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Superannuation – we’re asking the wrong questions

The superannuation debate sparked this week by Prime Minister Bill English is fractious and unhelpful.

retirement superannuationFraming superannuation

The framing of the problem around the financial sustainability of superannuation is simply too narrow. It goes like this: people are living longer and therefore we can’t afford to keep giving them financial support from age 65. We have to increase the age of eligibility at some point otherwise the cost of supporting superannuants will become unaffordable.

If the problem is framed that way, it is easy to say we must put up the age. We may admit there will be some pain for the people who are caught in the transition but conclude that there’s not much we can do about it. From this perspective, anyone questioning raising the age of Super is fiscally irresponsible.

Of course, the bigger question really should be, what are our priorities and what are the best means to fund them?

If we want a fair and healthy society, we should be extending universal benefits, not reducing them. That can be entirely affordable if we make changes to the tax system to make it more progressive and raise additional revenue.

Raising the age affects the poorest

There has been much debate in recent years about increasing income inequality and concentration of wealth, and what to do when automation replaces even more human jobs. Over the last 30 years, income and wealth inequality have grown quickly due to policies that make the tax system more regressive and reduced government support and services.

In Aotearoa, lack of a capital gains tax and virtually no action from the National Government have seen the housing market inflate at stratospheric rates – making some lucky homeowners and investors wealthy while younger generations, saddled with student debt and with far fewer secure work opportunities, will struggle to ever save enough for a deposit on their first home.

Putting up Super to age 67 will mainly disadvantage the poorest – those on low incomes, Maori and Pacifica, people working in manual labour, all who have a lower life expectancy. Putting up Super to age 67 won’t do anything to deal with the real driver of the cost increase, which is the huge number of Boomers getting to retirement age and living for another 20 to 30 years. Waiting to do it until 2040 will also hit Generation X hard. They were the first to get saddled with huge student debts and interest payments on their loans. They’re less likely to have as many savings or own their own home as the Boomers, and now they’ll have to work longer until retirement.

Making it fairer

In this context, rather than debating whether we should put up super sooner or later, we should be asking: how do we ensure the economic system is working fairly, for everyone? Because right now, it definitely isn’t.

Let’s start by reforming the tax system to make it fairer – including a comprehensive capital gains tax on everything but the family home – and ensure that the revenue raised is used to fund universal benefits and government services, starting with those that help young people when they need it most. With increasing automation, we won’t need as many people working long hours. What we will need is to share our resources far more fairly.

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