Government spending pressures are just going to increase with an aging population. NZ Super will become unaffordable. Surely we can’t just spend our way out of this problem?

There has been a lot of scaremongering regarding the supposed unsustainability of New Zealand Super as our population ages. Much of this overlooks the facts. First, research has found that over 65s in New Zealand pay the same average amount of tax per person as the overall population—they keep contributing to the cost of NZ Super, rather than suddenly becoming dependent on taxes paid by younger workers.

Second, New Zealand Super is among the lowest-cost pension schemes in the OECD. Whilst the cost of Super is expected to rise by 2030, it will not rise as much as some have suggested. It will remain affordable within the country’s resources.

However, we must also confront the fact that NZ Super payments are becoming increasingly insufficient. We need to increase Super, rather than cut it. Capital gains tax, a wealth tax or a wealth transfer tax, all of which would tend to tax the older wealthy more are possible avenues to generate the revenue to ensure Super continues to support retirees properly.

Government has referenced a $10 billion projected increase in the cost of Super between 2023 and 2030. This does not take into account the tax paid by superannuitants nor the New Zealand Super Fund, which is New Zealand’s largest taxpayer. Accounting for this, as well as government contributions to the NZ Super Fund now and the non-tax contributions the NZ Super Fund will make to paying for NZ Super in the future, the projected rise is $6.1 billion. Over the same timeframe, our nominal GDP is expected to rise by over $150 billion.

Taking those factors into account, in 2023, NZ Super payments amounted to 4.7% of our GDP. In 2030, it is expected to amount to 4.5%, in other words, it will be more affordable in 2030 than it was in 2023, and, as a proportion of GDP, roughly in line with the average over the 2000s. In addition, government transfers, including pensions, help to boost the New Zealand economy as they are spent back into local businesses. Reserve Bank modelling indicates that every $1 of additional spending on transfers would create an extra $0.76 in GDP. By the same token, cutting spending on transfers and benefits would have a contractionary effect on the economy.

NZ Super has long done a good job of maintaining peoples’ wellbeing and enabling them to keep participating in the economy as they age. However, we must also confront the fact that NZ Super payments are becoming increasingly insufficient, particularly as people face higher housing costs and are still renting or paying off mortgages after 65. In light of this, we need to increase, rather than cut Super. To do so, there is a need to find additional revenue sources which are sustainable and redistributive—like a capital gains tax, a wealth tax or a wealth transfer tax, all of which would tend to tax the older wealthy more.