Sam Stubbs: Tackle pension age

Opinion

Live long enough, the saying goes, and you'll get to see it all. I never thought I'd live to see the day the United States Government was put on credit watch - but that's just happened to Uncle Sam, courtesy of rating agency Standard & Poor's.

S&P is unimpressed with the US Government's inability to come up with a credible plan for paying off huge debts and growing future liabilities.

The US Government's debt is a slow-moving train crash caused by years of borrow-to-spend and astronomical, unfunded obligations in pensions and healthcare for retiring baby boomers. Remind you of any other country?

It's only a matter of time before credit-rating agencies cut up rough with us over similar government debt and expenditure issues - borrow-to-spend, "free" public healthcare, pay-as-you-go New Zealand Superannuation - that has started to rile them up in the US.

Currently, S&P has our Government's credit rating ranked at AA+ but with negative outlook. Something will have to give somewhere, otherwise our sovereign credit rating will get the chop.

The Government knows credit downgrades for New Zealand could lead to a horribly expensive sovereign debt spiral as interest rates skyrocket.

Just like out-of-control credit card spending, when the interest owed makes up a lot of the debt there comes a point of bankruptcy.

Unless the Government acts soon to cut expenditure and/or raise taxes, the hard decisions may be forced on us by foreign credit-rating agencies.

The problem is that expenditure cuts must be structural and significant, which means looking at the sacred cows of superannuation and public healthcare. Ignoring this would be like wearing the emperor's new clothes; the rating agencies will expose our real financial position.

An obvious issue to tackle is the age of entitlement to NZ Super at 65. Few other countries have a taxpayer-funded pension scheme as generous as ours.

We all love the idea of receiving superannuation but it must be funded by future generations through their taxes. More Kiwis are living longer and staying active, so is it realistic to keep paying out the "old-age pension" to people who have turned a sprightly 65?

Gradually increasing the entitlement age to 70 would be just what the rating agencies want, especially as it would go a long way to making NZ Super more affordable for future taxpayers to support more greying Kiwis.

It would also mean another five years for those working to save and increased payroll tax revenues for the government.

A former senior politician told me the most significant cost-cutting on their watch was raising the age of NZ Super eligibility to 65 and that this made a bigger impact on the government's books than all other cuts put together.

We need to revisit this idea while we are still in control of our national finances.