Grant Robertson rejects OECD warning NZ Super age must rise from 65

Monday, 31 January 2022

PM Jacinda Ardern says the superannuation age will stay at 65 (video first published in July 2021).

Finance Minister Grant Robertson has rejected a warning from the Organisation for Economic Cooperation and Development (OECD) that New Zealand needs to raise the age for superannuation.

The OECD said in its 2022 Economic Survey of New Zealand released on Tuesday that the superannuation age needed to rise from 65 to keep the Government’s post-Covid debt levels down to a sustainable level.

The Paris-based international body also said in its wide-ranging report that the country was not on track to meet either its 2030 or 2050 carbon emissions targets, and that more abatement measures were needed.

Other recommendations included increasing the country’s low ICU capacity, removing barriers to competition in the supermarket industry, and pushing ahead with the Government’s proposed unemployment insurance scheme which the OECD said should add resilience to the economy.

Robertson said the Government was grateful for the depth of analysis in the OECD report but described its commentary as “somewhat provocative” and said “as ever, we will not agree on every individual policy recommendation”.

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KiwiSaver contributions of $5 a day could make your child comfortable in retirement, but $10 a day could make them rich.

The OECD previously called on New Zealand to raise the superannuation age in 2013, 2015 and 2017, mentioning the recommendation again in its last such survey in 2019.

But Tuesday’s report suggested the need for reforms had increased because government debt was rising substantially due to Covid.

“The fiscal measures taken to support the economy during the Covid-19 crisis have substantially increased the government debt-to-GDP ratio,” it said.

With unchanged policies, gross government debt would begin climbing long-term from the early 2030s, reaching about 140 per cent of GDP by 2060 and would rise sharply thereafter, according to its modelling.

It described a policy change as “essential”, suggesting a compromise to take into account the circumstances of Māori and Pacific Islanders might be to means-test superannuation from the time people reached 65 until they reached a later age at which point the benefit would become universal.

The Treasury voiced similar concerns about the affordability of NZ Super in July, but Prime Minister Jacinda Ardern ruled out raising the superannuation age from 65 while she is prime minister.

Robertson said it was “not just the prime minister” who had that commitment.

“It's a strong policy commitment of the Labour Party to maintain our current age of eligibility for superannuation at 65,” he said.

“While the spend as a percentage of GDP is relatively high compared to the rest of the world. It's not out of kilter with a number of other countries who spend this amount of money,” he said.

The signs are all pointing to a lolly scramble election, writes Tracy Watkins. Picture, Finance Minister Grant Robertson.

New Zealand could leave the superannuation age at 65 without incurring the debt the OECD feared if it lifted productivity, he suggested.

“Clearly, we need to be a more productive economy that is producing higher wage jobs and is lifting the incomes of New Zealanders so that we can afford all of the things that we want as a country.

“We have prioritised dignity and support in retirement and I certainly respect the view of the OECD in proposing this, but it is a clear policy commitment and it won't be one that we're going back on,” Robertson said.

In addition to cutting the cost of superannuation, the OECD also suggested New Zealand could contain debt by reducing expected growth in healthcare expenditure by “0.5 percentage points from the baseline”.

OECD secretary-general Mathias Cormann held an online media conference with Finance Minister Grant Robertson on Tuesday morning to discuss its latest report on NZ.

It has previously recommended the Government increases the coverage of private health insurance as one way to curb its healthcare costs.

The OECD said the Government’s plan to replace 20 disrict health boards with new Crown entity Health NZ and a Māori Health Authority would have “ambiguous effects” on expenditure as “the cost of granting universal access to uniform healthcare services could easily outweigh the savings from increased efficiency”.

There was a case for the Government making a clearer commitment to improve its long-term fiscal position, for example by providing an explicit target for its long-term debt-ratio, the OECD said, describing the Government’s existing commitments as relatively vague.

“Such a commitment would bolster New Zealand’s strong reputation for fiscal prudence, which is essential for a small open economy running current account deficits and exposed to global shocks and natural disasters,” it said.

Robertson responded that the Government had “made a very clear statement that in Budget 2022 we will return to more specific targets”.

But he declined to confirm they would put a cap on the maximum ratio of core Crown debt to GDP, saying instead that the “exact nature” of the targets was still being worked through.

The OECD placed a strong emphasis in its report on the need for extra measures to cut carbon emissions, and on opportunities to grow the digital economy and improve productivity.

“New Zealand is not on track to meet either its 2030 abatement commitment or its 2050 net-zero carbon emissions target,” it said.

“The carbon price is too low and efficient complementary measures, which address market failures not corrected by carbon pricing alone, still need to be taken.”

OECD secretary-general Mathias Cormann said the share of New Zealand exports that were “so-called weightless exports”, which are services that can be delivered primarily online, was comparatively small.

Compared to the OECD average, New Zealanders had a well-rounded set of skills to thrive in the digital workplace, but school students’ maths level was lower than in other OECD countries, he said.

“That limits the share of students who can complete tertiary qualifications in information and communication technologies fields which is an area of focus.

“Part of the problem is that teachers have been trying to put more emphasis on teaching strategies for solving mathematics problems, than on basic mathematics knowledge,” he said.

As well as liberally dishing out policy advice, the OECD also forecasts what it thinks will happen to the economy in its economic surveys, which it normally publishes every two years.

It is forecasting unemployment will sit around 3.2 per cent and 3.3 per cent this year and next, with inflation dropping back into the Reserve Bank’s target band next year, averaging 2.7 per cent.

The economy should grow 3.8 per cent this year and 2.5 per cent next year, according to its predictions.

However, the OECD has appeared to struggle, along with other economic pundits, in some of its forecasts post-Covid.

Near the beginning of the Covid pandemic in 2020, it forecast that New Zealand was likely to suffer a bigger economic hit from the coronavirus than most OECD countries, also predicting a surge in unemployment that did not eventuate.