Pre-funding of New Zealand’s old age pension obligations requires contributions to the New Zealand Superannuation Fund now, higher taxes now in return for lower taxes later through the joys of compounding of the returns on the investments. If that is so, when the contributions are not made, the $3 billion in annual taxes should not be collected.
Source: Andrew Coleman, PAYGO vs SAYGO: Prefunding Government-provided Pensions, Motu Economics and Public Policy 26 Oct 2010.
There should be a separate New Zealand superannuation fund contribution levy that should lapse when contributions are suspended, as they were from 2009, and the pay-outs start after 2036? Otherwise, taxpayers will never see the promised lower taxes in the future. Never?
Source: Andrew Coleman Mandatory retirement income schemes, saving incentives, and KiwiSaver at http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/pdfs/swg-b-m-mris-24dec10.pdf
Constitutional political economy matters despite the reluctance of most who specialise in Social Security reform to think about that backend public choice risk. Unless there is iron-clad guarantee of lower taxes in the future, the whole deal about pre-funding superannuation pay-outs is a con.
That politicians can pass a law in 2003 to pre-fund old-age pensions 40 years hence and expect the politicians of 2036 and onwards to honour the deal with tax cuts is politically naive.
Utopia, you are standing in it! 
Recent Comments