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Home / New Zealand

Govt must address Super issue - Treasury

Audrey Young
Audrey Young
Senior Political Correspondent·NZ Herald·
2 Feb, 2012 02:20 AM3 mins to read

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File photo / Mark Mitchell

File photo / Mark Mitchell

The Treasury has warned Finance Minister Bill English that the Government must start addressing the pressures of future superannuation costs and it makes a case for lifting the retirement age - one of Labour's policies going into the election.

It also argues the case for less variation in taxing capital - again similar to Labour's election policy of a capital gains tax.

It also argues against interest-free student loans, saying they have discouraged saving for tertiary education and failed to significantly increase access to tertiary education.

The advice is contained in the Treasury's post-election briefing papers to the minister, released today.

Prime Minister John Key has rejected any rise in the age of superannuation while he is leader but he is coming under increasing pressure to discuss future impacts.

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In the hard-hitting advice on superannuation, it says leaving the current retirement income settings in place would have to lead to higher taxes, which would harm growth, or large cuts in spending on other areas such as health and education.

It says as the baby-boomer move into retirement, New Zealand's 65 and over population is projected to grow nearly four times more quickly than the total population over the next 15 years, contributing to a rapid rise in health, aged care and New Zealand superannuation costs.

"The resulting fiscal challenge is considerable and there is no way to avoid making tradeoffs,'' the Treasury says.

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"Given the potential economic and social instability that could result from any uncertainty about these tradeoffs, we think it is crucial that effort be made to build broad public consensus on the way forward.''

It says the current acceleration in the growth of the older population makes it ``a matter of priority for New Zealand.''

The briefing paper says that on past experience, when the age of super was lifted from 60 to 65 in the decade to 2001, helped to reduce fiscal costs because people stayed in the work force for longer.

"Early signalling of future adjustments to retirement income settings allows households time to adjust and prepare, and, as a result, can also lead to an earlier impact on savings.

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Comparing New Zealand's age with other countries in 2010, 2030 and 2050, it shows that Australia's age was set at 65, 66, 67; Britain 65, 66, and 67; and the United State 66, 67 and 67 [ though the age for women in 2010 in Britain and Australia was 60 and 62 respectively].

On the issue of taxes, the Treasury says that one of the things the Government could do to reduce saving and investment imbalances in the private sector was to reduce tax distortions.

Some of the measures taken already - taxes away from from savings and investment and increasing gst, was likely to have added to household savings.

"However the real effective tax rates that apply to some types of capital income remain high and there is a wide variation in rates that apply to different investment types with particularly low taxation on housing.

"Reducing the rate and variation in capital taxation has the potential to both encourage greater saving and increase the attractiveness of non-housing investments, which should support the non-tradeable sectors of the economy.''

Labour introduced a policy of a 15 per cent capital gains tax before last year's election on similar grounds, although the family home was exempt.

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Neither National nor Labour supported ending interest-free student loans which was introduced by Labour just before the 2005 election.

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