Think means testing NZ Super is too hard? Shamubeel Eaqub says"bugger off"
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What is the main topic discussed in this episode?
Kia ora, I'm Nadine Higgins and welcome to The Prosperity Project.
It's shaping up to be one of the hottest topics of the election before campaigning has even begun. Your retirement. Should KiwiSaver be compulsory? Should newborn babies get an injection of funds? Should NZ Super be means-tested? Or should the age of eligibility rise? The government currently spends about a billion dollars a fortnight on superannuation payments. So who shouldn't be counting on getting the pension in future? And if you won't be getting it, how much do you actually need to save? Shamabil Yacob is Simplicity's chief economist and head of policy, and today he breaks it down for us. Kia ora Shamabil, thank you so much for being with us.
How much does New Zealand currently spend on NZ Super and why is it growing so fast?
I wondered if we could start with some of the mind-blowing numbers. How much are we currently spending on superannuation and how big is it forecast to get?
So this year we're going to spend about $25 billion on New Zealand super, increasing to about $30 billion in 2030. So it's increasing really, really fast. And to give you a little bit of context, we spent $23 billion on education. So we spend less on education, the future of New Zealand, than we do on New Zealand super. And we spend just a little bit more on health. So this is one of those massive line items. And when people say that New Zealand super is important and it's beautiful, all of those things are true. The question is, what are we willing to give up to keep this thing?
And I guess that's coming to quite are into quite sharp relief because the budget is tight and that super bill is getting exponentially larger. If we boil it down to the demographics, there's more older people, right? They're living for longer and we're having fewer babies. Is that basically the long and the short of it?
Absolutely. So if you think about our kind of tax and spend system, it was designed at a time when we had lots of young people around. We had lots of working-edge people. So We introduced New Zealand Super in the mid-1970s. This was under Muldoon. We gave up our compulsory super scheme. And the idea was we have lots of young people. We can do a pay-as-you-go system. And at that time, we had eight working-age people per retiring. Today, we have four. And in 50 years' time, we're going to have two. So that burden of paying for these older people has doubled in the last 50 and it's going to double again in the next 50. It is very much a demographic calculus and it's definitely heading away from us.
Some politicians, though, still insist that this is the sacred cow and more than that, that this is still affordable. What do you make of that?
Look, in many ways in public policy, anything is affordable if you're willing to pay for it. So it's a tautology. So the question is, where does the money come from? Either it comes from more taxes or it comes from spending less money on other things.
What demographic changes are driving the pressure on the pensions system?
So the big question for New Zealanders is, are we willing to pay a lot more in taxes to keep paying for New Zealand super as it is? Or are we going to see the degradation of public services that we have seen in recent years that will only worsen over coming decades? Because if we do nothing with super, that will absolutely increase. It will increase fast. and it's going to be relentless. Are we going to teach less? Are we going to look after our people less with health? Are we going to invest less in transport? Are we going to spend less on defense? Those are the trade-offs that we have to make. And fundamentally, I think, when you look forward for the next 10, 20, 30 years, there will come a time when the young people who are paying all the taxes, the workers, are going to rise up and say, I don't think so.
And you get a very disruptive change. And I think that's the big issue is, It's not that we can't possibly pay for it. The way that we would pay for it would be, I think, unfair and politically unsustainable into the long term.
Yeah, there's kind of a generational inequity emerging, right? Because we're either going to have to pay for it, as you say, by accepting lower services for potentially higher levels of taxes or even just servicing the debt.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:54
2
How much does New Zealand currently spend on NZ Super and why is it growing so fast?
0:54–3:14
3
What demographic changes are driving the pressure on the pensions system?
3:14–6:35
4
Why might doing nothing about NZ Super create intergenerational unfairness?
6:35–11:30
5
Who could lose the current universal NZ Super and what transition time is needed?
11:30–15:57
6
Would increasing pension age or means‑testing better solve the fiscal problem?
15:57–26:44
7
How much should New Zealanders save via KiwiSaver if NZ Super isn’t guaranteed?
26:44–30:23