COMPULSORY SUPERANNUATION AND MMPDeputy Prime Minister
There are two subjects I want to cover tonight. The first is our progress with MMP. I am well aware that there is at least one here who does not share my view but I think it is a debate worth having. The second is the compulsory superannuation issue.
After the first sitting of the House I wrote a "first term report" column which was published in several papers. I have received a surprising amount of feedback. I offered to post out Hansard transcripts of some recent debates, so people could see the standard. A surprisingly large number of people took me up on that.
This might have been a positive - was this a greater interest in Parliament? I hoped so, but unfortunately I think it reflected people wanting to know how bad it was, not how good.
For me, government's role is to achieve our desired social and economic goals. We are not there for point-scoring and political opportunism. We are there for the good government of New Zealand.
Many people thought that we were changing more than the way we elect our Parliament when they voted for MMP. They were thinking we might change the way we operate our Parliament, to add to the good government role.
MMP was oversold - advocates painted a picture of a more consensual, less aggressive, more consultative, cooperative system. Members gently smiling and agreeing - even if agreeing to disagree. MMP could never deliver up to those expectations.
MMP was supposed to give people more idea about what would happen in an election. It did the reverse. Under First Past the Post the winning party was able to govern because it won far more seats than its proportion of the votes. It won on its own and usually convincingly. Therefore voters could vote out a Government they did not like and vote in a Government they did like. This meant a party could be held accountable for the detail of its commitments
Under MMP, the election just tells parties the cards they have for the post-election discussion. A party cannot know how much of its policy it can demand of the other parties it is discussing coalition with, until it knows how much support it has amongst the public.
The performance of Parliament in this new era has been way less than most expected. We certainly see a wider range of opinions, more women and more ethnic diversity in the House - that's a good thing - but we certainly are not seeing a more moderate standard of behaviour, more consensus-style, non-partisan debate, or the death of political opportunism.
Behaviour in the House has deteriorated.
Take, for example the session when MPs were supposed to be debating a Bill on employment relationships for kindergartens. Given the political divide, that was always going to be controversial. But the debating chamber was worse than a hyper-active pre-school. The afternoon was memorable for a 25-minute fight over whether an MP could hold a green balloon while speaking, and other similar nonsense. I have to say, both as an MP and as Leader of the House, I find this intellectually demeaning and unbelievably frustrating.
Don't get me wrong - real debate is one of the things Parliament is there for. But it should be relevant and focused on the issues. It's the senseless filibustering, the endless point scoring, name-calling and deliberate time-wasting I object to.
MMP delivered us some elements we do not need. Like 120 MPs. All those extra MPs have not improved legislation a jot. And extra MPs are costly. I wonder what most List MPs do? - there are four Wairarapa List MPs, but I am yet to see any here.
We now have the spectacle of a List MP threatening to leave the party whose list she stood on, yet staying in Parliament. To my mind that is ridiculous. When a List MP resigns they should leave the House altogether.
Given that it has failed to live up to expectations, it is little wonder that public enthusiasm for MMP is waning. A recent public opinion poll seemed to show that only 31% of voters now back the new system. There is a deep disappointment at what is happening, not in a party political sense, but to our democracy.
Before we simply revert to the old FPP system though, I would like to see us look more carefully at what a small, multicultural, South Pacific nation needs to achieve good government.
Our present arrangement was a product of long-term development over a thousand years in Britain. That is a country of 55 million people - we are 3.6 million. We have unique characteristics. While respecting tradition is sensible, clinging to tradition for its own sake is not. We should think now about New Zealand's needs in the 21st Century. Thinking that through is a speech on its own - I have some ideas, but that is a speech on its own.
The second subject I want to cover tonight is the upcoming referendum on the Retirement Savings Scheme - compulsory superannuation
I want to say at the outset that I personally will not support this proposal. But I would say this in mitigation. If we are to vote in a compulsory scheme, this is well designed. I just think we can do better.
I support the voluntary savings option recommended by the Todd Taskforce. I think enabling people to make their own savings choices will work best long term for New Zealand. I do not believe we can sit here now in 1997 and design a public policy that will work 50 years out. We really have no idea what things will be like in 2050.
I support the Accord approach. A sensible retirement income policy must survive a working person's lifetime, and possible changes of Government. Under the Accord, Labour, National and the Alliance agreed that superannuation was too important a policy area to continue to be a political football.
We began by acknowledging that our country has an ageing population, but that the problems for retirement income policy that an aging population causes could be solved with the combination of measures recommended by the Todd Group.
The Accord included a provision for regular six-yearly reviews, to ensure that the necessary changes to policy settings are made little by little to keep the voluntary superannuation scheme sustainable. The first of those reviews should be ready by the end of this month. I expect this to confirm the sustainability of current policy.
While the superannuation debate is often argued as savings versus taxes, that, to my mind, is not the real issue. We can argue figures till the cows come home - but 20 years out these figures are so speculative they prove very little.
The real issue is economic. It is our economy that pays for everything - health, education, welfare or superannuation - it makes no difference. We can only distribute the wealth we create.
And we can only devote a certain portion of our economy to any one public policy area. We have to balance all the funding demands on the Government. If we take too much for social areas, we will deprive the productive sector of the capital it needs to keep the productive effort strong - and finally it is the productive sector that creates the wealth. If we do not put enough into social areas like education we will not have the trained people we need to enable the productive sector to keep its productive effort up. And it is not always a matter of quantity - people seek quality of life too.
People in favour of compulsory super claim that the country will not be able to afford to pay the rising costs of superannuation of a growing elderly population. They argue that if we save now, we will overcome that problem. This argument is a mirage. What we can afford in 40 years time will depend on the state of the economy in 40 years time, and we can't know now what that will be like.
You only have to look at how much the world changed between 1947 and 1997 to see that is the case. Could anyone just after the war in 1947 have predicted what life - and the New Zealand economy - would be like in 1997? They faced quite different issues and social realities then from ours - as will New Zealanders in 2040. The best way to ensure the welfare of future generations as well as our own is to run our economy well. We certainly can't plan the detail of their lives for future generations.
And we need to keep saving behaviour in perspective. There is nothing absolutely magic about saving cash - as those who saved through Equiticorp, RSL, Judgecorp and many others will remember! The quality of saving depends on the quality of what you invest in.
The idea that accumulating money is the only valid way to save for old age is wrong. Paying off a mortgage on a house, for instance, means no rent or interest costs in retirement, plus an asset that's all yours. Investing in your own business or farm is equally valid - you have a realisable asset to fund your retirement, and you are very likely to have also contributed to economic growth and jobs.
The argument that compulsory super will relieve the pressure of national superannuation on the Government's finances appears to forget that the proposed scheme promises a tax break to fully fund the contributions. And there will be the additional pressure caused by the amount of top-up needed for those who fail to save $120,000.
It was also argued - in the early days - that compulsory saving would raise the national savings rate and reduce dependence on foreign capital, hence increasing New Zealand ownership of assets in this country and reducing the need for asset sales to foreigners. But the fund managers of the proposed compulsory scheme are free to invest wherever they wish, including overseas. And there would be no rise in the national savings rate since tax cuts offset the rise in superannuation contributions.
To my mind one big disadvantage of compulsory super is the fact that the decisions on the investment of a huge part of our national capital - remember that 8% of all income of our small businesses, and that is the base of a lot of investment in small businesses in areas like the Wairarapa - decisions on where to invest this huge sum would be in the hands of insurance companies and superannuation scheme fund managers. These fund managers tend to prefer large, one-off types of investment, rather than the investment of the large number of costly-to-administer smaler amounts that small businesses like our farms and others require to meet their capital needs.
If compulsory super comes in, I would expect to see much more capital go into buildings in big cities, equities in big companies, at the expense of small businesses. That will disadvantage the Wairarapa. For the same reasons, it has the potential to starve small business throughout the country of investment capital. There is likely to be a cost in jobs.
There is also the argument that a savings-based regime is invulnerable to political change in future. No Government would dare interfere, the argument goes. I simply do not believe that - our history shows otherwise. Back in 1975, the then National Government overturned the 1973 compulsory scheme. The accumulated savings were simply paid back and a more generous pay as you go scheme was put in in its place. And we all know how many times the 1975 National Superannuation Scheme has been changed, despite the 1975 promise that it would stay forever.
This scheme is just as susceptible to political tampering as any other statutory-based scheme - it just may take a different form. The way Government policy undermined savings in the past was inflation. We all know people who saved what was a generous sum in the 50s and 60s and have seen it eaten away by inflation in the 70s and 80s.
There is also real a concern to me of political interference in how the funds are invested. Future governments could well try to use these funds to achieve political objectives, like developments in certain industries or certain areas.
Compliance costs of a compulsory scheme are likely to be high. If superannuation payments are taken out of pay packets we will need the same plethora of anti-avoidance measures and officials to ensure everyone pays their fair share and doesn't 'divert' money in various ingenious ways to set them themselves up to get the government's 'top-up'. There is also the cost you pay to have your funds and annuity managed for you.
Both sides of this debate claim that the other's preference limits choice. I suppose they are both right. A compulsory savings-based scheme means that you have no choice but to contribute - if you don't the IRD will get you. And the other scheme is funded by taxes - if you don't pay your taxes, the IRD will get you!
I am sure that for this generation of retirees we can afford the current scheme without a surcharge - whether we should or not is another question. But as the proportion of those retired to those in the workforce increases dramatically next century, non-targeted retirement income will become increasingly unaffordable.
Here is where the regularly adjusted multiparty Accord shows itself to be the best way ahead for superannuation policy. We can change the settings little by little as we need, to adjust to economic and social realities and ensure sustainability.
It would be unfair just to criticise without offering an alternative. To me, the logical approach is to introduce a degree of universal super so all who pay taxes get a return when their time comes to retire. And for those without enough, a means-tested age benefit would cover the gap. There is a huge irony in this. This universal super/age benefit arrangement was the system that operated prior to when this whole superannuation policy saga, that has cost New Zealand so dearly, started back in 1972.
At the end of the day that arrangement, as part of a multi-party accord approach, is better than any other possible for a sustainable and fair retirement income policy for New Zealand.
Whatever the outcome of the referendum in September - and I don't expect the compulsory scheme to get through - but whatever the outcome, we will still need some form of agreement between all political parties to make the decision work. All politicians will need to put their personal point of view aside and work together on the public's choice for a long-lasting system that will guarantee all New Zealanders a decent, affordable retirement income.
A positive outcome will come from this debate. The issues of superannuation have been around for a long time. Even our attempt at an Accord in 1993 did not include every party. Until it does the problem will go on. I hope, with this referendum, the public will finally decide what superannuation system we want, and we can finally settle the superannuation debate in New Zealand. It has been going on for too long.
I'll close with something another famous Winston - Winston Churchill - is reputed to have said on the subject: "Saving is a very fine thing. Especially when your parents have done it for you!"
Thank you for the opportunity to speak to you this evening.