Treasury warning over cost of super

Senior Political Correspondent·NZ Herald·

2 Feb, 2012 04:30 PM3 mins to read

John Key has rejected any rise in the age of superannuation while he is leader. Photo / Greg Bowker

The Treasury has warned Finance Minister Bill English the Government must start addressing the pressures of future superannuation costs and it makes a case for lifting the retirement age - one of Labour's policies going into the election.

It also argues the case for less variation in taxing capital - again similar to Labour's election policy of a capital gains tax.

It also argues against interest-free student loans, saying they have discouraged saving for tertiary education and failed to significantly increase access to education.

The advice is contained in the Treasury's post-election briefing papers to the minister, released yesterday.

Prime Minister John Key has rejected any rise in the age of superannuation while he is leader.

But he is coming under increasing pressure to discuss future impacts.

In the hard-hitting advice on superannuation, the Treasury says leaving the retirement income settings in place would have to lead to higher taxes, which would harm growth, or large cuts in spending on other areas such as health and education.

It says that as the baby-boomers move into retirement, New Zealand's 65-and-over population is projected to grow nearly four times more quickly than the total population over the next 15 years, contributing to a rapid rise in health, aged care and New Zealand Superannuation costs.

"The resulting fiscal challenge is considerable and there is no way to avoid making tradeoffs," the Treasury says. "Given the potential economic and social instability that could result from any uncertainty about these tradeoffs, we think it is crucial that effort be made to build broad public consensus on the way forward."

It says the current acceleration in the growth of the older population makes it "a matter of priority for New Zealand".

The briefing paper says that on past experience, when the age of super was lifted from 60 to 65 in the decade to 2001 it helped to reduce costs because people stayed in the workforce for longer.

Comparing New Zealand's age with other countries in 2010, 2030 and 2050, it shows that Australia's age was set at 65, 66, 67; Britain 65, 66, and 67; and the United States 66, 67 and 67 - though the age for women in 2010 in Britain and Australia was 60 and 62 respectively.