When National Party leader Robert Muldoon was elected Prime Minister in 1975, he made a decision (not Think Big – more on that another time) that should bother every economist in New Zealand to this day. He abolished the compulsory contributory New Zealand Superannuation scheme.
50 years later, the decision to abolish that scheme is now thought to have cost New Zealand $625 billion in lost contributions. People forget that each contribution compounds. In its place, yes… we do have superannuation, but aside from not having a massive insulatory layer from the cold harsh reality that many New Zealanders in their senior years now face, it would take decades even if we started now to fill in a $750 billion hole ($750b – $625b = $125b). Right now, there is about $125 billion in savings, which, while great for those who have some points to a glaring shortage for a hugely significant chunk of the population.
Had we had this, all this talk about raising the retirement age would be a non-starter because there would be enough to cover everyone. It would be safe to retire at age 65, instead of – as I currently envisage – working full time until I’m 70, and then part time until 75. When I turned 45 last week, I was thinking about how much I need to put away between now and 75 to be able to fund a modest retirement on a $500-600p/w budget. I won’t share the numbers, but I will say that I am going to either need some government policy relief or to get a wriggle on!
Some of the consequences are also political. Had we had this, New Zealand First might not have formed on the premise of keeping National and Labour honest in 1993. New Zealand First exists because the party’s membership consists of a largely retired/senior citizen base. Its campaigns in the 32 years of its existence, have had a regular theme of ensuring that elderly voters would be able to enjoy their final years with financial and social peace of mind, and perhaps have a bit to pass on to their children and grand-children.
Some of the politicking around superannuation has been a case of fact versus fiction. What is true though is that New Zealand First, to its credit thanks to one of its Members of Parliament did introduce a very sensible pro-rata scheme for ensuring that those who were in New Zealand for part of their working career, get a proportionately sized cut of the super fund (Denis O’Rourke, 2011-2017). It is a real shame such sensibility didn’t exist 25 years earlier in the then Labour Government.
In 1989, under the watch of Prime Minister David Lange, the then 4th Labour Government of New Zealand contributed to the problem by ceasing to tax dedicated retirement savings products using internationally recognized procedures (Coleman, 2025). Although the 5th Labour Government (Helen Clark) introduced Kiwi Saver, which has helped to put some life back into the sector, the tax changes still create some huge distortionary effects that cannot be ignored.
It will be decades before the true socio-economic cost of those many missing billions in savings is known. However, with the pendulum politics that dominate New Zealand where a big swing to the left or right is countered by an equally big swing in the opposite direction, I am not optimistic that a co-ordinated effort will be made by politicians of any stripe in Parliament to address this shortfall with a view to some kind of future recovery.
I hope I am wrong.
Leftist Kiwi Writes 