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19% GST one option for funding superannuation - Treasury

Paper outlines choices as the population ages.

Thu, 14 Apr 2011

From the early-2020s onwards the goods and services tax rate might need to rise to 19 percent from the present 15 percent to fund New Zealand Superannuation, Treasury said in a discussion about the choices for funding the universal pension as the population ages.

Alternatively a person on the average wage could pay around $30 a week more in tax or the average amount of other government spending per person could be cut by about 7.5 percent in today's dollars from the early-2020s and onwards.

These were some of the choices Gabriel Makhlouf, deputy chief executive of the Treasury, outlined to a panel discussion at the Age Concern Conference this week. The presentation was released by Treasury.

New Zealand Superannuation is universal and it has so far been funded from current tax dollars. It costs about 3.5 percent of gross domestic product after tax, which is modest for a publicly funded pension in the OECD.

"If the reductions occurred in welfare spending, then we'd likely see a rise in child poverty as this is concentrated now among beneficiaries," Dr Makhlouf said.

"On the other hand, we could reduce spending in those levels of education where attendance is not compulsory -- at the early childhood and tertiary levels. The downside of this might mean lower skills and lower labour productivity growth in later years."

These were not easy choices. They involved pluses and minuses.

New Zealand could also save more collectively in the New Zealand Superannuation Fund, once the Government returned to surpluses.

From the mid-to-late-2020s the fund could be used as it was designed, but the contribution rate increased.

"This would take some of the pressure off future budgets. This is not costless: Larger contributions to the New Zealand Superannuation Fund over the next decade mean lower spending or higher taxes with possible consequences for economic growth over this period," Dr Makhlouf said.

But he also said that with more retirement saving being done by individuals, through KiwiSaver or other means, perhaps some of the revenue going to New Zealand Superannuation could eventually be directed elsewhere.

Thu, 14 Apr 2011
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19% GST one option for funding superannuation - Treasury