The Superannuation debate -- An alternative viewpoint.

A Note about the author

Len Bayliss has always been available to Greypower for advice and comment on economic matters - what follows is a paper prepared especially for Greypower members.
It is actually a summary of the submission he made to the Select Committee on Finance and Expenditure which examined the New Zealand Superannuation Bill which contains the Super Funding proposals

This view is quite contrary to the Grey power New Zealand Federation stance which is support of the Superannuationn fund established in the New Zealand Superannuation Bill - however we consider it to be part of the debate that must occur about the future of superannuation if we are to ever have a resolution.

The following is the paper put forward by Len Bayliss.

PRODUCTIVITY YES - SUPERFUND NO!

A message to Greypower Members from Len. Bayliss.

I have often been asked ,by Grey Power members, why the continued controversy over NZS cannot be terminated by establishing a dedicated fund immune to political control and managed by reputable and trustworthy experts .
At first glance , such proposals, appear to have both equity and common sense .
Sadly this is not true.
Such a fund not only lacks political or economic substance but would over time prove to be highly detrimental to superannuitants , indeed to all New Zealanders.

First there is no such thing as a government policy or act which is immutable. What can be decided upon by one government can be challenged by subsequent governments. This is a strength not a weakness in every democratic society .
All organisations and individuals must be able to adjust to challenging circumstances. Policies made in good faith and on the basis of expert judgement have frequently had to be changed .
When the policy in question is seriously flawed , as are the governments pre-funding proposals for superannuitants , the lifespan is generally very short indeed .

Second the so called future fiscal problems of financing NZS have been deliberately and very substantially exaggerated in order to justify pre-funding,

With these advantages together with the introduction of the OECD'S "active ageing" policies, New Zealand should have no difficulty in meeting the OECD'S goal of maintaining high employment /dependent ratios - and hence in financing NZS.

Third , the purchasing power of future NZS will be much higher if funds rather than beìng allocated to a super fund are spent on education, training and research thus raising productivity.
Raising productivity is much the most important determinant of the future level of NZS as well as ensuring its continued existence . It is also the key determinant of future national prosperity and the living standards of all New Zealanders. Fourth , any government surplus should be used to reduce debt rather than be invested in a dedicated super fund. Whilst the fiscal impact is very similar , the super fund would have a much higher risk profile.

Greypower members should focus on the key determinants of the purchasing power of future NZS . Under the existing excellent formula , NZS will rise as the size of the national cake( total production) increases each year. This in turn is largely determined by productivity increases - that ìs skills of workers and managers combined with the introduction of new and improved technologies, plant and machinery.

The overriding economic problem facing New Zealand is that our productivity increase (l % per annum) is well below that of most other high income countries. This the reason why our standard of living is not rising as fast as most other OECD countries, why the incentives to emigrate keep rising and why we are having such problems in funding health , education, social infrastructure and environmental protection - and in trying to achieve equivalent standards to those obtaining in other English speaking countries.

A productivity rise to 2% per annum would make a huge difference . The real purchasing power of NZS would double in 36 years rather than the 72 years on present productivity. In addition the government estimates ( below ) show that with 2% productivity health expenditures remain static at 6.6% of GDP whereas they are estimated to increase substantially to 10.6% on existìng1 productivity levels .
In addition we could afford much improved public expenditures on health, education and conservation etc. as well as increased personal consumption. and business expenditures.

It should be clear that for all New Zealanders , the prefunding proposals are a disaster. They offer not only no guarantee as to the future level of NZS , but the funds would be vastly better utilised in expanding educational training and research - the core requirements for raising productivity.

I urge Greypower members to familiarise themselves with the summary outline above and also study the attached papers .which set out the relevant facts in greater depth. (editor note - the mentioned papers are available on request from the secretary but are too long to print here)

NZ Government Expenditure on Health as a %GDP

1950 3.0%
1978/81 5.8%
1983/86 5.1%
1995/97 5.4%
1997/98 5.8%
2900/01(est) 6.5%

Forecast of expenditure on health in 2051 with respect to productivity

1.0% productivity 10.6% GDP
1.5% 8.4%
2.0% 6.5%

In 1997/98 Vote Health accounted for around 70% of total health expenditure

Source Population Ageing and health Spending - 50 year projections
Ministry of Heath Occasional paper No 2 December 1999

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