Treasury's tough line on NZ debt trap

Time to consider means testing of super and linking payment rises to inflation

Treasury Secretary Gabriel Makhlouf. Photo / Mark Mitchell
Treasury Secretary Gabriel Makhlouf. Photo / Mark Mitchell

Unpopular policies including means testing of superannuation and linking payment increases to inflation should be considered by governments as part of a prescription to avoid a long-term debt blowout, the Treasury says.

In the latest of its four-yearly statements on the Crown's long-term financial outlook, the Treasury warned of a long-term debt trap from 2020 if government spending reverted to historical rates of growth.

Treasury Secretary Gabriel Makhlouf said the Government's constraints on spending were prudent and helpful.

"Certainly if all governments in the future stick to the strategy it would make a big difference."

However, over the long term debt levels would start to rise again, "so it doesn't solve all your problems forever".

Mr Makhlouf said those problems were linked primarily to the ageing population and rising healthcare costs. Yesterday's statement included a series of options and suggestions which Mr Makhlouf hoped would spark a "conversation".

Options included raising the age of eligibility for superannuation from 65 to 67 and indexing superannuation payments to inflation, increasing GST from 15 to 17.5 per cent, reducing growth in public healthcare spending and indexing personal tax rate thresholds to inflation. However, in the detail of the report the Treasury suggests politically toxic policies such as means-testing NZ Super, and more rigorous means testing of subsidies for long-term medical care.

Finance Minister Bill English said the Treasury's projections were "reasonably optimistic" and showed his Government had the long-term fiscal outlook under "reasonable control".

But he dismissed the Treasury's options on super.

The Opposition seized on the Treasury's suggestions of a super age increase and a capital gains tax.

"The report doesn't just give further credibility to our super policy," said Labour finance spokesman David Parker. "It also shows how mainstream a capital gains tax - excluding the family home - has become."

Treasury tips

Debt diagnosis

• If growth in govt spending returns to historical rates the Crown's net debt would rise to 198.3 per cent of GDP by 2060.

• Spending on healthcare is projected to grow from 5.8 per cent of GDP in 2010 to 10.8 per cent in 2060.

• Spending on NZ Super is projected to grow from 4.3 per cent of GDP to 7.9 per cent by 2060.

Treatment suggestions

• Long-term care for the elderly and disabled: spending could double over the next 50 years.

• Means test NZ Super.

• Compulsory super.

- NZ Herald

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