Hive News Tuesday: English aims to insulate Govt from NZ Super shock and show he's no John Key

Bill English, watched by Steven Joyce, announces the proposed lifting of the retirement age to 67. Copyright Lynn Grieveson / Hive News

Well that seemed to escalate quickly.

From appearing on the weekend to only to be talking about an "opportunity for a bit of a reset," Bill English jumped onto the third rail of New Zealand politics yesterday afternoon by proposing to lift the retirement age from 65 to 67 if he is re-elected on September 23.

The debate about New Zealand Superannuation has spent so long in a deep freeze under John Key's policy of saying he would resign if it was ever changed that yesterday's proposal to raise the age of eligibility by 6 months a year between 2037 and 2040 was a shock.

This was English's first major change of direction from the Key years, but it turned out he and his new cabinet had been considering it since December, and he had consulted with his caucus last month. After years of calls from Retirement Commissioners, Treasury and most other economic commentators for a change, the dam seemed to break awfully quickly. A closer inspection, however, shows the deluge is more of a trickle and a long, long way off.

English pitched the change as a "fair and reasonable" approach to dealing with an issue that Key deemed too politically sensitive to even consider while in Government. To reinforce that point, he used that phrase "fair and reasonable" 10 times in his news conference after the announcement.

English's main argument to back that up was to show that a 65 year old now would spend 24.3% of their life being paid NZ Super, while a 65 year old in 2040 would expect to spend 24.5% of their life receiving NZ Super. That's because of the rise in life expectancy over that period, including a rise of 1.3 years for every decade.

The decision to delay the change for at least 20 years was the biggest of the insulators English deployed to reduce the potential shock from that third rail. The others were ruling out any change to the indexation of NZ Super from its current 66% of the average wage and to rule out any change to universality or any move to means testing. This fact sheet is useful to explain what's changing and what's not changing.

The other bone to throw Winston Peters' way to help reduce the shock was a proposal to double the amount of time new migrants need to live in the country to 20 years from 10 years before receiving NZ Super, including 5 years after the age of 50. The new rules would only apply to new migrants once legislation is passed, while existing migrants would be 'grandfathered' in over time.

'Not early or big enough'

The shift out to 67 by 2040 does reduce the cost of New Zealand Super, but doesn't do it as quickly as some had hoped, and still leaves a significant cost increase to be borne by those working in the 2030s and 2040s and beyond.

Steven Joyce issued a paper estimating the cost of New Zealand Super would rise to 8.4% of GDP by 2060 from 4.8% in 2015 because of the ageing population. Healthcare costs are also forecast to rise to 9.7% of GDP from 6.2%.

The change to increasing the eligibility age to 67 and the doubling of the residency requirement for migrants is expected to reduce that cost increase by 0.6 percentage points of GDP by 2045, and 0.9 percentage points by 2060. That means the gross pre-tax cost of NZ Super would still be expected to rise from 4.8% to 7.5% of GDP by 2060, while the net after-tax cost would rise from 4.1% of GDP to 6.4% by 2060, instead of 7.1% before the changes.

Retirement Commissioner Diane Maxwell proposed in December that that the age of eligibility start increasing in 2027 at a rate of three months a year over an 8 year period to be 67 by 2034. English's proposal is therefore starts 10 years later than Maxwell's recommendation. The doubling of the residency requirement for migrants to 20 years is also less than Maxwell's recommendation for an increase to 25 years, which would be in line with the average for the OECD of 26. See Maxwell's 2016 review recommendations here.

English and Steven Joyce have also tried to address the issue often raised by the Maori Party and others that those in manual labour are simply too exhausted or physically unable to retire at 67, and that Maori and Pacifica longevity rates are shorter than for Pakeha -- making the increase in the age of eligibility doubly unfair.

Joyce held out the prospect of a Parliamentary review of temporary transition arrangements for those unable to work after the age of 65 from 2030. The issue will become more acute because of the different ways that sickness and unemployment benefits are indexed to inflation, relative to New Zealand Super.

The gap between the two types of benefits has widened over the last 20 years because sickness and unemployment benefits are indexed to CPI inflation, while NZ Super is indexed to average wages. For example, weekly NZ Super payments have risen 35% since 2008, while inflation has risen 14%. The only small narrowing of that gap happened with last year's real benefit increase of NZ$25 per family.

So will the insulators work?

English has proposed the change as one to be debated before the election and then legislated for next year, assuming National is re-elected with support partners and is able to find cross-party support for the legislation.

This is where it gets tricky.

English repeatedly described the changes as "fair and reasonable" and hopes the cauterising of the indexation and universality will be enough to calm the horses. He also was at pains to present his proposal as the Government addressing the tough issues -- in contrast perhaps with Key's reluctance to touch the topic.

A social media slideshow early yesterday morning reinforced the messaging English wanted to use. English's twitter account published a quote sourced to English and super-imposed on his picture that said: "We're not here to shy away from the hard issues." The tweet itself said: "We're committed to making the right decisions to make sure New Zealand's prosperity is sustainable in the long-term."

The tweet and photo were mysteriously deleted early in the morning before the announcement, which English professed ignorance of. He said he was changing phones so hadn't seen the tweet.

But he did use the argument in the news conference and is no doubt hoping to appeal to the majority who supported the extension of the retirement age.

"Making sensible decisions today avoids harder decisions tomorrow," English told the news conference.

"The changes we have announced, which we will legislate for next year, will more fairly spread the costs and benefits of New Zealand's super between generations, ensure the scheme remains affordable into the future and give people time to adjust," he said.

The electoral snag is that voting rates among the elderly are much higher than among the young -- hence the repeated reinforcement by English and Joyce that no-one born before 1972 would face any changes.

He will also probably need to win Winston Peters' support to form a Government, and it's not clear that Peters' has set the issue of the retirement age as an unbreakable bottom line. His initial statement was cryptic on the issue, although he said in later interviews there was no wiggle room on the issue.

Labour's position is more complicated, given it campaigned before the last two elections for an increase in the retirement age, but is now opposed to the change under Andrew Little, who campaigned for the Labour leadership on leaving the age at 65. Peter Dunne opposed the change, as did the Maori Party. ACT has been in favour of extending the age of eligibility, but earlier than 2040.

The Greens have supported keeping the retirement age at 65, but Metiria Turei said yesterday she was open about a debate and was more focused on income support and housing costs for younger people ahead of retirement.

English was keen to turn the heat back on Labour in particular.

"It may be that they may find themselves explaining why they think no change should happen at all in the face of very widely accepted analysis that the cost is going to go up considerably," he said.

He was hopeful the other parties would come around to the idea in the wake of a debate and the election.

"When I've listened to the other parties those are areas of concern for them and think this announcement achieves a path to change in a way that should be broadly acceptable to the public and I think, perhaps, to other parties once they have thought about it," he said.

English refused to describe it as a bottom line and said he couldn't conduct coalition negotiations before the election.

"We're doing this deliberately in a way that means it gets discussed through election-year and voters have the opportunity to take into account. As I have said, it's pretty fair and reasonable and as the public look at it and other parties look at we will see where they get to."

Tweets of the day:

Gina Rangi:

If babyboomers stopped eating avocado on toast and buying flat whites they wouldn't need universal superannuation

Have a great day.

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