to her Minister of Finance to spend as much as he could), all believed winning power for themselves was more important than looking after NZ’s future. They never asked themselves the one simple question that really matters “Why am I in politics?”

 

Unlike squirrels, who have the good sense to store nuts so they have food when they need it, New Zealands’ politicians over the last 60-70 years have encouraged people to spend everything they have without looking to the future, because ‘we will look after you’.

 

THE TRUTH 

 

For the last 50 years we have effectively set NZ on a path to bankruptcy, beginning with Muldoon’s unfunded super scheme, continued by Clark with her policies on health (which increased spending by billions of dollars and reduced productivity dramatically at the same time), and accelerated by Ardern, whose well-meaning but poorly thought-out solutions to poverty, and inexcusable centralization of power, led to the spending of billions of dollars with nothing to show for it. 

 

This abject mismanagement is perhaps seen most clearly in the welfare state, where, for at least 80 years, the poor in NZ have been used as an excuse by politicians of all parties to increase their power, rendering those in need more dependent upon them instead of lifting them up, treating them with respect, and empowering and enriching them.

 

We urgently need to move away from our current welfare system - one that traps people into dependency - to one that makes people independent, and in the process creates a better society. 

 

To achieve this, we need to cast aside the widely held assumption that if the government spends more of tax-payers money on healthcare, welfare and education, things will get better. Sadly, the evidence of the last 80 years, not only in New Zealand but across the western world, is that this approach generally makes things worse.

 

People like Michael Littlewood, who want social welfare pensions and other programs to stay the same, should instead heed the words of Thomas Sowell, the respected American economist and economic historian, who advises us to direct our anger at those politicians and their advisors, “who were irresponsible enough to set up costly programs without putting enough money aside to pay for the promises that were made—promises that now cannot be kept, regardless of which political party controls the government.”

 

Sowell further notes, “Someone needs to say to those who want social security and Medicare to continue unchanged, ‘Don’t you understand? The money is not there anymore’...The way social security was set up was so financially shaky that anyone who set up a similar retirement scheme in the private sector could be sent to prison for fraud. But you can’t send a whole congress (parliament) to prison, however much they deserve it.”

 

In my view, Sowell is telling people the truth, while Littlewood merely tells people what they want to hear. In so doing, he and his supporters are robbing the young of their futures in New Zealand. 

 

Little wonder then, that so many of so many of them are packing up and leaving our shores.

Sir Roger Douglas is a retired New Zealand politician, economist and accountant who served as a minister in two Labour governments.