THE SUNDAY LONG READ (OR LISTEN ).
It’s time to face the fact that our superannuation scheme is unsustainable. So what could we do to fix it? Associate Professor Susan St John has a viable answer. Listen to the podcast or read the transcription below.
Bryan:
Hello I’m Bryan Bruce, welcome to Head2Head. Today I’m catching up with economist Susan St John who is an Associate Professor at Auckland University, a founding member of the Child Poverty Action Group here in New Zealand, but these days is engaged and work nearer the end of life than at the beginning . Welcome to my aging world Susan!
Susan:
Welcome to you! (laughs)
Bryan
We've got rising costs of aged healthcare and superannuation and we need to be deciding what we're going to do about that because the costs are fast becoming unsustainable. Talk me through this problem. How did we get here and what do you suggest we do about superannuation?
Susan:
Yes, well you're right. As we look out we see that the costs for healthcare and for pensions are going to rise very steeply and they're doing that at the expense of other things. So if we think about The Welfare System as a whole, and the money that we've got to spend on all parts of the demographic spread, we're spending an inordinate amount at the top end without any questioning of it. And in the meantime what's happening is that what we're doing for working aged, and for children, has become incredibly mean, and less satisfactory over time and is getting worse. So it's contributing to the wealth divide that we're seeing emerging very sharply in New Zealand.
Bryan:
Thanks to the neoliberalism and the economic reforms of the 1980s and all of that ! So, we're here now. You did a working paper just recently on Superannuation as a basic income, universal basic income treated as a grant. Why should we change to that kind of system?
Susan:
Well there's some very good things about New Zealand Super. Of course it is going to be too costly and we'll have to do something about it, but the tools that we have to do some changes to Super are limited and they've got enormous costs. So we can talk about raising the age of eligibility and that's going to impact on an awful lot of low income people and disproportionately on Māori and Pasifika and so on, and it's not a quick fix. And we can talk about lowering the level of it and it's just going to create more poverty and we're seeing poverty emerge amongst the older age group now.
So what else is there? It's some sort of surcharge, basically an income test which would have the effect of clawing back from the very top end where superannuation is a drop in the bucket, it doesn't matter in terms of well-being or anything else at that end, and there's potential to save significant amounts of money and to do some very useful things with that money.
The idea of paying a grant is because we don't want to throw the baby out with the bathwater. We want to retain the very best aspects of New Zealand's Super so everyone is entitled to this basic income. It's an opt in. It’s like it is at the moment and if you opt in you get this grant, and for a person that would be about $21,000 as a nontaxable grant equal to what they would get today; and then the counter to that is that if you have opted to take that, your other income is taxed on a separate text scale and the way that is designed determines how quickly you can claw back that $21,000.
Bryan:
OK, so the wealthier you are and the more money you make the less you become eligible for this grant?
Susan:
No you’d be eligible for it in full that's thing. It is a basic income, it's there for everyone now you don't have to opt in and many people might think, by the time I pay this extra tax I may as well not bother, and particularly people in well paid jobs at 65 might defer their application, it's still there if they want it. The point of a basic income is it’s there if your circumstances change, it is an unconditional income there to support you
Bryan:
So it's not means testing necessarily?
Susan:
It's a form of means testing as a broad term, which includes asset testing. It’s the sort of thing they do in Australia, and when you look at the draconian sort of means test they have on their age pension New Zealanders wouldn't have a bar of it . We want something more moderate I suggest. We did use the wealth surcharge and it operated for 13 years, and this idea is somewhat similar, in that if you have a lot of other income you pay a higher rate of tax.
Bryan:
You sometimes hear politicians say, “We're just going to have to raise the age at which you get the pension.” What's wrong with that?
Susan:
Well you hit the wrong groups. You have to really ask yourself what is the problem we're trying to address? And the problem is, of course, that people who are in well paid jobs and maybe millionaires can get it at 65. But if we address that problem by raising the age for everybody then you capture multiple people who are in no position to wait longer and will run through the few assets that they have by the time they qualify at the higher age.
Bryan:
I'm a fan for what you're doing and what you're suggesting because we have multiple problems associated with Superannuation, not the least of which is that some people at 65 are still doing their jobs, they're still fit they are still engaged, and other people by 65 are absolutely done in, particularly if they've been doing heavy labouring jobs and things like that. So would you look at the age as well of getting a universal benefit like this?
Susan:
Well who knows ? As time evolves it might be that we slightly raise the age it's not a good way of doing something immediately you have to have a long lead in time you can't do it overnight. You raise it very slowly so the payoffs are not going to be till a long time in the future and it's not really addressing the problem that we have at the moment.
We're paying far too much of our welfare budget into the top end of superannuation and far too little at the lower end, and particularly thinking not just of those on benefits but also low income families struggling in this dreadful low wage economy .
Bryan:
It's true of a lot of things that I've looked at over the years that we spend a lot of money further down the track. For example we spend a lot of money on later education which is good, but we don't spend anywhere near that amount at the beginning of life and the first 5 years when you're actually learning vast amounts of stuff proportionately to what you'll learn later on, so it's all inverse spending. Is this ignorance or is it because as you get older you get more power to control these things?
Susan:
Well I think it just goes back to our adoption of the neoliberal model and how ingrained it's become and how it's actually captured hearts and minds which was what Ruth Richardson always wanted to do, and it's very hard now to challenge that. But challenge we must! I listened to your interview this morning about compassionate economies, we've got to start changing our narrative.
Bryan:
I'm wondering, are we ready for a universal benefit system?
Susan:
Well we've got it already. At the moment everyone at 65, bar a few exceptions, is entitled at 65 to have New Zealand Superannuation if they satisfy the residency tests and so forth. That's a universal payment, so it’s already there with a degree of income testing built in. So if you're on a 39% tax rate you get about 70% of what you get if you're on just a primary tax rate.
Bryan:
You said earlier we just can't change all of this overnight. Donald Trump can! He just changed the world economy overnight. Changed tariffs overnight!
Just looking at the world economy and the disarray it currently is in,and thinking about the upcoming budget, what are your thoughts about where the budget should be? What we should be thinking about? What we should be spending on? And where do you think Nicola Willis’ head is on these matters?
Susan:
Well I don't know why anyone is surprised with what we’re actually seeing with economic outcomes than has been predicted, and what we're going to see is a further acknowledgement of that in the budget. But unfortunately, we are not going to see a change from the kind of contractionary policies that have impacted on the poorest. I know what you're saying about the global situation but just to think of what we're doing to ourselves in New Zealand.
We should not be doing the kind of policy changes that the government has been doing and has promised to reinforce in this budget because they are making the recession worse, and it's very clear that they're not going to solve the deficit problem either. Because obviously when the economy goes into recession you're paying out more on benefits and you're getting in less tax and the and the deficit gets bigger. They're reinforcing that process.
Bryan:
I mean we know that austerity doesn't work! So why is this government pursuing it? Is it because it benefits the few wealthy the expense of the many ? What is the rationale here Susan?
Susan:
Well I've puzzled about this, but the rationale seems to be that if you squeeze the public sector and you cut back on government role in the economy, then somehow you make space for the flourishing of the private sector, and you rely on monetary policy and low interest rates to give a boost to investment and new jobs in the private sector.
Whereas what we really need are jobs that are funded collectively, the labour intensive jobs. Fund health and education and in the welfare sector itself.They are the ones that we need to be supporting and using to enhance overall well-being of people for goodness sake; and not expect that somehow somebody out there is going to build a better mouse trap or something and suddenly a business will grow and it'll be the marvelous saviour of everything because it won't.
Bryan:
You mentioned you listened to my interview with Liz Grant and Katherine Trebeck this morning, and I found myself saying in that interview that I had a bit of an epiphany moment a couple of weeks ago when I interviewed Professor Richard Wolff and he started to talk about the Mondragon Corporation.
I remembered that and I thought “Yeah I'm sick of telling people that one in five of our children probably aren't going to be guaranteed of a decent meal tonight'“, and of all of these things that you know so well about our poverty kind of situations Susan. I need to do something practical and so now I'm looking at seeing how I can get involved in challenging the supermarket duopoly.
It's a big task but I think we can do it through the cooperative stores model which we see in Italy and France Scotland and about 100 other countries, in which the community owns the food chain. I think, somehow, we need to move towards that, as an ongoing model. It's not going to be easy, we need to find people who are willing to do this, and we're going to have to get advice from overseas, but I think we need to be working more cooperatively generally rather than competitively. Because that is, if you like, the poverty of the neoliberal model, the politics of selfishness and the economics of selfishness. We're seeing how that is actually causing us so many difficulties. Have you done any work on the cooperative space?
Susan:
No I haven't, and what I would say I totally support the way that you're going about raising the level of awareness of alternative models, and cooperative models are very very fruitful, but I'd like to say that we mustn't forget that if we're going to have an expansion of economic activity like that, it needs to be underpinned by good policies for working people who are going to be in those cooperatives and I'm thinking here about the invisibility of what happens when low income people earn some extra money and try and get ahead.
They not only face our ordinary tax which is high but on top of that the extra dollar means that they lose $0.27 of working for families, they'd possibly lose $0.25 out of their accommodation supplement another $0.12 out of this student loan and they get left with very little. And unless we address this problem I don't think we're going to get the kind of flourishing that that you and I would like to see in the private sector.
Bryan:
Why do you think we beat people down like this who are trying? Where does this come from?
Susan:
Well it's deeply contradictory because the philosophy has always been told to workers the way out of poverty is to work, how you get social inclusion, all of that. And yet the way that they target assistance only on the poor and therefore when you have extra money it has to be withdrawn, has this effect of creating enormous work disincentives and discouragement.
So I what I would like to see is some political figure get hold of this. And if we look at what they've already said for this budget they're doing stupid, mean, petty things like holding the threshold for student loan repayment at $24,100, not adjusting it even for inflation. So over time this system is having an even bigger bite on the working poor .
Bryan
So if you've got a student loan and you've got your degree, what are you going to do? You're going to go to Australia aren't you?
Susan:
Oh yeah. Why would you stay here why would you stay, why not? I mean they don't they don't repay student loans from $24,000 right ? It's right up there. I can't remember I think it's about $80,000 and it's the same with Working for Families - the fixed threshold is $42,700 and you start to lose it at 27% ! That is draconian and that threshold is not being adjusted and no aspect of working for families is being adjusted in this budget .
Bryan:
Can I suggest it's because both of the major parties are disconnected from the reality of life for most people. I'm going to express my own opinion here, that the way I see Labour is being sort of soft neoliberalism and National coalition are hard neoliberal, but they're both neoliberal. They're both don't think that the government should be involved in the marketplace. What do you think the role of government should be?
Susan :
Well just to narrow that question and just think about The Welfare System for a moment. You're right that both Labour and National are very closely aligned and you go back to the 2007 amendment to the Social Security Act which enshrined the role of paid work as the purpose of our social welfare system. Paid workers are mentioned nine times in the purpose and principles section. Labour did that, and it paved the way for National to do all sorts of draconian things when it got in. And then when Labour got back in, in 2017, the first thing it should have done was to own that mistake of that amendment and to change the purpose and principles to once again put people at the centre, to be about belonging participation that all are able to have a flourishing life - that kind of thing - and to take out that emphasis on paid. They didn't change it and and they spent their political capital basically and lost the election, as we know, without having done that fundamental thing .
Bryan:
What does “Work” mean anyway? Our society actually depends on unpaid work far more than paid work. So how do we reward unpaid work that is valuable to our community? We have to have that conversation too.
Susan
We should look at New Zealand Super and see how well we do that, because you can have New Zealand Super and spend 40 hours a week doing voluntary work, valuable voluntary work, and it's fantastic. It gives people an opportunity to take a second go at life to explore new possibilities to contribute in new ways and we need to be thinking along those lines in the 21st century
Bryan:
It's amazing the number of people I know who reach retirement which used to mean , you know, playing golf or gardening or something, but they're all doing other work now. They're in Citizens Advice they are in various voluntary organisations that look after kids, and there is value in that.
And that's something we need to think about when we're going, “ Alright what how we're going to reform superannuation?” In many ways we really have to think about how we're going to reshape our society. What are we about as a people? What do we believe? And how are we going to go forward together? This is part of that isn't it Susan when looking at the idea of a universal benefit?
Susan:
Well it's certainly appreciating what we have in place already and we don't want that to be undermined and is one of the reasons why I would strongly advocate against raising the age of eligibility for New Zealand Super. Let's have a look and see how it works, it's a basic income and let's extend it to other groups maybe people in their late 50s and 60s who are on the supported living payment and it could go on to this basic benefit and be able to supplement that without all these clawbacks and draconian fronting up to WINZ every week kind of policies we have in place.
Bryan:
You were talking about hopefully finding a politician who would speak up for these things. Wealth is a word that is now not a PC word to talk about because Labour is even struggling with whether in fact it might introduce a Capital Gains tax idea again. So we've got a long journey here haven't we? If we're not even prepared to look at taxing wealth that is gained through no effort of your own but simply through your assets ,we've got a long journey here to go.
Susan:
Yes and we've got to start it otherwise we're going to end up in a very divided country with third world type conditions at the lower end we're already seeing some very worrying things in the welfare sector and amongst low income working people and people have some people have lost hope.
Bryan:
Hope! That's it isn't it that word hope people have to have hope, and I don't think it's any accident that we have probably still the highest youth suicide rate in the developed world, and we need to look at that.
Susan:
Yeah it's very serious indeed and we've got to have this dialogue about growth, growth, growth changed, because yes what are we growing you know more consumption and growth for what ?
Bryan:
Yes,growth for what?
Susan, as always it has been thought provoking to talk with you. You are ahead of your time on some of this I have to say, but it's important to be ahead of your time and I thank you for it.
Susan:
Thank you very much for having me and for the work you are doing Bryan.
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