Brad Olsen: Infometrics Principal Economist on the prospect of raising the pension age to 72

A new report from Treasury warns New Zealand is set to face extreme debt if taxes don't rise - or the retirement age doesn't go up.

There's growing calls to raise the pension age to 72, but it's unclear how this change could be implemented.

Infometrics Principal Economist Brad Olsen joined the Afternoons team to discuss.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
For a good afternoons you So, Treasury has warned about
our staggering future debt crisis unless we act and do
something about the pension age that they've suggested are raising
it to seventy two over the next forty years. To
discuss this, we're joined by Infometric CEO and chief economist
Brad Olsen Get a bread, good afternoon.

Speaker 3 (00:34):
Why does the government tax key we save a contributions?

Speaker 4 (00:37):
Well, because we tax broadly everything to the degree we can,
and that keeps all of the various incomes in a
more sort of I guess, same same manner. Otherwise you'd
have if you didn't tax, for example, your key WE
Saver contributions, and everyone would put more of their money
in there, and then when they needed it, you'd have
a whole lot of people and trying to get their
money out for hardship and similar So that the better

(00:59):
idea rather than having people warp in and sort of
switch around where they put their money is to sort
of broadly where you can tax everything similarly. Then you
don't have those distortions.

Speaker 3 (01:08):
Isn't saving a problem for us? Don't we have a
large amount of debt, and why we have keisavers because
we more need more to move more of our economy
into saving. So wouldn't that be a good thing to incentivize.

Speaker 4 (01:22):
Yes, and broadly we do to a degree because most
of your key we savers are known as pie funds,
which means they get text at a lower rate than
what you'd otherwise see if it wasn't in that system.
So you do have something. But let's be clear, even
if you made some of those various tweaks that are
sometimes suggested to Keiwi Saver, which to be fair, experts
generally say, don't mess with key we saver too much
because the more you change it, the harder it is

(01:43):
for everyone to get their heads around. But even if
you did, Truasuries made it quite clear that without some
pretty substantial changes to SUPER as it currently is, you'd
be seeing the likes of per person payments for health
and New Zealand Super that would double over the next
sort of thirty forty years. It's pretty significant shock no
matter what way you try and do the tinkering at

(02:04):
the edges.

Speaker 2 (02:05):
So the key we save a question. I mean, is
that really stickly one of the key ways we can
get out of the situation we're facing. Brand A lot
of comparison has made with what they do in Aussie
and it's quite a generous super scheme that they've got
in place. Is that where we need to move to?

Speaker 4 (02:20):
I think it's part of the solution. And you've certainly
seen a lot more political commentary and actually political will
come out around you know, trying to beef up key
we Saver in similar over time. But again you're sort
of only changing around where that money comes from to
a degree. So yes, it's part of it. But I
put it this way, if we were to say, look,

(02:40):
we can solve it all by making some changes to
Kei we Saver, but not making any changes elsewhere, By
not making any shifts around New Zealand Super, you'd actually
get to the point where, over time you'd have people
that would have quite substantial private savings. That would be
the good thing, but the government would also still be
required to pay out quite a significant amount unless you
change SUPER at the same time. So you do have

(03:02):
to do both.

Speaker 3 (03:03):
So is there another option rather than retireing you know,
raising retirement age people work until they're seventy two, or
taxing the Bejesus out of people that you're already taxed
to death, or cutting health and welfare. I mean, is
there another option, because it seems like every every problem
we have, we go, oh, well, let's tax people more.

Speaker 4 (03:23):
There are a few different options. I mean, Treasury put
on the table that if you did nothing else, then
you'd have to pay for everything, increase GST to like
thirty two percent by twenty sixty five, and I think
that'd be pretty unpalatable. I do think that conversations around
the age vligibility you have to come through, not because
I think everyone should definitely work longer, but more because

(03:44):
the social contract that we've all sort of almost signed
up to, if you go back in the day, that
we've currently got with it. But we raised it because
over time people were living longer and therefore spending more
of their life on New Zealand super and we've seen
that over time as well, and so again, you know,
looking at where the life expectancy numbers for New Zealanders
have gone, I think there is a reasonable case to

(04:05):
lift it a little bit. But here's probably the big
one in my mind. At the moment, we've got this
odd inconsistency where we increase the rate of New Zealand
Super payments by wage inflation every year, but we increase
the rate of other benefits, jobs seeking, everything else by
the rate of inflation. Now, if you brought New Zealand
Super back in line with inflation, which means that supernuitance

(04:27):
would still be able to buy the same basket of
goods year after year, they'd be inflation adjusted and inflation protected,
that would go a long way to ensuring that New
Zealand would sustainable over time.

Speaker 3 (04:38):
Now, what about the complexity of people doing different types
of work. So whilst you know people are living longer,
people that do more physical work, as has been well discussed,
break down a lot quicker. And it's very easy for us,
people like us, like people like yourself that work in

(05:00):
numbers and Tyler and I who sit on our fat
asses talking into microphones, to say that we could raise
the retirement age. But when we had a caller before
from a guy's head, he's labor, he's had two hit replacements,
three shoulder replacements. He's basically more machine than man. How
would you differentiate that well.

Speaker 4 (05:20):
I think we've got to look at the current system
where we also still don't differentiate. You can't tell me
that a builder is absolutely fine at sixty four and
at sixty five they kill over My father's in that category,
and I can tell you now that the man's getting
worn down over time. But if we're going to have
to draw some arbitrary line, then you draw it for everyone.
Otherwise it's not going to be universal super. And look,

(05:41):
as an economist, I'm totally open to a conversation of
it not being universal super, but I'm going to bet
my bottom dollar that your listeners will be saying, well,
hold on, it's got to be universal, which means you've
got to put the cut line somewhere. And importantly, again,
we have done this before. If you go back into
the nineteen nineties, Previously New Zealand Super was at sixty
so I'm pretty sure we would have had the same argument. Then.

(06:03):
Now what you would rather do, in my mind, has
had some sort of transitionary cover, so that though who
are clearly a bit stuffed by that age, have a
bit more support, but we can make some bigger changes.

Speaker 2 (06:13):
Yeah, Brad, really great to get you on. Thank you
so much for your expertise that is. Brad Olson, CEO
of Inframetrics.

Speaker 1 (06:20):
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