OPTION ONE:
Support the current welfare system for superannuation.
That means you would be supporting:
- An 18-year-old having to pay $1.5 million ($1,500,000) in personal income tax, over their working life, in order to get a pension. (A Government pension which could be 50% lower than today’s – if Treasury advice on super is adopted)
- A 30-year-old having to live off the current benefit, with the threat of that benefit being cut by as much as 50% (Treasury recommendation) .
OR
OPTION TWO:
Support the policy I advocate in this paper for superannuation.
That means you would be supporting:
- An 18-year-old retiring with a lump sum super fund of around $3.9 million.
Of the $3.9million, $750,000 would come from their super contributions* and $3,150,000 (4.2 times) as much from interest earned on those contributions.
*super contributions – to be paid from a tax credit on the first $45,000 of income - While a 30 year old, would have a lump sum fund of $1.6million while keeping at least 45% of their super pension.
YOUR CHOICE – OPTION ONE OR OPTION TWO
Capital at Retirement: Option One – zero; Option Two – close to $4 million
Income at Retirement: Option One – benefit; Option Two – around $200,000 a year
HON SIR ROGER DOUGLAS – 2025 BUDGET DETAILS
HOW TO FIX, NEW ZEALAND’S FINANCIAL AND SOCIAL WELFARE CRISIS
PART ONE:
NEW ZEALAND’S FINANCIAL CRISIS
The facts are clear, New Zealand’s social welfare system is in deep, deep financial trouble.
Ever since Muldoon / the National Party introduced their extremely expensive Pay-as-you-go (PAYGO) pension system in 1976, the New Zealand welfare system has progressively accumulated more and more unfunded liabilities each year. Today New Zealand’s unfunded welfare liabilities exceed one and a quarter trillion dollars, to which you can add 40 billion dollars each year for inflation. Today’s young people have, over the past 50 years, been slowly robbed of their rights, their freedom, and their futures.
The culprits? Muldoon and National who introduced the new superannuation policies in 1976, and the politicians who have followed them. Politicians who have refused to put a stop to the theft, the manipulation, and social the control involved in the policy.
The current welfare system has over the years piled mountains of debt onto the shoulders of today’s children and young people, who as a result, should be marching in the streets in protest. The crisis of New Zealand’s unfunded obligations, entered into so willingly by New Zealand’s politicians of all stripes over the past 50 years, is about to hit us and hit us very hard indeed. It will not be pretty.
The New Zealand governments current pension system and the governments financing of it and its management of health-care in New Zealand are fast approaching the point of collapse. REASON-The unsustainable unfunded liabilities we have built up over the past 50 years. Despite this situation, we continue to add to the existing debt we have at a rate of more than 40 billion dollars a year, or $16,000 per working taxpayer per year.
Quality reform is needed. It is not so much a question of finding the money to go forward, but how we use the money we have available to help people to help themselves.
The New Zealand welfare system has become a very nasty deal for the average New Zealand worker, who will have to pay large increases in personal taxes and/or other levies each year, in order to pay for the massive increases in the cost of pensions, healthcare and education over the next 30-40 years. (See table one below, which highlights how much extra tax people will have to pay – personal taxes or other taxes and levies)
Treasury’s recent publication, outlining New Zealand’s long-term fiscal position for 2021-2061, makes a number of points, which reinforce the above message, which we cannot afford to go on ignoring, as we have over the past 30 years.
NEW ZEALAND’S FINANCIAL POSITION ACCORDING TO TREASURY
- Net Debt is likely to be on an unsustainable trajectory, if revenue and expenditure continue to follow historical trends in the future.
(My policies, set out below, fix this problem once and for all. HOW? Over the next 40 years, under my policies, we would save $3-4 Trillion, to meet our future welfare needs)
- A comprehensive package of measures will be necessary overtime to stabilize net debt. (See, my policies that not only stabilizes net debt, but gets rid of it altogether over-time)
- The fiscal impacts of an ageing population include the rising cost of healthcare and superannuation expenditure and a reduction in tax revenue.
(Why? My policies, over-time solve the problems associated with an ageing population. 90% of all New Zealanders will overtime, be able to save enough, to provide for themselves in their retirement)
- Treasury projects healthcare and superannuation expenditure will increase by 6.4% of GDP or 100 billion dollars by 2061. Add the increase in the cost of education and you have an increase of 8.1% of GDP or more than 120 billion dollars a year. This comes at an average cost, per working New Zealander, of around $40,000, or $1,000 a year or $20 a week.
(See table 2, to see how I solve the problems created by the increase in health and pension costs)
- Add to this, Treasuries other projections for 2061, an operating deficit of 13.3% of GDP, government debt of 197% of GDP, net interest costs of 120+ billion dollars a year, and you have a situation where New Zealand would be effectively insolvent, well before 2061.
(My policies would see savings for future welfare retirement expenditure slowly climb until it reaches 9 trillion dollars by 2075)
In these circumstances, why is it that all of our main political parties, when they have been in office, have over the past 30 years, refused to act in a way that would solve any of these problems.
The answer is simple, because the long-run does not count for the vast majority (95%+) of our politicians, why, is this the case, because elections are held in the short-run, not the long-run and politicians know their election chances at the next election, will be helped if they offer a few goodies, on the way.
(For example, Helen Clark’s Interest free student loans)
MY POLICIES TO FIX THE MESS, NEW ZEALAND FINDS ITSELF IN TODAY – FINANCIALLY
POLICY ONE
Move New Zealand away from its current pay as you go welfare system, to an individual saving based system over the next 30-40 years.
Why? Because, the cost of the pay as you go system we have in New Zealand, has for the past 50 years, been slowly sending New Zealand bankrupt, and making individual New Zealand citizens much poorer than they would otherwise be at the same time. (see table 1 below)
TABLE ONE- PAY AS YOU GO- AN EXAMPLE- SUPERANNUATION FOR THE YEARS (2025- 2075)
YEAR – NO RETIREES – COST PER RETIREE – TOTAL COST – INCREASE 10 YEAR – EXTRA COST PER WORKER
000 $ Billions $ Billions $ Week Year
START 927 25,000 23,200
10 1,240 33,580 41,640 18,440 $14.23 $740
20 1,540 45,120 69,480 27,840 $20.57 $1,070
30 1,680 60,630 101,860 32,380 $23.07 $1,200
40 1,780 81,500 145,000 43,140 $29.61 $1,540
50 1,880 109,500 205,800 60,800 $40.38 $2,100
NOTES
- It is clear, from the above table, that the pay as you go welfare system we have in place in NZ, has become a very nasty deal for most New Zealand workers, who will have to pay large increases in personal taxes and other levies each year to meet, the additional cost of pensions and healthcare, that are coming their way. (3-4% of their income at least for most workers)
- New Zealand governments have known about these increases in welfare expenditures, (Superannuation, Healthcare, Education, Risk Cover and Housing), for at least the last 30 years.
I have personally been drawing people’s attention to these increases in future government welfare expenditures for years, at least since I started Act as a political party 30 years ago. In-fact they were the main reason Act was formed.
- As Michael Tanner said “Pay-as-you-go financing (PAYGO) can be an attractive option for politicians who know they will retire before the system collapses”.
- Over the past 25years, Clark, Key, Ardern, and English, have all used PAYGO as a means of collecting more tax revenues than they should have.
- Instead of setting aside the extra money they collected for future commitments they had entered into, in the welfare area, they spent the extra tax money on election bribes to various special interest groups, whose votes they gave wanted.
- Even worse, because of the total lack of action on the part of the likes of Key, Clark, English and Ardern there is no way we can now fix the current pay as you go welfare system. Even Treasury’s cut and burn approach would not solve the basic problems we have. If adopted, Treasury’s ideas would merely be kicking the can down the road for a while.
- Table one above also highlights in some detail the full nature of the Ponzi welfare scheme we have had on our hands for at least the last 50 years. It also demonstrates how we have gone about piling a mountain of debt on our children and made promises to them that we are now not able to fulfil.
As Thomas Sowell said, “There are few things, more dishonorable than misleading the young”. In NZ we have been doing that in spades for years.
In these circumstances, a change to a new welfare system would seem to be inevitable.
A change I for one have been advocating for at least the last 50 years.
What policies then, would we need to put in place to solve New Zealand’s financial problems?
POLICY TWO
Replaces the PAYGO system, with an individual saving system for retirement: individual savings of $6,600 in year one, plus 3% every year thereafter.
(YEAR ONE- 2.6 million New Zealanders X $6,600 = 17.1 billion dollars) – See policy 3
YEAR. AMOUNT SAVED. NO OF SAVERS. AMOUNT SAVED. COMMENTS
000 000 Billions of Dollars
START $6,600 2,600 17.16 See Table3 for savings details
AFTER
10 105 2,650 278 Still gets 95% of super
20. 342 2,700 923 Still gets 80% of super
30. 842 2,800 2,358. Still gets 50% of super
40. 1,860 2,900 5,400 Still gets 5% of super
50. 3,900 3,000 11,700. NO GOVT SUPER
NOTES
- A committee, similar to the GST Tax committee of 1985, would be set up to report on all important issues related to the new welfare savings regime.
- After 15 years of savings, around 20-25% of the lump sum would be held for that individual’s ongoing healthcare, with the remaining balance available to go towards the person’s individual pension.
- After 40 years of savings, New Zealand would have more than 5 trillion dollars of welfare savings, to go towards the future needs of individual New Zealander’s.
- By then the vast majority, of newly retired New Zealanders, would be looking after their own retirement, without any government help, from their share of the $5 trillion ($9 trillion after 50 years).
POLICY THREE
How does the Government pay for the 17.1 billion dollar individual welfare savings in year one plus the 3% yearly increase in savings for inflation?
This policy is the key (in fact it is the essential) ingredient, of my proposed welfare saving system. A system designed to replace the existing PAYGO welfare system.
SAVING – The cost of the long-term savings, in terms of government expenditure, would be as follows
YEAR 1 $17.1 Billion (2.6 million New Zealanders saving $6,600 = $17.16 billion)
YEAR 10 It would be $25 Billion
YEAR 20 It would be $35 Billion
YEAR 30 It would be $50 Billion
YEAR 40 It would be $70 Billion and
YEAR 50 It would be $100 Billion
SAVINGS IN GOVT EXPENDITURE, TO PAY FOR NEW ZEALANDERS YEARLY CONTRIBUTIONS
SUPER FUND: Average Income earned each year, used for this purpose $5BILLION
RETIREES CONTRIBUTIONS: (individuals savings at date of their retirement x no of retirees).
CONTRIBUTIONS
YEAR 1 $400 Million
YEAR 10 $6 Billion
YEAR 20 $20 Billion
YEAR 30 $65 Billion
YEAR 40 $109 Billion
YEAR 50 $225 Billion *
*THAT IS MORE THAN THE COST OF SUPERANNUATION & HEALTHCARE FOR THE RETIRED.
TAX ON SAVINGS AT 12.5% COMBINED SAVINGS FOR YEAR
YEAR 1 $60 Million YEAR 1 $460 Million
YEAR 10 $2 Billion YEAR 10 $8 Billion
YEAR 20 $6 Billion YEAR 20 $26 Billion
YEAR 30 $16 Billion YEAR 30 $81 Billion
YEAR 40 $36 Billion YEAR 40 $145 Billion
YEAR 50 $75 Billion YEAR 50 $300 Billion
NOTES:
- Year 50’s income of $300 Billion, ($225 Billion INDIVIDUAL CONTRIBUTIONS + Tax on savings) exceeds what the outgoings for retirement pensions and healthcare would be under the current system. Personal Income taxes could therefore be lower than 10%.
- Why is it that today’s politicians will not look at this option?
- By year 22, Retiree’s contributions, tax on savings at 12.5%, and super fund income is enough to cover the cost of the government’s saving contributions, for that year.
OTHER SAVINGS (For early years of the new system)
A reduction, in the size of government, middle class capture, and in corporate welfare, as outlined in some of my earlier papers on this subject, would easily make up any shortfall in govt expenditure saving. over the first 10-20 years.
(See part two, when it comes out around budget time, for details of institutional and other savings)
POLICY FOUR
The Inland Revenue Department, would be responsible, for making a working person’s monthly savings contributions, to the approved financial provider of that New Zealander’s choice.
The $6,600 retirement savings made, would come, by way of a reduction in the personal tax that person has already paid.
WHY DO NEW ZEALAND’S POLITICAL PARTIES REFUSE TO ACT IN NEW ZEALAND’S BEST INTEREST?
NATIONAL – National won the 1975 election, by opposing Labour’s superannuation saving system, 50 years later they still do. National party leaders, Key and English made sure their status quo position remained in place.
LABOUR – Labour in 1974, introduced a compulsory superannuation system for all workers. Had that policy remained in force today, most retirees would be doing so, with more than one million dollars. The Labour Party of 1974 was aspirational for their supporters, they wanted them to have the same opportunities as other New Zealanders in areas like super.
However, university trained, Helen Clark and Michael Cullen knew better, as a result Labour’s policy started to change, some of its policies in the welfare area.
Clark and Cullen positioned the party as more compassionate than the national party, who they claimed were a lot less caring than they were. They started to advocate and implement in office policies that involved a lot of government handouts. Once implemented, these policies made more and more New Zealanders dependent on the government, for their survival. (For example, housing and working for families)
The big policy word under Clark and Cullen became compassion, their big agenda however was dependency. They believed the more people they made dependent on government handouts, the more votes they would get at the next election. Ardern and Robertson made matters a lot worse.
ACT – When ACT was first established in 1993, their policies were virtually the same as those I have outlined in this paper.
In the year 2000, ACT decided to drop, many of its original policies, which I had been responsible for, and became the law and order and low tax party (never explained) This change in policy approach, was largely driven by the libertarian party support base.
As a result, I became a lot less active in ACT.
I have also expressed my concern at some of their recent tax policies, as promoted by David Seymour. His support of bracket creep, which often hurts the low-income earner the most, and his advocacy of higher personal income taxes for low-income earners but lower personal income taxes for higher income earners, are policies I personally hate.
WHAT IS THE ANSWER TO THE POLITICAL PROBLEMS WE FACE?
MAYBE JUST MAYBE A NEW POLITICAL PARTY
Reform, a relatively new party in the UK, is doing particularly well at the moment.
Reform, are currently polling as high or higher than all of the traditional main parties.
What does that show?
It demonstrates how much the established parties are hated in the UK.
I suspect the same is true in NZ – most voters in NZ, vote against a party not for one. Most New Zealanders hate at least one of the main parties, as a result they feel duty bound to vote for the one they don’t hate as much.
Setting up a new party is not easy. I did so 32-33 years ago, at the age of 55. It was the hardest thing I have ever done. So good luck to anyone who gives it a go.
PART TWO of this paper, should be available within two weeks of this year’s New Zealand Budget.
If you consider the ideas I have outlined in this paper worthy of some discussion, please send it on to anyone who could be interested. The link is here: https://www.nzcpr.com/my-budget-for-year-2025/
And if you are interested in joining our Reform Project, and haven’t already signed up, please register HERE.