Fran O'Sullivan: Dear John: Generational equity a must

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Resentment is rising and could spill over if the younger generation keep having to pay for baby boomers but are unable to get ahead themselves. Photo / Richard Robinson
Resentment is rising and could spill over if the younger generation keep having to pay for baby boomers but are unable to get ahead themselves. Photo / Richard Robinson

As one baby boomer to another I want to send John Key a message to "Get over yourself and take urgent steps to ensure generational equity in New Zealand before the generational war being hyped up elsewhere in the media takes hold".

Anger is rising in Facebook land, on Twitter, and in the comments section in this newspaper over the huge costs young people face to build a future here.

Housing affordability is a major issue; they have too much debt from university studies that for many will not portend profitable careers, plus they look forward to shouldering too high a tax burden to sustain baby boomers and also Generation X in their post-retirement years.

The analytics have been stark for years.

But it is unfathomable that the Prime Minister continues to refuse to confront the need to raise the qualifying age for NZ Super above 65 years to alleviate the future tax burden on younger New Zealanders; that his Government stands to one side while a supply driven housing crisis in Auckland and Christchurch fuels persistently high prices for decent housing that is beyond the reach of many people (not just the young) and takes limp-wristed measures to deal with the continuing high jobless rates among young New Zealanders.

Let's cut Key some slack here. His Cabinet has had to deal with major disasters: Christchurch earthquakes, the Pike River coal mine explosion, the Rena grounding - as well as keeping New Zealand afloat through the Global Financial Crisis.

But the inter-generational issues are now becoming urgent. They are frankly far more critical to New Zealand's long-term economic health and well-being than the "negotiation" being played out between Maoridom and the Government over so-called water rights. The urgency requires focus and an emphasis on stewardship from the Government.

My bet is the Key Government will ultimately move on housing through pushing councils to expand the urban limits to make more land available, set up creative funding for mass housing and push for PPPs in the social housing space. The earthquake rebuild will soak up some of the jobless. More young people will make their future elsewhere - as they are now going.

Realpolitik dictates that a failure to confront persistent misery on these fronts will have an electoral backlash. But it's difficult to see why Key remains in his ideological cul de sac when it comes to the long-term funding of superannuation which is a primary burden on younger people.

Sometimes it is hard to imagine how the Prime Minister rose to such major heights in the international banking world if he had also refused to confront the impact of long-run trends on financial institutions. Key critics will point out that his old firm Merrill Lynch is no longer in business.

NZ Super on its current track is unsustainable - that's obvious from the Treasury's long-term fiscal track projections.

Right now all New Zealand residents are entitled to receive NZ Super if they satisfy these conditions:

* Have reached 65 - the state pension age.

* Are an NZ citizen or permanent resident.

* Have lived in NZ for at least 10 years since age 20.

* Have lived in NZ for at least five years since age 50.

The after-tax NZ Superannuation for a couple is equal to 66 per cent of the after-tax national average wage. It is not means-tested and is generous.

Governments have a range of weapons at their disposal to help fund the costs implied by an ageing population.

For instance, they could impose an age-based social surtax to fund the future health costs for older populations. And it could fast-track raising the qualifying age for super to 67 years or higher.

Finance Minister Bill English joins the PM in saying the Government's position on super has been clear going back to 2008 and 600,000 people over 65 relied on that undertaking. "We are not going to change that," he said recently on TVNZ's Q&A programme.

But English's sophistry glosses over the fact that it's not the over 65s who will be affected by raising the age of eligibility - but those heading up to retirement.

In recent days I've talked with previous Treasury officials who have filled me in on how they orchestrated the rise of the qualifying age for NZ Super from 60 to 65 years.

This was sign-posted by former Labour Finance Minister David Caygill in 1989. But the succeeding National Government sped the process up so that the rise was in place by 2001 (a nine-year transition period).

Labour has promoted a rise in the qualifying age to 67 - but on an anemic timescale where the change is not phased in until 2030.

The generational war is not going to go away.

We're constantly being told we (boomers) have to look forward to a future where we will communicate with our grandkids via Facebook and Skype (let's point out here that many already do that with their kids) if they don't bring down the cost of housing, transfer their assets and wealth to younger generations, pay more for aged healthcare and so forth.

This refrain is commonplace in other countries which experienced the post-war baby bulge (UK, the US, Canada and Australia in particular). But it is by no means unanimous.

For example, British journalist Will Hutton talks about how: "Having enjoyed a life of free love, free school meals, free universities, defined benefit pensions, mainly full employment and a 40-year-long housing boom, they [the boomers] are bequeathing their children sky-high house prices, debts and shrivelled pensions."

But Economics Professor George Irvin counters things are never as simplistic as the generational warriors make out.

"If boomers in Britain went to university in the 1960s at taxpayers' expense, it was because only 4 per cent of the cohort attended university; today's figure is 40 per cent. If houses could be bought relatively cheaply, it was because local councils once provided "social housing". Council houses were sold off by Margaret Thatcher - leaving housing entirely to the market, plus the deregulation of the banking system helped fuel a massive house-price boom, which gave us sky-high prices.

Irvin adds that while a privileged minority of boomers may have lived high-on-the-hog, owned nice houses and flirted with hippy hedonism, most workers experienced years of stagnating real wages and growing job insecurity. With real wages lagging behind labour productivity growth, much of Britain's increased national income over this same period was absorbed by the top decile of income earners.

Irvin's analysis is attractive (especially to boomers).

But it does not dispel the fact that those entering the workforce today face real issues when it comes to housing affordability (particularly given prices doubled here since 2001); that the decade of grumpy growth English forecasts means they are unlikely to (on average) outdo that of their parents when it comes to building household wealth.

A responsible Government would deal to this before generational war is really declared.

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

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