Peter Lyons: Ignoring super is political hypocrisy

Paula Bennett is the new Minister of State Services. Photo / Getty Images

Winston Peters, Sir Michael Fay and John Banks have something in common. They are eligible for a benefit paid out of the social welfare budget. This is because they are aged 65 years and above. This is not a criticism of these individuals. They qualify for universal superannuation.

Government super currently accounts for about a third of the welfare budget, well ahead of all other benefits. It is set to double over the next 20 years.

Paula Bennett is the new Minister of State Services. She has announced her intention to implement her "investment approach" to the provision of government services to sectors such as health and education. She spent the past few years implementing her "investment approach" with "special wraparound features" to social welfare.

This approach basically means trying to get the most bang for bucks from government spending. In social welfare it meant targeting beneficiaries who were the most costly over their lifetime and providing a "wraparound approach" to getting them off a benefit.

What a wraparound approach means is difficult to define, but it seems to indicate the provision of individualised care and direction for those beneficiaries identified as the most costly to the taxpayer. The jargon sounds caring but the actuality may be a little different.

To be fair this Government has created 83,000 new jobs in the past year and has set the target of creating 150,000 more over the next four years. So there are apparently plenty of jobs out there. It is worth noting that the Household Labour Force definition of a "job" is one hour of paid employment per week.

The "investment approach" to providing government services totalling $34 billion attempts to make a pseudo-science out of commonsense. In that way it seems to be good economics.

Finance Minister Bill English is keen to adopt this approach to state housing. He has announced his intention to sell off more state houses to the highest bidders. There was no mention of this policy in the lead-up to the election. This will free up funds for use in other areas. Private charities can then step into the void and provide shelters for those unable to afford to put a roof over their heads. This is a return to policies of 19th century England where welfare was provided to the needy by private charities. Local parishes provided poor houses for the most needy.

What is odd about this "investment approach" to the provision of government services is that it is not being applied to the benefit that costs the most and is the least sustainable in its current form, government superannuation.

If an investment approach is suitable for other beneficiaries, education and healthcare it should also be applied to government superannuation. There is a glaring inconsistency here that suggests a degree of political hypocrisy.

Superannuation has always been a political football. An old age pension was first introduced in New Zealand in 1898. This was in response to a growing number of elderly with insufficient means to support themselves. It was strictly means-tested. Over time this welfare benefit morphed into our current system of universal super. It is not sustainable in its current form. This Government has chosen to ignore the elephant in the room.

A risk of not addressing the super issue is called a death spiral in insurance circles. As more baby boomers retire, the costs of superannuation for the working population rises. A New Zealand Institute of Economic Research study found that by 2031 the cost of maintaining the current super scheme will be $7800 per worker in today's dollars. The risk is that workers are operating in an increasingly globalised labour market. The best and brightest may simply choose to live elsewhere, further increasing the tax burden for those who remain.

Ms Bennett's investment approach to managing the provision of government services makes some sense. Improving the delivery of education for children from disadvantaged backgrounds and ensuring that they have adequate healthcare in their youth would definitely pay dividends in the future.

But using this quasi-economic terminology to disguise the withdrawal of government from the provision of a basic safety net for its citizens reeks of ideology rather than objective cost benefit analysis. This becomes obvious when the approach is not applied to the most unsustainable area of government expenditure.

Peter Lyons teaches economics at St Peter's College in Epsom and has written several economics texts.