A lament to common sense.

[This was originally going to be a comment in response to his comment here.]

David; perhaps you have not noticed that by the time you and I are middle aged, there will be lots more old people than there are now, and relatively fewer younger people paying taxes.

The Government's point of view is that your party's policies, in the 1990s, of running small surpluses and borrowing for capex, took too short-term a view of this looming change in our demographics.

That is why we set extremely tight fiscal policies and have stuck to them; and  have been very cautious about assuming that such surpluses are structural. Thus the slow decline of them, and the very large current surpluses, compared with you guys - you cut taxes in 1996 and 1998, then suddenly had to cut spending to avoid a deficit. We would never behave in such a reckless way.

It's not about what is capex and what is opex. It is about whether you think that the net worth of the crown should be made strongly strongly strongly positive, while the baby boomers are paying taxes.

Labour says that it should.

You appear to say otherwise.

Why?

We can't grow our way out of pensions; they are tied to living standards, so growing does not solve their burden. No matter if we spent it all on investments in infrastructure, or even if tax cuts caused long term changes in economic growth - the only way to ease the burden in the long run is to save. We can't grow our way out of health care either. If we adopted your way, we'd be paying far more in a privatised insurance model; if we stick with mine, costs are still going up fast.

Your ideological colleagues in the United States have proved twice in 25 years that cutting taxes doesn't cause a surplus or faster growth; it causes a deficit and eventually higher interest rates. Why you continue to leave that lesson blinded by ideology is behind me.

I have in the past been mildly critical of the government's policies in this area, believing them to be too tight. I am at the point of changing my mind. Like most people in politics my focus is only on the medium (and sometimes the short) term.

But I don't want to be paying 50%, 60%, 70% tax rates in my middle age to support my parents' generation into retirment. Nor do I want to see them living in poverty or without access to health care. Nor do I want to see the retirment age raised ridiculously high. Nor do I think there are good incentives for savings in means testing or asset testing the pension, apart from those of the tiny minority of the super-rich.

So what am I left with? Borrow and hope, or save for the future.

There are only those two roads to go down. They're wide roads but there are only two. I want those who're going to retire, to pay more tax now, so I can pay less later.

Isn't any other path fundamentally unfair, from an intergenerational perspective?

The generation which had state housing and education, right to degree level, then cut taxes for itself in the 90s... should they not pay for at least something of what they got or are going to get?

Rather than freeloading on their parents, then on the public infrastructure, and next on us?

Hmm?

Comments

[tim barclay]

You have not had extremely tight fiscal policy policies. You have spent taxpayers' money like a drunken sailor in a bar shouting everyone in sight except the people who pay for your credit card. You have treated them with contempt saying they are rich and why should they get anything. You have no idea of the understanding between tax rates and investment. You have put up the top tax rate not because you needed to, but purely out of jealousy to satisfy people who are essentially failures and see the state like some great father xmas. I could go on, but your budget now makes it easy in politics, I do not see NZ as unique on the subject of tax. Those of us who pay, resent the way you waste money on the Maoris, the duds, civil servants, the welfare constituency, and every squeeky wheel that makes the trip to Wellington.

[tim barlay]

Yes note the time of the blog, those of us who work and pay taxes do get out of bed early, and pay our taxes to provide your welfare constitiency with their lifestyle so they can crwl out of bet any old time. Yes I work with those people, good peole but totall hooked on the welfare lifestyle.

[Jordan]

Most people I know who have been on the dole hated it. Since you work with them, do you find the same thing?

[spector]

I was made redundant in the early 90's... so I got a job cleaning supermarkets in the mornings. I got the job straight away. My supervisor at the time said "you'd think with all the people on the dole we have no trouble hiring.. but we find it really hard to get anyone" I worked cleaning for three months - from 5 in the morning till 8 and then from 7 at night till 10. After three months I found another job. And sure Jordan I had mates who were on the Dole that just went surfing who thought I was mad.

[Simon]

Your whole argument is self-defeating. Its about the demographics yet you claim economic growth is not going to solve the pension problems (which is so badly wrong) but for the last five years amazing economic growth combined with high taxes has allowed Cullen to raise huge surpluses way above forecasts to help solve the very problem that you claim can’t be solved by economic growth.

If it is all about demographics how is the governments vast increase in spending over the last 5 years justified? It is only about being fiscally tight when it comes to the government razing revenue.

[dave]

Jordan, many people on the dole love it - and dont want to get a job - expecially a low paying job that will give wages that are about the same as their dole money, transport costs and lunch. I know well over 150 people on the dole...

[Sean]

Jordan - You say "Your ideological colleagues in the United States have proved twice in 25 years that cutting taxes doesn't cause a surplus or faster growth; it causes a deficit and eventually higher interest rates. Why you continue to leave that lesson blinded by ideology is behind me." What are you talking about? The Clinton 'surplus' was generated primarily by his capital gains tax cut. And you'd be hard pressed to find an OECD country that has grown faster in the past 25 years than the USA (certainly not your beloved Sweden)! So, wrong on both counts - as usual. Basically, you believe we can "tax ourselves rich". One day, if/when you do grow up, you'll laugh at the palpable absurdity of that belief.

[phil u]

jordan..a tidy summary of the intergenerational debt owed by my generation..the whinging boomers..they had/have it all, and all they can do is mewl for more...

phil (whoar.co.nz)

[RWDB]

"Your ideological colleagues in the United States have proved twice in 25 years that cutting taxes doesn't cause a surplus or faster growth; it causes a deficit and eventually higher interest rates."

Rubbish. In Reagan's two terms he transformed the US economy (and doubled tax revenue) by slashing tax rates.

[Jordan]

He created a multi-trillion dollar debt mountain, and his Bush II follower is doing it again. Bill Clinton raised taxes in 1993, and that combined with the oustanding growth of the US economy as IT bedded in created the surplus that Bush II has frittered away.

Sean, it's not about taxing ourselves rich or poor. It is about savings and where we leave the public accounts. Nothing you have said explains why you think public saving is a bad idea. If you think it's bad, can you explain why?

[Kimble]

Did I miss the debate where we decided it was the governments job to do everything for us?

[Lucyna]

I decided long ago, when I was still at school, that I would ensure that whatever I do in my life, I would continue to be useful into old age. No one needs to save on my behalf, thankyou. Just give me my money back so I can invest for my own future. I want to opt out of the "public savings plan."

[James]

Afraid so Kimble,it occupied all of the 20th century and was kicked off midway through the 19th.It reached a stumbling block with the tearing down of a certain wall in Europe and the glossed over deaths of more than 100 million people...

[dim]

I still find it amusing that people on the right can't tell the difference between a modern mixed economy and the totalitarian dictatorships of the Soviet era. It's like using Mobutu's Zaire as an example of the failure of capitalism.

It's all very well to proudly declare that YOU intend to support yourself in your old age - but most of the older generations have spent their whole working life being assured that the government is going to take care of their retirement. Changing the rules at this stage of the game would be grossly unfair (not to mention political suicide). Would YOU want to be the one to explain to a room full of grey-power voters that they're gonna spend their last two decades on earth eating cat-food three times a day because 'you don't believe in welfare'?

Reagan 'transformed the US economy' in much the same way Jack the Ripper 'transformed the sex industry' in 19th Century London.

[Jordan]

There is an air of unreality around these comments. Most Kiwis quite enjoy the fact you don't need to pay (much) for health care here, and they appreciate public pensions too. Trying to change that is fine if you're into it, but I think you're pushing it up hill a bit to expect people's views to change to an American style system on this.

If we're going to carry on with both these things given the numbers crunch that's coming, we have two choices: sharply higher taxes later, or higher taxes now and less sharply higher taxes later.

[Gooner]

I still haven't figured out where I am going to get 8% from to throw at the Cullenders scheme!

4 % of my expected net income in 2007 (considering John Shewan's statement last night - NZ head of PriceWaterhouseCoopers - that I am taxed at effectively 40%) will be approximately $2,200 per annum to try and save in Cullen's scheme. I can't save that now! How will I be able to do so in 2007 with NO tax cuts prior to that (nor any after either).

Cullen obviously believes that gross income minus tax minus mortgage minus kids minus necessary living expenses = a lot. Well I have news for him, it doesn't. Call me rich Jordan, as you have before to people earning over $60,000, and I have one word for you (your word actually) you're just plain WRONG.

The Cullender sits on his fat arse at home in Napier earning a ministers salary, being driven around by a chaffeur, and looking forward to a generous taxpayer pension whilst we try to find $50 per week to save for ours.

He is a neanderthol. It almost makes me vomit.

[Millsy]

I take it you guys would slash welfare, public health and education, wages, and so on??

People are on the dole because wages are low. Why dont you get that through your thick head. If you want wages to be slashed and unions banned, just say so, if you want pension and benefits cut and the poor to rot on the streets, just say so, if you want people to die just say so. If you dont care about humanity, just say so.

Stop pussyfooting around!

[Sean]

Jordan - Do you honestly think public servants make better investment decisions than private individuals? They do not - and that's why I think 'public' savings is a waste of resources. But getting back to your Reagan bashing: You decry his deficits (probably because it was used to bury your Pals in the Kremlin), but seem oblivious to the fact that at the same time interest rates came down and growth went up (the complete opposite of what you claim happens). Are you immune to evidence - or wedded to dogma? That debt mountain didn't seem to constrict growth in the 90's either! While it is true Clinton raised rates in '93 - it resulted in a minor increase in revenues - it was his '97 capital gains tax cut that provided the massive increase in revenues that closed the deficit. The truth is, both JFK's and RWR's tax cuts increased BOTH the economy and tax revenues. Paradoxical - but true.

[Lucyna]

Dim, isn't the whole argument of the left that we need to save for the future because of the growing number of old people that will need to be looked after? That's not old people now, that's old people in the future.

What we could start doing now is reinforcing that whole idea of usefullness and independance, so that in 20-40 years we have a generation of old folk that don't expect the younger ones to be taxed to death to support them.

But no, that is the opposite of what Labour want. They want a subserviant and dependant population that waits for handouts and thanks them when they provide some sort of public service at greatly inflated cost.

[Millsy]

Just say you want to slash pensions, benefits and wages, thats all I ask.

[Millsy]

Why Lucyna (you fascist bitch), do you want to destroy our pension system and leave elderely people to die??

What have you got against the older people of this nation??

[Lucyna]

Millsy seems reading impaired. Millsy, maybe some remedial reading is in order, that might help you understand what I typed.

[dogsbody]

The most incisive comment I have seen about this demographic issue is that, with their increased political clout, the large number of future pensioners will be able to vote for any handouts and pension increases they choose.
Prudence, fairness and long term fiscal stability won't count for a jot. All our calculations and ruminations about what's sufficient, appropriate and just are completely irrelevant.

That being the case, it was suggested that all we can do now is encourage saving and economic growth so that there is simply more stuff to go around when the pensioners start voting themselves generous handouts.

Makes sense to me. As long as special interest groups are able to vote themselves big helpings of other people's money there is not much else you can do.

That people should save for their retirement should be obvious. What's less obvious is that the state should run the operation. Tax free contributions to private schemes would be ideal.

Private schemes are far better because they are not subject to the whims and largesse of future politicians who can change the benefits any time they wish despite all the assurances you were given through all those years you were forced to contribute.
Never trust a politician with your money, and certainly not with something as significant as your pension pot. Your money means nothing to politicians beyond a means to manipulate the electorate for their own benefit.

The problem, as always, is the moral hazard introduced by state redistribution. Why should the frugal person who saved for his retirement have to pay tax on the subsequent income in order to pay for a handout to his neighbour who lived the high life during his working years?

[Millsy]

Hey dogsbody,

You obviously oppose state super, which will cause a lot of people to rot on the street, but you oppose high wages and pay rises, and unions that will enable workers to get a decent income to enable them to save.

[Millsy]

Hey Lucy,

Your reluctance to admit to your desire to destory our pension system will not be hidden by your questioning of my literacy.

[Lucyna]

Millsy, you are in serious need of help. Not from me, though. But hey, keep putting words in my mouth, if that's all you're capable of doing. Some light humour in between the real debate breaks up the intensity.

[Paul]

Lucyna,

Intergenerational theft occurred in the early 1990's when after providing tertiary education for nearly everyone - all but free, we (the right) decided sod it, you're all going to pay now. How's that for theft. Something set up for generations stolen in a moment.

Nice to see you are in the position to opt out of the social contract that is living in society and want to look after yourself. Please send a cheque to the police to cover the costs of a crime against you. Please send the cheque to the govt to pay for the roads, come on, reality folks.

Tim

Woser people, "waste money on the Maoris" fair enough, completely ripping off the economic infrastructure of a nation of people in the name of colonialism and not redressing any of the ills may be seen a wasting money, I see it tokenism at the very best.

Wow, thank you kind sir Tim, getting out of bed so early to make this a better place to live, we are all so in your debt. I just happen to work at the other end of the day, your choice and mine, or is that a little too liberal for ya. What was the point or are you just a little too unhappy with your job.

Try Reggie Perrin that'll get you thinking about the pointlessness of it all.

Sorry Gooner, $60K is a lot of money, in fact for the tens of thousands of the country that earns less than 20K, it's triple what they earn. Poor old middle class, we owe you all so much don't we, up early, long hours, not much money, wow am I reaching for my tissues. You have a head over your head, and I do assume dinner every night, breakfast in the am, a hell of a lot more than many in this society.

[dogsbody]

Millsy,

Perhaps you could clarify your own philosophy by answering the following question:

Two neighbours on the same salary.

One lives decently enough and saves for his retirement, the other likes to buy a new car every couple of years, go on expensive foreign holidays etc and fails to save a penny.

What obligation does the first neighbour have to support the second when they retire?

[dogsbody]

Paul,

The only intergenerational theft occurred when first the state pension was introduced with immediate effect.

Those in and approaching retirement at that time received a benefit of enormous value, towards which they had contributed absolutely nothing or extremely little.

[Simon]

The core problem is that there are too few wealth drivers in NZ. Basically in NZ this is the rural sector. The fact that the fiscal belt tightening is all one sided is secondary. The unions are rubbish is also secondary.

Create more ways for NZ to earn export revenue and become richer then the old people etc are properly looked after and the government collects more revenue but at a lower rate of taxation. Choose the economic model from either Ireland, Israel or Finland it doesn’t matter too much but the leadership must at first come from government.

[Jordan]

hang on - you guys seem to be ignoring what the KiwiSaver scheme is. It is just a framework where IRD will direct a portion of your salary to a fund you choose - it IS a private scheme in all essentials. The only difference is that the fund managers will need to be approved, and the government will kick in $1k to start you off.

Now as for aggregate government saving, Sean, the only alternative would be to force people to save on an individual basis for health care and pension provision in the future. If that is what you are proposing, fine - and if you think you can convince voters to buy it, fine too. I seem to recall a fairly sound rejection of Winston Peters' scheme in 1997.

Someone else mentioned the political reality: old people vote and there are more and more of them. There isn't going to be an end either to public pensions or public health care - they won't allow it, and nor will most of the rest of us for that matter.

So again you deal with it. You either save now or you pay later. Economic growth doesn't solve the problem; it just means that people's incomes can grow. Economic shrinkage would make it harder, but nobody is forecasting New Zealand becoming Japan.

Simon - pensions are tied to wages. If everyone's wages go up, everyone's pensions go up. Growth does not solve this problem, unless people's wages are not keeping up with economic growth - which is a whole different sort of problem.

[Paul]

Dogsbody,

consistency please. Define decently. I'm assuming that your first couple spent some money, or what sort of market economy will we have?

Sounds like you want some sort of police state (or god forbid governement control). Why can't the other person buy cars, do we need to control them? Can't the capital accumulated by the second couple be used to provide for retirement.

Am i hearing correctly, libatarians wanting us to be thrifty and not exercise so called free will. Hmm, very confused.

[Gooner]

Paul, I do like your references to Reggie Perrin. That was a very funny show. Where are the repeats?

I am very grateful for what my family and I have. Very. I look at the despair in the world, the Aids in Africa, the poverty in India etc and am very grateful. You are correct there.

Nobody owes me anything except myself. I owe me the chance to make sure my family and I are looked after in the future. I want that job myself, I don't want governments to do it for me 'cos as sure as night follows day they will stuff it up.

$60k would be a lot if I was single, flatting and had no dependants. I could save heaps. Unfortunately that is not my situation and the $$$ are spread pretty thin, trust me.

[dogsbody]

Paul,

I cannot begin to imagine how you inferred anything of what you wrote from my straightforward question.

Quite simply, of two neighbours on equal salary, one saves for his retirement whilst the other enjoys the high life and saves not a bean.

What obligation does the first neighbour have to support the second when they retire?

[Paul]

Gooner,

I have no doubt, you may find 60K a struggle, but what the hell is life for those on less than 20K like. This is where tax helps provide the services for these people. Or do we just dismiss them. I'd like to think that we can look after others, its a good and decent thing to do.

Dogsbody, it's a social contract. I may not like how some people live, but I have no right to dictate to them, unless you want some sort of police state. I accept much of this society that I disagree with, but in order to achieve a civil society, I have to accpet the genius and failings of a modern society.

[Paul]

Gooner, there is a difference between owing someone and doing them a favour, or even just helping out. Think of xmas time, we don't give presents to make ourselves feel good (thats just a nice by product), we give presents becase it's a good thing to do for someone. But you aren't in debt to someone come boxing day, or expect soemthing back form them.

I am owed NOTHING personally either, but boy oh boy do I OWE this country plenty, decent standard of living, security, education, a cleanish environment, social norms...

It's just how we see society in the end isn't it.

[Paul]

Just picked up on this insightful comment.

"Private schemes are far better because they are not subject to the whims and largesse of future politicians"

Tell that to the everyday workers at Enron that had their retirement ripped form them by corporate greed and inability.

The Corporate world isn't without it's evils. As whimsical as politicans, you see, it all comes down to the failings of humans.

Try again dogsbody.

[Simon]

JC yeah I know pensions are linked to wages. 60% I think. But to pay higher wages (& more PAYE) there needs to be higher revenue in order to do this. This higher revenue is taxed as well in the form of company profits. That’s revenue that never existed before. Also its not the pensions that are the real big concern its health spending. The oldies are going to need health care and that sure is not indexed.

I gotta say if this where we are at now is the economic high point for the country then soft landing or not its going to get grim. I remember the left attacking National during the 1990’s saying when we have full employment this will cure all our social ills. Well nice try with this Labor government but it has not happened and either Labor or National have got to change tack

[Jordan]

I would say that 100k fewer people on benefits and the falling rates of crime, as well as declining poverty, all point to things becoming better.

Simon, yes, bigger GDP equals more revenue as we have seen the last five year, but it's neutral - it just goes straight back out into higher pensions. And I agree, health care spending has been growing much faster than the economy - in every OECD country. The average spend now is around 9% of GDP. If we were to match that, health spending would be sitting at about $12.5bn a year instead of next year's $9.6bn. It would be 30% of government spending, not about 22%.

So what do we do?

Save, knowing the costs are on the way?

Not save, and hope?

Force everyone into private schemes that are on aggregate less efficient and more expensive?

[Lucyna]

Enron was govt enforced monopoly Paul. What was your point again?

[Lucyna]

"So what do we do?"

Since you asked, Jordan, resign. So someone
else who knows what they are doing can take over.

[Gooner]

Paul - "It's just how we see society in the end isn't it".

No, I don't think it is. I see it like you do. I want the same things you do.

I remember when I lived in London how I used to come across beggars on the street. I frequently walked into a local Mcdonalds and bought them a feed. I have faith in humans to look after one another. My Mum has come across beggars in London with no shoes and she went and bought them some!

I want exactly what you want Paul. And I'm sure all politicians want the same. It's just the means to the end that is different, not the end itself.

[dogsbody]

Paul,

"it's a social contract. I may not like how some people live, but I have no right to dictate to them, unless you want some sort of police state."

So what you're saying is that those who are careful with their money and manage to put away some savings must share it later with those who selfishly spend all theirs on luxury goods for themselves.

Furthermore, you say that this is because you have no right to dictate to those people who fritter away all their money on living the high life, and that to do so would constitute a police state.
Yet you seem to have no such qualms about dictating to the people who save some of their money; using the power of the state to redistribute their savings as you see fit. Why is doing that so any less of an odious police state?

[Jordan]

Lucyna, your crowd would turn things to custard. If the billions of dollars of tax cuts are serious, we'd be back to borrowing and add inflation in there too. Completely misses the point. I guess your answer shows that you share that problem yourself.

[Simon]

JC Yes things have gotten better over the last years largely because of the economic growth.

Well we are going to disagree on the linking of the pensions but on the health spending 9% of GDP or 12% of GDP it solely matters what GDP actually is. It not so flash spending 15% of GDP on health as compared to say Oz at 10% of GDP when they have the double per capita GDP.

I guess the point above all else is that our economic pie should be made as big as possible like it has been a priority for other certain countries. And all other agendas should be put aside. Because the economic drivers of the NZ economy commodities like sheep beef and dairy products don’t inspire confidence. Our GDP per capita is closer to Russia than the US and think that is a problem.

[Millsy]

Well, his indulgent and unsaving neighbour has paid taxes all his life, surely he is able to collect on what he has paid.

Youre a fucking dickhead, and I hope something really nasty happens to you.

Why dont you just say you want to get rid of state super JUST SAY IT!!

[dogsbody]

Jordan,

Your dilemma largely disappears if you break the link between pensions and earnings and replace it with an inflation link instead.
This would only be a problem for those who measure their wellbeing in comparison with others, rather than in absolute terms.

Increasing productivity means that our children and grandchildren - who will be far richer in real terms than we are today - will be able to pay less tax whilst at the same time maintaining an improved level of comfort for pensioners. The one-off effect of the bulge of baby boomers hitting pensionable age could be smoothed with some long term borrowing.

Once again it demonstrates that growing the economy per head of GDP is the imperative.

[dogsbody]

Millsy,

- "Well, his indulgent and unsaving neighbour has paid taxes all his life, surely he is able to collect on what he has paid."

Likewise, the prudent neighbour has paid those same taxes all his life. In fact, he has paid more since he will have been taxed on the interest on his savings.

Yet not only does he end up paying more tax than his neighbour during their working lives, he also finds he has to support that neighbour in retirement with some of his savings because the neighbour spent everything he earned on exotic holidays and new cars etc.

Don't you lefties boast that above all your policies are about fairness and "social justice"?

Can you explain to me the fairness and justice in this scenario?

And isn't this precisely the moral hazard that is created by your redistributionist policies?

[Millsy]

Fucking hell dogsbody, why dont you just say you want to get rid of state surplus, which, I warn you right now, will see blood on the streets, I promise you right now.

[Lucyna]

If dogsbody says he wants to get rid of state surpluses then he will see blood on the streets???

Millsy, you are deranged. Get help.