New Zealand's young people will be frustrated to be asked to pay the bill for increasingly expensive NZ Super while having missed out on things like free education, which older generations benefited from, one economist says.
As politicians wrestle with questions about the age of eligibility for NZ Super, and how compulsory KiwiSaver might change the picture, there is increasing debate about the sustainability of our current system.
On one hand, Alec Waugh from the KiwiSaver Annuities New Zealand Superannuation Protection Society says people who call for change might be underestimating some of the other consequences that could come with it, such as more people on the unemployment benefit, or seeking hardship grants or accommodation supplements.
"At 4.4 percent of GDP net super, New Zealand's scheme is one of the cheapest, efficient and effective schemes, near half the costs of other countries schemes," he said.
Australia's was means tested and complex in comparison, and the government tax credits for investors came at a large cost, he said.
But Cameron Bagrie of Bagrie Economics said that argument ignored the point that NZ Super was rising as a share of GDP.
"Whether it's 2 percent, 4 percent, 6 percent or 8 percent of GDP is somewhat irrelevant because what you're looking at, if it takes up more share of GDP. we face choices because in order to fund that you're either going to have to crunch another part of government expenditure or you've got to lift taxes.
"We've got to look at the rate of change and the direct of travel because if you want to make the numbers stack up, if more money gets pumped into one segment of society, another segment of society is going to lose out in some shape or form."
He said it was true that the increase in NZ Super as a share of GDP had not been as strong as projected to date but it was clearly rising. It now costs about $26 billion a year, of about $130 billion tax revenue.
"One of the ways we've protected it is that we've just got a lot more GDP growth from immigration… what's called the dependency ratio has come on a little bit better than expected. But 30 years ago the dependency ratio was seven to one. Now it's four to one and it's projected to decline to two to one."
That reflects the number of working age New Zealanders compared to those receiving NZ Super.
He said any Government spending could be deemed affordable if the choice was made to fund it. "We could spend 20 percent of GDP on health if we wanted to. The same with defence, law and order, that sort of stuff. We could have tax revenue at 38 percent of GDP versus 30 percent now.
"The big issue is that there's an overload in the background here. You've got the younger generation versus the boomers. The boomers have made a lot of money out of housing. The younger generation is sitting there thinking 'hang on I can't afford a house'. So the younger generation like the idea of a wealth tax or a capital gains tax whereas it scares the bejesus out of the boomers. How do you explain to that generation that can't afford to jump on the property ladder that you're going to be funding the boomers' retirement?"
He said the sentiment among younger people that the system was not working for them could be what was driving voter interest in minor parties.
"People accessing super say 'look, I worked all my life, I've paid all my taxes', that sort of stuff. And I fly back, did you get a free education? This generation don't get a free education and now they're expected to get out in the workforce to fund the boomers? Back the truck up here."
Simplicity chief economist Shamubeel Eaqub said it was how NZ Super compared to the tax take that mattered rather than the percentage of GDP.
"With ageing, the tax base gets smaller and the super cost gets bigger, as well as health and many other promises... you can't say that super must be kept as is and tax just increased to 50 percent on workers of tomorrow. Why should they?"
He said it was likely that any change that took effect would need to affect future generations rather than older people now, because it would take time for people to adjust and plan.
Matt Roskruge, economist at Massey University, said even though NZ Super had relatively few restrictions on who could access it, it was not particularly generous and left those without savings or assets in a vulnerable position while still supporting people with relatively high levels of wealth and investment income.
