Monday 3 April 2023

Dangerous Generations?

Unforgiving Critic: At the core of Shamubeel Eaqub’s proposals is a puritanical belief that citizens have no entitlement, morally, to an income they haven’t saved for. And that NZ Superannuation – currently paid for out of the steady growth of the New Zealand economy – is a violation of intergenerational equity. OnTV3’s The Nation, he railed against the fact that “very wealthy people” continue to receive NZ Superannuation. 

ON SATURDAY (1/4/23) SHAMUBEEL EAQUB came out swinging against the Baby Boom Generation on TV3’s The Nation. The Gen-X economist was adamant that the New Zealanders born between 1946 and 1965 had guaranteed themselves a universal retirement income, which they were now enjoying, regardless of the economic impact on subsequent generations. Outraged that the Boomers, not having saved for their retirement, continue to live on “welfare”, Eaqub made it clear that he regarded NZ Superannuation as a form of intergenerational theft. It was unaffordable, unsustainable, and it had to stop.

Asked what he would recommend by way of addressing the vexed issue of retirement income, Eaqub proposed raising the age of eligibility for NZ Superannuation to 70 years-of-age, and subjecting every applicant to a means test. Writing on the same subject for Stuff back in 2018, Eaqub further suggested making Kiwisaver compulsory and dramatically increasing the contributions from employers and employees. He was also of the view that his proposed means-testing regime would need to: “test assets and would be a natural complement to a tax regime that taxes capital as well as income and spending.”

As the National Party were quick to point out in relation to Grant Robertson’s proposed social insurance scheme (now on hold by order of Chris Hipkins) the sharp increase in deductions from workers’ pay packets required to make Kiwisaver a viable alternative for NZ Superannuation will be experienced by most employees as just another tax. It is unclear from his Stuff article whether Eaqub’s proposed Capital Gains Tax will be applied to the family home. If that is the plan, however, then the impact on asset-rich/cash-poor retirees could be catastrophic.

At the core of Eaqub’s proposals is a puritanical belief that citizens have no entitlement, morally, to an income they haven’t saved for. And that NZ Superannuation – currently paid for out of the steady growth of the New Zealand economy – is a violation of intergenerational equity. On The Nation, he railed against the fact that “very wealthy people” continue to receive NZ Superannuation. In a world run by Shamubeel Eaqub, this outrage would, presumably, cease. “Very wealthy” people’s entitlement to “Super” would be means-tested into nothingness.

Radical stuff! But also a plan guaranteed to provoke an extreme political backlash if implemented. Indeed, so vociferous would the reaction to Eaqub’s proposals be that it is difficult to see them being introduced in any other circumstances than those arising out of a full-scale intergenerational war.

If that is what Eaqub wants, if his plan really amounts to nothing more than the meting out of what he and his generation consider a well-deserved generational punishment, then they will have singled themselves out as a very dangerous generation.

When, however, Eaqub’s argument is pulled apart, older New Zealanders may feel entirely justified in arriving at such a grim judgement. Take, for example, Eaqub’s claim that the universality of NZ Superannuation “makes the system simple to administer, but expensive.”

Expensive compared to what? The cost, of New Zealand’s universal basic income for the over-65s, measured as a percentage of GDP, is predicted to top-out at between 7-8 percent. But, that is the cost of the German pension scheme right now! What’s more, as New Zealand moves beyond its Peak-Boomer moment, and the generation dies out (as all generations do) then the cost of NZ Superannuation will fall.

It is at this point that the reckless quality of Eaqub’s argument becomes most apparent. As the Baby Boomers disappear into the historical shadows, the Generation Xers will start to view their retirement with a mixture of trepidation and horror. In their determination to punish the privileged and selfish Boomers, Gen-X politicians, inspired by the likes of Eaqub, will have replaced the generous universal pension of yesteryear with a means-tested grant that kicks-in only after they reach their seventieth birthday. Moreover, the Kiwisaver “nest-egg”, for which they have been required to defer so much personal and familial gratification throughout their working lives, will offer them a weekly payment barely equivalent to the purchasing power of their parents’ and grandparents’ Super!

To make matters worse, it turns out that Eaqub’s fingering of the Baby Boom Generation as the villains of his puritanical economic narrative for The Nation is just plain wrong.

More than 30 years ago, an academic by the name of David Thomson, wrote a book called Selfish Generations?: The Ageing Of New Zealand’s Welfare State. Born in 1953, Thomson is a fully-paid-up member of the Baby Boom Generation. Did that mean that his book was a sinister blueprint for the dispossession of the Boomers’ own children? Did it heck as like! In a fashion echoed uncannily by Eaqub, Thomson railed against his parents’ generation:

In New Zealand the big winners in this have been the ‘welfare generation’ – those born between about 1920 and 1945. Throughout their lives they will make contributions which cover only a fraction of their benefits. For their successors the reverse is true.

Eaqub’s fatal weakness is that, like so many economists, he is not particularly well-versed in his country’s recent history. Clearly, he has no idea that it was Baby Boomer politicians who did their best to rein-in the cost of retirement income support. Between 1990 and 2000, these efforts transformed the Super issue into an electorally devastating political football which ended up scoring own-goals against both major parties. It was, Eaqub seems not to grasp, Boomer politicians who made sure the retirement age rose from 60 to 65. Boomers, too, who set up the Superannuation Fund to ease the nation through its Peak Boomer period.

Eaqub is not, of course, alone in his generational ferocity. There are plenty of other Gen-X commentators who are happy to join in the Oedipal dance. If these characters spent as much time blaming the neoliberal order (put in place by individuals born far too early to be branded Baby Boomers) as they do to bad-mouthing their parent’s generation, then something considerably more positive than gratuitous age-baiting might ensue.

A more fruitful place to seek for inspiration than Eaqub’s arid blame-game is on the streets of Paris and many other French cities and towns. It is there that young Frenchmen and women are fighting running battles with riot police to protect the French retirement age of 62, and the state pensions that come with it. They do not begrudge their parents’ good fortune. On the contrary, they are fighting tooth-and-nail to ensure that it remains their good fortune as well.

Those Gen-Xers who thrilled to The Nation’s intergenerational blame-fest, should turn their attention, instead, to just how much Shamubeel Eaqub’s ruthless prescription on pensions, and that of France’s technocratic and neoliberal president, Emmanuel Macron (b.1977) have in common.

This essay was originally posted on the website on Monday, 3 April 2023.


greywarbler said...

Eaqub wants us to be all equal - to him. The old 'Look how well I have done. If you had worked as hard as I did you could have got to the same place.' You lazy losers.

DS said...

It would be most accurate to say that the current system was a one-off give-away to the 60+ generation in 1975. The cost of Muldoon's bribe has been shared across all subsequent generations.

Now, a SAYE (save as you earn) system does actually generate higher returns than NZ's current PAYE (pay as you earn), because you get decades of accumulated interest. But messing with PAYE is really ugly - you either force one generation to go without (or have their access clamped down on), or you force one generation to basically pay for their own retirement twice via taxes and savings.

The Barron said...

Tax the rich who built their wealth on the labour of generations past and the resources for generations to come.

Guerilla Surgeon said...

Ha! David Thomson supervised my thesis. Clever and a nice bloke. Manys the time I've mentioned his research in debates about retirement. Memories memories. 🤩

Barry said...

Eaqub is becomong boring.
Hes starting to sound like Al Gore and his predictions of doom.

When I started work I paid a separate tax for social welfare tax and I think it was 1.5%

Today I dispair of seeing comments like one last week that "going to a concert shouldnt be a luxury:"
And everyone wants a holiday in Bali and they want a brand new homeand so on.
There is plenty of money around - you just have to decide if you want to have everything now or when you get older.
Basically if you havent got your name on a mortgage by the time you are 40 - then you will in a rental or social welfare housing in your old age
You spend it now then your problem.
Relatively the pension in NZ is around 5% of gdp. Its over 8% in France. Eagub is a panic merchant

Max Ritchie said...

Eaqub seems to be an ideologue masquerading as an economist. Well, according to U of A’s Prof MacCormack anyway. These radical proposals will never fly. But the government needs to assure the community that Nat Super is guaranteed with an increase in age. Both major parties need to put this one to bed.

Max Ritchie said...

Sorry, Prof Robert MacCulloch.

Anonymous said...

What Boomer supporters forget is that Gen-X could save for their own retirement if they weren't being taxed to pay for the Boomers' superannuation.

Chris Trotter also leaves out the huge increase in longevity - longer life spans not reflected in increases to the superannuation age. In Trotter's view people could be living to 100, and still being paid NZ Super - a welfare benefit - from age 65.

Ribro90 said...

So the income tax that Boomer's paid their entire working lives doesn't count? As you rightly say, any young person who listens to this rubbish is setting themselves up for a big shock when they realise the pitiful amount Kiwi Saver will actually give them.
Why not tie it to the cigarette ban on 14 year olds? The money they save in not smoking will be immense.
Chris Trotter has an excellent rebuttal to this selfish concept.

ianboag said...

A transfer payment. One group of people pays and another (identified) group of people receives. These transfers are often referred to as "benefits". Generally income tested. Not usually means tested - aside from being a bit hard we don't want to dump on a permanent invalid who owns his/her own home.

Super is basically a benefit received by anyone over 65 who has lived in NZ for a while. See definition of "benefit" above. Means testing it would be hard. Income testing it would be relatively easy as MSD/IRD are pretty much joined at the hip data-wise.

The simple answer to the "I paid into it ..." argument is that there is no pension fund in the government books. My pension is paid by my children's generation. Hopefully their children will do the same for them, although it gets harder as the ratio of taxpayers to pensioners keeps dropping. It won't be my problem ....

The 60+ generation who were there when Muldoon introduced this got a free ride. They had not had to fund pensions like that for their parents' generation. Now anything to do with cutting back creates a problem for current taxpayers who would have to save for their own pension while continuing to fund a pension for their parents that is better that what they will eventually get ...

I recognise there is no perfect solution. Personally? I would have an income-tested old age benefit from 60-70 (75?) and an untested one at 70 (75?) ... The income testing would be at a rate similar to other benefits.

Guerilla Surgeon said...

If'n I remember correctly, David said that if we act now, super for all was doable. Possibly too, late? I wonder what he thinks now. 😇

Gary Peters said...

There is one factor that these tossers neglect to mention.

New Zealand has always been a low wage economy for most but with a high tax rate and in the late 70's when I joined the insurance industry many were ill equipped to actually fund a decent retirementy income hence the appeal of labour's guaranteed retirement income through the super fund they planned to establish.

Muldoon's fearmongering around the fund plus his promise to fund retirement with an untested pension appealed and lead to his gaining the Treasury benches. That promise enabled some, if not many, to forego serious retirement planning in favour of paying a house mortgage or other asset accumulation.

Then add in the Muldoon/Douglas created inflation of the early 80's plus the collapsing bubble in 87 and few wage workers would have had a hope in hell of providing a nest egg capable of supporting them in their retirement. Some, often with the help of guys like me, were able to create some sort of retirement fund that would augment their retirement but for most, it was a hopeless ambition.

Social engineering, again by government, retained those low wages and forced most couples into becoming fulltime workers to raise their families thus generating some of the issues we have today but that's a tale for another day.

A universal pension was part of a compact offered by Muldoon and rightly or wrogly most accepted the deal. Spend now and keep the economy going plus pay high taxes to build our country and get payback in the future. It would be very unwise of any government to break that compact but is is also wise to introduce a gradual change that will allow people to save themselves.

What we have currently is a government bereft of ideas, bereft of talent to implement any ideas that may come their way who have manged to reintroduce inflation, retain lower wages and increase taxes. Add in any real estate value drop and we have a perfect economic storm.
And then this idiot shamubeel, probably on a decent 6 figure plus income, comes along with his ignorant rant.

And those of you on the left still fixated on "rich pricks" wonder why the labour party will disappear in October!

John Hurley said...

Imagine if there were economists out there with ideas to spread and they weren't The Shamubeel : "the economist loved by the media" - (Winston Peters)!?
He's the Paul Spoonley of economics.

Daniel Elliott said...

There is no generational war. There is a class war.

A 34 year old property investor is doing a hell of a lot better than a 70 year old postie.

Dismantling super does no favors to the common person. It does help reduce the tax burden on the upper classes, the ones that can quite comfortably fund their retirement off the rent paid by 70 year old posties.

I'm a millennial. I understand the generational hate. I get upset when I get told to pull up my bootstraps by someone taking the majority of my weeks pay to spend on wine tours. But I can also see my parents are boomers. My colleagues are boomers. Some have done quite well, amassing portfolios of student farms, but the majority have led simple and frugal lives with their main pastime being watching TV.

I have no ill-will towards these people, I don't want to see them hurt since I been fooled into believing getting them to work till death is justice. Killing super won't do anything to harm the people who really make my life difficult, and it takes away any hope that I too will get a break from this hell.

And of course there's the practicality of it. How much do I need to save up? Will I take a 10% penalty each week (which is 80% of my discretionary income) only to die before 65. That's a big hit on my quality of life with no benefit. Or will I have to become a greeter at Bunnings when I hit 90? I lived past 26, I clearly can't guess when I'm finally gonna get the guts to end it all.

Barry. said...

Up until 1965 the "Greedy' boomers paid up to 65% tax - and that was the death duty rate also.
Ok - that tax paid for the hydro schemes and simiar infrastructure that todays younger ones did not pay for but they get benefit from thata.ssive investment.

Guerilla Surgeon said...

"who have manged to reintroduce inflation"
You realise inflation is pretty much worldwide right? At least in the developed world not sure about the rest.

greywarbler said...

The simple answer to the "I paid into it ..." argument is that there is no pension fund in the government books. My pension is paid by my children's generation. Hopefully their children will do the same for them, although it gets harder as the ratio of taxpayers to pensioners keeps dropping. It won't be my problem ....

It's time that these clever people who understand super-annuation so well can't explore to the side of the primrose path. In Muldoon's time or so, inflation rose and second mortgages went up to 14%. That is one reason why set super done personally doesn't work. Pension funds aren't guaranteed. A newspaper magnate apparently dipped into his employees savings and settlements, and was said to have killed himself feeling cursed. Solo women who have put all their money into an apartment have suicided when found to be a leaky home.

Inflation counting is a moveable feast, with some things left out because property has an awkward feedback that mucks up the pure measurement. So those in charge change inflation gathering to upset the ordinary Jos-inthestreet.
Life insurance companies advertise to people who want to live like kings after they are retired. Material man and woman suffer withdrawal when spending ceases to be a recreation; when the food budget at current prices is a loaf, a jug of milk, butter and thou. The economy was designed, according to my secondary education, to be a circular one with plenty of earning, spending and GST providing the funds to pay out on pensions and add to reserves as well.

Patricia said...

Dear God. Taxation does not pay for anything. The NZ government issues its own currency. The NZ $ is not tied to anything. The superannuatints are not paid in Euros or yen or any other currency so New Zealand can continue to pay superannuation for ever. Yes I would like to see taxation increased but not to pay for anything but to reduce the inequality in this country.

D'Esterre said...

"....Gen-X politicians, inspired by the likes of Eaqub, will have replaced the generous universal pension of yesteryear with a means-tested grant that kicks-in only after they reach their seventieth birthday."

Yup. Cutting off one's nose to spite one's face. And they'll get no thanks for it from others in their cohort.

I'm old enough to remember the shenanigans in the 1990s over National Super. The age of eligibility was progressively raised from 60 to 65, beginning in 1991, through to 2001. This caused consternation among older colleagues who were affected by it: it was a very rapid change, and took many people by surprise.

Then a National government - as I recall - introduced means-testing. It was a disastrous failure and was mercifully abandoned by the incoming Clark government.

greywarbler said...

While NZ issues its own currency its value is connected to the international stock exchanges isn't it? And there we are caught. We need perhaps a parallel currency that will only buy NZ things on a micro level perhaps and it needs to have a control system that keeps its value balanced. I've had an experience of local currency Green $ and it is not as simple as people think. It needs checks and possibly activity encouragement, and not simple desire to return to equilibrium which was a problem for the committee and they shut down the system on a whim.

Anonymous said...

Paying for the increased number of retirees is not the problem. The government can always pay for whatever it wants. Saving money is not the solution. Bits of paper in a vault or entries on ledgers won't spirit into existence real things.

The problem is will we have an economy productive enough to provide for an increased dependency ratio (workers versus non-workers) in the future, Have we invested enough in the kinds of things retirees need ... i.e. good caregivers, villages, services etc? Can we be productive enough to produce enough for us all with fewer workers? That is the problem.

By forcing more saving and constraining demand and spending today you run the economy cold and prevent the kind of investment in automation and productivity that you need to produce more with less in the future. Investment occurs in real productivity increases when an economy is hitting the limits of its productive capacity. Not when it is in a continual funk due to excessive austerity. No point in having a giant retirement pot of money if there is nothing in the future to buy with it. By constraining the economy today unnecessarily through excessive forced saving and fiscal austerity you just create long term unemployment and a pool of people unable to ever be the productive workers that will keep things afloat for the oldies. Or save anything themselves.

sumsuch said...

Shamubeel, Rashbrook and Hickey -- the economist heirs to the great champion of demo-cracy, Brian Easton.

sumsuch said...

The recent survey suggests we are wedded to a retirement age of 65. Seems right to me.