Super getting harder: report

Think tank says policymakers must target ageing population and poor-quality government spending.

New Zealand's fiscal outlook is not dire, but threatens to become so if the issues of an ageing population and poor-quality government spending are not addressed, says the New Zealand Initiative.

A report by the neoliberal think tank's Bryce Wilkinson and Khyaati Acharya says political difficulties with implementing even such "obviously necessary and desirable" policies such as raising the age of eligibility for New Zealand Superannuation could be reduced by adopting fiscal rules to make it harder for politicians to increase spending without good reason and by establishing an office of Parliament responsible for improving the transparency of fiscal policies.

They say existing fiscal rules have proved weak in guarding against poor-quality spending (such as interest-free student loans) which benefit narrow, self-serving constituencies, or the impulse to increase spending during cyclical upturns simply because the money is there, and in providing transparency about the quality of spending promises made during election campaigns.

More broadly they argue that policymakers need to focus more on policies likely to raise productivity across the economy, as faster productivity growth makes everything more affordable.

To that end they advocate reducing the degree to which national income is "needlessly churned" through the tax and benefit system.

They cite research they say shows much existing government spending does not redistribute from the rich to the poor as much as benefiting those further up the income distribution.

They point to tertiary education, largely the preserve of those from well-off households, and universal pensions, which most benefit those with the greatest life expectancy.

Much of the expected increase in public spending in the coming decades will be driven by the health and superannuation needs of an ageing population. The long-term fiscal projections the Treasury put out last year raise the issue of what to do to avoid a public debt spiral if historical rates of spending growth continue. Options raised include increasing GST rates and lowering tax thresholds, and raising the age of eligibility for NZ Super and delinking it from growth in the average wage.

"Delaying such tough decisions will potentially make adjustment more difficult politically because of the increasing voting power of the elderly population, more of whom vote compared to other age groups," the NZ Initiative says.

By mid-century, 38 per cent of those eligible to vote and just over half of those actually voting (extrapolating from past voter turnout trends) will be aged 60 or older.

The report recommends adopting a fiscal rule limiting tax or spending or both that would make it harder "to increase government spending simply because the money is there to spend or because there is an incentive in the heat of a general election campaign to promise to spend someone else's money to buy votes from a special interest group".

It also calls for an independent fiscal council, along the lines of the US Congressional Budget Office or Australia's Parliamentary Budget Office, which would be an office of Parliament and which would monitor the Government's compliance with principles of fiscal responsibility.

It would "assess the degree to which the executive has a credible programme for addressing identified fiscal pressures, such as those identified in Treasury's long-term fiscal projections, and assess the performance of government agencies administering major spending programmes in detecting and avoiding waste".

Read the full report here: Report