John MacDonald: This is one piece of Rogernomics that makes sense

How about this for an idea?  

Instead of the tax people pay on the first $60,000 of their income going to the government, what if it went into a savings account to pay for healthcare and put food on the table when they retire?  

It’s an idea being pushed by former finance minister Sir Roger Douglas and University of Auckland economics professor Robert MacCulloch which, they say, is needed because of the ageing population.  

They reckon people could save as much as $21,000 a year, with some of the money going into a health account, some going into a superannuation account, and the rest going into a “rainy day” account.   

There are some bits about this that really I like, and I’m not so sure about other aspects.  

The thing I like most is that —for pretty much the first-time ever— we would have tax money ringfenced for specific things.  

Whether we can describe it as tax money I’m not sure, because it would be money not going to the government but going into these individual bank accounts instead. But we’ll call it tax money.  

Sir Roger and Professor MacCulloch have done the numbers and they reckon that —if the government didn’t get its hands on the tax money from the first $60,000 of everyone’s income— on average, people would end up with just over $20,000 in their account each year. 

Breaking that down, they say we’d have about $9,500 going into the health bucket, just under $7,400 going into the superannuation bucket, and $4,200 going into the “rainy day” bucket. That’s each year – providing you’re working, of course.  

So I like it for the ring-fencing and how we would know exactly how much we have up our sleeve.   

And if you do the numbers over the course of someone’s total working life —that’s assuming that they start work at 20 and stop working at 65— the average person that Sir Roger is basing his numbers on could have about $950,000 in their account.  

That’s without interest being factored in. So they could retire with more than $1 million in the bank to pay for healthcare and to live off.  

And if you’re thinking we’ve got KiwiSaver, so why would we need this extra savings account? If you’re thinking that, chances are you’re well-off enough to afford KiwiSaver.  

Because Professor MacCulloch is saying today that many low-income earners just can’t afford KiwiSaver and they would benefit big-time if most of their tax actually went into a savings account. Which makes sense to me.  

Dig a little deeper though and Sir Roger Douglas’ old ACT Party ideals start to come through, with him saying today that this approach would give people the freedom to choose whether they get medical treatment, for example, in the public sector or the private sector.  

But what if every Tom, Dick, and Harry had all this money and decided to get their hips done privately? That would be boom times for the private hospitals, but what would it mean for the public hospitals?  

Possibly less government investment.  

And what if a model like this was adopted and we had politicians down the track letting people use the money in these dedicated accounts to pay for first-home deposits and all that carry-on? Which has happened with KiwiSaver.  

Sir Roger says he’s been banging on for ages about what he and Professor MacCulloch are calling an “economic car crash”.  

They say governments over the years have chosen to ignore the looming health and welfare crisis that we’re heading into, if we haven’t reached that point already.  

At the root of it is the ageing population. And they’re saying today that we just can’t keep on keeping on the way we have and the way we are.  

And I agree with them. Which is why —even though I’ve got some misgivings about the impact this could have on things like government investment in the healthcare system— overall, I think it’s a brilliant idea. 

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Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Mornings podcast with John McDonald
from News Talk ZB.

Speaker 2 (00:12):
How about this? How about this for an idea. Instead
of the tax people pay on the first sixty thousand
dollars of their income going to the government first sixty thousand,
what if it went into a savings account to pay
for healthcare and to put food on the table when
they retire. This is an idea of being pushed today
by former Finance Minister Sir Roger Douglas. He's teamed up

(00:37):
with the University of Auckland economics professor Robert mccalalock and
they said this idea is needed because of the aging population.
They reckon people could save as much as twenty one
thousand dollars a year. This this is you we're talking about,
if you're working, could save as much as twenty one
thousand dollars a year, with some of the money going

(00:58):
into a health account, some going into a superannuation account,
the rest going into a rainy day account. Now, there
are bits about this that I really like. Not so
sure about other aspects though. The thing I like most.
In fact, the thing I really like is that pretty

(01:18):
much for the first time ever, we would have tax
money ring fenced for specific things. Now, whether we can
whether we can describe it as tax money, I'm not sure,
because it would be money not going to the government,
but it would be going into these individual bank accounts instead.
But for the purposes of our discussion, let's call it
tax money, all right, otherwise it'll be confusing. So this

(01:42):
would be money that would be ring fenced in our
own personalized account, which would have separate buckets of money.
So we'd have a health account, that'd be a superannuation account,
and there'd be another one that Sir Roger and Professor
mccalick calling a risk account, which I think is just
a fancy way of describing a rainy day account. So

(02:06):
they've done the numbers and they reckon that if the
government didn't get its hands on the tax money from
the first sixty thousand dollars of everyone's income, then on
average people would end up with just over twenty thousand
bucks in their account each year. Now, breaking that down,
they say, we'd have about nine and a half thousand

(02:27):
going into the health bucket, just under seveny four hundred
going into the superannuation bucket, and four thy two hundred
going into that rainy day bucket. That's each year, each
year providing your working of course, So I like it
for the ring fencing and how we would know exactly
how much we've got up our sleeve. And look, if

(02:49):
you do the numbers over the course of someone's total
working life, let's assume they start work at twenty and
stop working at sixty five. This average person that Sir
Roger is basing his numbers on could have about nine
hundred and fifty thousand dollars in their account. And that's
without interest being factored into it. So that you know,

(03:09):
people could retire with a million bucks in the bank
to pay for health care and to live off. Sounds
pretty good. Ah, sounds brilliant, I reckon. And if you're
thinking yourself, oh, we've got Kiwi Saver, why will we
need this extra savings account. If you're thinking that, then
chances are you are well off enough to afford ki Saver.

(03:31):
Because the economics professor who has teamed up with Sir
Roger on this this is Robert McCulloch. He's saying today
that many low income owners just can't afford ki Saver,
and they would benefit big time. If most of their
tax actually went into a savings account, makes sense to me.
You dig a little deeper, though, and Sir Roger's old

(03:54):
Act Party ideals start to come through a bit, with
them saying today that this approach would give people freedom
to choose whether they get medical treatment and the private
sector or the public sector, which it would give them
that freedom. But what if every time Dick and Harry
had all this money and decided to get their hips
done privately, be boomed for the private hospitals. Boom time

(04:17):
for the private hospitals. But what would that mean for
the public hospitals? Possibly less government investment. And another question,
what if a model like this was adopted and we
had politicians down the track letting people use the money
in these dedicated accounts to pay for things like first
home deposits and all that carry on, all that crazy
stuff which just happened with Chemisamer. Another question, why is

(04:42):
Sir Roger Douglas doing this now? Well, he says he's
been banging on for ages about what he and Professor
McCulloch calling an economic car crash. It's a term they're using.
I say. Governments over the years have chosen to ignore
the looming health and welfare crisis that we're heading into
if we haven't reached that point already. And at the

(05:02):
root of it is the aging population. They're saying today
that we just can't keep on keeping on the way
we have, and we can't keep on keeping on the
way we are. And look, overall, I agree with him,
which is why, even though I've got some misgivings about
the impact this model that they're proposing today could have
on things like government investment in the healthcare system, even

(05:25):
though I've got those misgivings, overall, I think it's brilliant.

Speaker 1 (05:30):
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