David Farrar: The bigger cost saving for NZ Super

Henry Cooke writes:

There are good reasons for our politicians to look seriously at the long-term affordability of superannuation.

It is by far our largest benefit, and largest single-ticket item, taking up around 16.6% of tax revenue and 5% of GDP. It costs close to five times what we spend on the unemployment benefit or more than our entire educational system. And given we are both living longer and having fewer children it seems set to eat up more and more of the wider budget. …

One of the reasons superannuation has become such a big-ticket item is the way it is “indexed” – the way that it automatically goes up over time.

All other benefits are indexed to match regular price inflation. So if you’re severely disabled and get a supported living payment, your benefit goes up in track with the price of a basket of goods every year – hopefully meaning you can continue to pay for the necessities in life.

But because superannuation is seen as a special other type of payment whose beneficiaries are more deserving, it is indexed to wage inflation. Wage inflation typically outguns price inflation over time, and this means that people on super don’t just keep up with prices rising, they keep up with wages too.

Treasury had a look at what changing the indexation to regular price inflation would look like recently. It would unsurprisingly save a huge amount of money – reducing the necessary taxes by so much that GDP per person would be $4900 higher per person by 2065.

This I 100% support, with one minor change. I’d index NZ Super to say inflation +0.25% so the level does increase slightly in real terms, but not as much as indexing it to the average wage does.

David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders