The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
Just before I call the Minister, I ask that the person who had that phone ringing earlier and all other members please now check that the phones are off.
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
That was most uncalled for! I move, That the Government Superannuation Fund Amendment Bill be now read a first time. At the conclusion of the first reading debate I will move that the bill be referred to the Finance and Expenditure Committee.
This is a simple but important bill. It amends the Government Superannuation Fund Act 1956 to give effect to the Budget 2008 decision to provide all Government Superannuation Fund and National Provident Fund annuitants with an annual cost of living adjustment linked to 100 percent of CPI changes. The Government Superannuation Fund, also known as the GSF, is a Government-owned fund set up to provide for public servants’ superannuation. It was set up in 1948, and it was closed to new entrants in 1992. It has a liability to pay benefits to members currently valued at over $11 billion, which exceeds its investments by over $8 billion.
As part of Budget 2008 Cabinet agreed to increase the Government Superannuation Fund and National Provident Fund annuitants’ annual cost of living indexation to 100 percent of the CPI. This adjustment is estimated to impact around 17,000 Government Superannuation Fund and 2,100 National Provident Fund annuitants and their annual cost of living adjustments, indexed at rates between 90 and 100 percent of the CPI. I have taken this decision to ensure that all annuitants are treated consistently with regard to annual cost of living adjustments. The cost of this decision—at a one-off figure for balance sheet purposes—is $33.2 million.
The adjustment had originally been intended to apply from 23 July next year. I have received several petitions, including a letter from the president of the Government Superannuitants Association, David Swallow, to bring forward the date from which 100 percent CPI indexation would apply. This bill brings forward the date to 2 April 2009 to align with the annual cost of living adjustments, and we are dealing with this bill now so that the bill can get off to the select committee, submissions can be called for, and the bill can be passed before 1 April next year.
One other small clause in the bill—clause 5—corrects an error that was made in the Government Superannuation Fund Amendment Act 1990. In 1990 Parliament increased the amount by which the annuity is reduced by surrender by some nine times. In other words, when someone surrenders a part of the superannuation scheme, the annual amount is multiplied by nine times. That figure should have been an increase to 10.8 times the annual amount, and in fact it was not done so in the law, but the practice since then has been to pay the 10.8 figure rather than the nine. This error apparently has not been picked up for some 18 years. Some hawk-eyed person has finally discovered it, and this bill rectifies that error in the 1990 legislation.
I should declare an interest, of course, given recent events. As a person under the old parliamentary superannuation scheme, I would be affected by the latter provision if, in fact, the current law was to be applied.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
I also should declare the same interests as Dr Cullen, as a member of the old parliamentary superannuation scheme. In doing so, let me make it clear that National will support the Government Superannuation Fund Amendment Bill being referred to the select committee, if for no other reason than that we have a pretty unfair situation right now. Some members of the more recent Government Superannuation Fund schemes already receive cost of living adjustments of 100 percent of the annual CPI, whereas some members started their contributory service way back before 15 June 1969, when the Government Superannuation Fund Amendment Act 1969 came into force. So some people in Government Superannuation Fund schemes already receive 100 percent annual cost of living adjustments and others in Government Superannuation Fund schemes and National Provident Fund schemes do not. That is clearly not a very satisfactory situation; it is quite an unfair situation. Even if there were no other considerations, there is no justifiable ground for having such an arbitrary arrangement for annual adjustments to these schemes.
Having said that, another reason why this issue has become very important is that under this Labour Government the rate of inflation—or the annual CPI—is high again. It is years since it was 5 percent. [Interruption] Dr Cullen laughs, but this year the rate of inflation is projected to hit 5 percent. I ask Dr Cullen how long it is since we have had a 5 percent rate of inflation in New Zealand. Under Labour inflation has gone up, as it always has done. I have been here long enough to remember what it was like pre-1990. Pre-1990, when we had a Labour Government last time around, inflation was sky-high. We always get high inflation under a Labour Government, and that is why this issue has become important again. When the inflation rate is up around 5 percent, the annual CPI adjustment becomes more important.
Why are we heading towards a 5 percent inflation rate this year? It is actually pretty easy to work out why we are heading towards a 5 percent—
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
Be careful, Dr Smith. This is about superannuation. Do not take off on a lecture on inflation.
Dr the Hon LOCKWOOD SMITH Link to this
But, Madam Assistant Speaker, adjustment for inflation is the very purpose of this bill.
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
But the purpose does not need a whole lecture on inflation.
Dr the Hon LOCKWOOD SMITH Link to this
Well, if it were not for inflation, we would not need this legislation. That is the crucial aspect of it. The facts are that last year Treasury warned Dr Cullen that if he increased Government spending by the amount Cabinet was talking about, he would see big inflation as a consequence. What happened? Dr Cullen knows exactly what happened. Dr Cullen ignored it—
Dr the Hon LOCKWOOD SMITH Link to this
I do not know whether Dr Cullen ignored it, but his Cabinet colleagues walked all over him and he agreed to a massive increase in Government spending, did he not? Against Treasury advice, he agreed to a massive increase in Government spending. What has happened?
Dr the Hon LOCKWOOD SMITH Link to this
He says it is so silly! I put another challenge to him. Another reason why we have high inflation is that our productivity growth has collapsed under this Labour Government. The facts are very clear. Compared with the 1990s, productivity growth since Labour has been in office has collapsed. By almost any estimate, it is certainly under one-half and maybe even down to one-third of what it was during the 1990s. Those are Treasury’s figures, not ours.
When we have low productivity growth we get high inflation. There is no other possible outcome. Why do we have low productivity growth? Because—as we have been debating just now—Labour insists on regulating everything. That is one of the things that contribute to poor productivity growth: the more one regulates and constrains the productive sector, the less productivity growth one gets. We have just been debating the latest example: more regulations around education in the Education Amendment Bill (No 3). So it goes on.
Today all sorts of regulatory legislation has passed through this House, and we should not be surprised that inflation under this Labour Government is getting higher and higher. That is why this legislation becomes important. People who cannot protect themselves against inflation, and whose income is eroded seriously by escalating inflation, are most affected by what this Labour Government has allowed to happen.
It really is quite staggering to have projected inflation this year of 5 percent. It is years since we have seen that kind of level. Dr Cullen and his Labour colleagues should be ashamed that their policies have led to this. I ask Dr Cullen what the consequence has been for ordinary people, with interest rates among the highest in the developed world, and an exchange rate that has been very high and very damaging to our export sector. Sure, it has started to come back down. The Reserve Bank has been forced, in many ways, to reduce the official cash rate, and the exchange rate is starting to respond. But a lot of people on fixed incomes derived from the Government Superannuation Fund and the National Provident Fund are very affected by these factors. They are very affected by the high - interest rate regime of this Labour Government, and very affected by the high-inflation policies of this Labour Government, which all stem from its massive, expansionary expenditure programme.
We have all seen the papers that Dr Cullen presented to his Cabinet colleagues warning that increased Government spending to the level contemplated would mean that the Reserve Bank would have to respond. They were told that there would be higher interest rates. What did the Government do? It increased spending. We have seen exactly what was predicted—higher inflation and higher interest rates—and people have suffered.
That is, sadly, why this legislation is needed. If the rate of inflation were way down in its proper zone of 1 percent to 3 percent—sitting at around 2 percent—this situation would not be so critical. The difference between a 90 percent and a 100 percent CPI adjustment when the inflation rate is only 2 percent is not great, but when inflation is up at the level that this Labour Government has it at, CPI adjustment becomes an important issue. The bill has some quite complex mathematical calculations in clause 3 around those whose next adjustment to their payment rate occurs before or after 1 April 2009, but, apart from some of those complexities, it is a reasonably simple bill. It brings the adjustments up to 100 percent for all people who are dependent on those schemes.
National will support this bill. In some ways it is sad that we have come to the point where inflation has got so high that the difference between a 90 percent CPI adjustment and a 100 percent CPI adjustment is significant. A lot of people are affected by it, obviously, because the estimated cost of the change in 2009-10, as the Minister has said, is over $33 million.
Dr the Hon LOCKWOOD SMITH Link to this
Well, it is an interesting issue that if one looks at the Treasury documents that were provided for the Minister himself—the exact advice from the Treasury—one sees that it has to come into the Budget in 2009-10. It has to pick up that full $33.2 million, but the unfunded liability is unknown. The extent of the full unfunded liability is not known.
Dr the Hon LOCKWOOD SMITH Link to this
That is only a guesstimate, obviously, for the unfunded liability. But it shows that, given the rate of inflation and the projections, this is a significant difference. That amount of money shows that it will be significant to the people affected. I repeat that National will be supporting the move, and it looks forward to those who will benefit from it deriving the benefits.
CRAIG FOSS (National—Tukituki) Link to this
I have been speaking quite a bit tonight, and today, on various finance bills, so I hope there is a free run tomorrow. I hope that “Mr Whip” and Dr Cullen can finish up, on these finance bills, as it would be most appreciated, and that we will get this one through quite quickly early tonight. As my colleague just said, yes, National is supporting this bill with a very brief change to the indexation and a change to the algorithm, which was written in incorrectly but assumed to be correct over many years. I missed the first reading speech, but I have just picked up that there was a $33 million cost to the change of—
—the liability due to the change in funding from 90 percent to 100 percent. That is fine. I also note that it was announced in Budget 2008, so that was all on the Table at the time.
I have spoken twice now to the Government Superannuitants Association at its annual conference, and I enjoyed the conference recently, about 2 or 3 weeks ago, when I was there. When I spoke the first time, I think the consumer price index adjustments at that time had been talked about and promised by the Minister to go from 80 percent to 90 percent.
The Government did that; that is correct. But I have a question for the Minister, because at the same conference I was shown a demographic profile of the association’s members, who have been asking for this increase for quite some time. Many of the receivers of the annuities, or their spouses, have been quite elderly and so, unfortunately, demographics have meant that many have fallen from the scheme and are no longer receiving annuities. So I ask the Minister whether the quantum has actually changed—has the total amount changed, even though the consumer price index adjustments went from 80 percent to 90 percent, and now are going from 90 percent to 100 percent? The Minister has said that the liability has changed, so I presume there is an increase in benefits. I acknowledge that, then, and thank the Minister for the information.
I notice, though, that in my last speech—I suppose it was late 2005 when I spoke there—I acknowledged that the Minister had announced that increase prior to the 2005 election, and I predicted at that time that prior to the next election he might also announce an increase to 100 percent of the consumer price index, which he consequently has done. So that is all very good. In 2011, I wonder which Minister will announce that the adjustment will go to 110 percent, but, anyway—
My colleague talked about inflation as the underlying problem here, and that is true. This particular organisation has two issues, one of which I will touch on in a minute. But another cost there, as my colleague has said, is the underpinning of inflation from the fiscal spend-up, etc. The cost, although small—even when we go from 90 percent to 100 percent, the higher inflation is, the higher interest rates are—has more impact on members of the superannuation fund once they receive their annuities. As we learnt at the conference the other day, the adjustment of the consumer price index for the following year is announced in late January, but members do not receive their first payment until the first week in April, so they have a small cash flow issue there. The change is of course dependent on inflation at the time. The time period is only 2 months—I acknowledge that—but many of these people are struggling, none the less, and they do feel hard done by in relation to other issues they are quite strong advocates on. The Consumers Price Index used to be announced in early to mid-March and they would be paid on the first payday in April. As our collection of information and statistics has become more efficient, the announcement is now coming out in mid-January. Therefore, they feel that they should have their payments as soon as possible after the announcement of the consumer price index rather than just on the old date they are stuck with at the moment.
I understand that Treasury is doing some work on some of the other issues around this Government superannuation scheme—from when it moved from “exempt/exempt/taxed” to “taxed/taxed/exempt” in 1990—and I will touch on that now. I reiterate what my colleague Lockwood Smith just said—that National will be supporting this bill, and that it will go through its first reading quite rapidly, I am sure.
But I acknowledge the other issue that the members of the Government Superannuitants Association are particularly strong advocates for. Their argument is that when their annuities were repriced in 1990—
—ha, ha!—a 33 percent tax rate was used, and they are concerned that any changes in personal income taxes may undervalue what they signed up to back then. My point—and I made this point to them at their conference—is that that has not really been an issue for 9 long years, because personal income tax cuts have not been on the cards for 9 long years. So it is obviously a more pertinent issue to them at the current time, with the tax changes announced in the recent Budget, and of course with the National Party’s programme for personal income taxes that will be announced in a few weeks’ time.
No, it is certainly not. I am just acknowledging the issues, which are quite publicly known. The Minister acknowledged that he is a member of the Government Superannuation Fund, as are some of my colleagues, and that is all fine. Members have been strong advocates for that change, and it has been mentioned in their newsletters for many, many years. It has been relayed to me, and I understand—and I would like confirmation—that Treasury is doing some work on this issue: costings, etc., and an investigation. It will be interesting to see how far down the track that work has progressed.
On that note, I will finish. National will be voting for this bill. It gives a further incentive for the Government of the day to keep inflation down, and therefore to keep interest rates down, so that people who have done the hard yards and contributed to a superannuation scheme, such as this one, will get as good and as high-value an entitlement as they believe they should get. Thank you.
PETER BROWN (Deputy Leader—NZ First) Link to this
I am keen to hear what the National Party people have to say on this bill.
They are awake; that is good. I did not sense one iota of enthusiasm for this bill from National members. It was almost as if they had their arm twisted up their back and thought they had to support this bill, but did not really want to. The Hon Dr Lockwood Smith said that if we did not have high inflation, we would not need this bill. That is a preposterous statement. [ Interruption] That is what the member said. He went on to talk about higher productivity. I spoke to a National Party member, not an MP, not that long ago and he told me that productivity is a measure of output over cost. If we take that measurement it means the lower the cost, the lower the wages and the higher the productivity.
New Zealand First is much more influenced by people like the young New Zealander who said to me that the reason he was going to Australia was that for the same amount of effort, the same amount of determination, and the same amount of conscientiousness he would be paid more and would have a better lifestyle and better working conditions. That is why our people are going there. It is nothing to do with productivity. They work just as hard in New Zealand as they do in Australia. New Zealand First supports this bill wholeheartedly because it is fair, it is just, and that makes it necessary. Thank you.
Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this
Tēnā koe, Madam Assistant Speaker. The concept of superannuation is entirely consistent with our commitment as the Māori Party to kaupapa tuku iho. These kaupapa, statements of principles and aspirations, are absolutely central to every decision we make in and outside this House. These kaupapa drive our decisions, and they inform our kōrero. We will not be bought; we will not lower ourselves to the level of personal attack; we maintain a commitment to integrity as utterly fundamental to who we are.
So we turn to our kaupapa to consider the position of our elderly in the context of whanaungatanga and in a determination to uphold manaakitanga. Caring for the well-being of our elderly is a value of enormous importance in our communities. Our elderly, the fountains of wisdom, those who possess the vital archives of family records and who span the generations, are regarded as genuine treasures.
So it was extremely disappointing early this year to read the release from Grey Power, which indicated that superannuitants were being let down by the current administration. The release put out by the organisation, comprising some 90,000 members, stated that it is very disappointed that the Prime Minister has rubbished a proposal to exempt food from GST. Superannuitants, Grey Power said, are very adept at making every cent of their national superannuation count—
—it is all right—but ever-escalating costs for essential items such as bread, milk, meat, and electricity are making further belt-tightening impossible.
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
Dr Sharples, it is a problem. It is not really focused totally on this bill. It is focused on superannuation but not on the Government Superannuation Fund. Please keep going.
We in the Māori Party heard this call, and we believe that our proposal to cut GST on food is a tangible way of making a difference in the lives of the elderly.
OK, I will move on to that superannuation stuff. We are pleased that this bill is trying to respond to the needs of our superannuitants through the commitment to address the cost of living adjustments to the Government Superannuation Fund. The bill seeks to ensure that all Government superannuation benefits are adjusted based on 100 percent of the changes in the consumer price index. It has to be said that it is pleasing that superannuation is being described as enhancing the lives and well-being of people, because it is only a few months ago that the superannuation fund was linked with companies that invest in cluster munitions, nuclear weapons production, and that is not all. [Interruption] They do not even like that bit.
OK.
The bill will ensure that as at 1 April 2009 the cost of living adjustment provisions will come into effect and make a tangible difference in people’s lives—are the members all right with that bit? We absolutely support this initiative and believe it only right to do so. But we want to raise the issue identified by economist—those members will not like this—Dr Susan St John. She has made the comparison between the granting of superannuation and the lack of secure, reliable income for all children. Her assessment is that although citizens over 65 can rely on superannuation—and with this bill, of course, it encompasses cost of living adjustments, as well—the same security does not extend to all children. We in the Māori Party agree with this principle—those members do not like that, so I will move on.
Finally, I raise the issue that we have consistently raised when considering superannuation, and that is the obvious concern that the shorter life expectancy of some population groups has immediate implications for the length of time they can enjoy the benefits of their tax contribution, especially superannuation. We know that Māori die 8 to 10 years earlier than other New Zealanders. The issue of justice that always hits us is that those people, like their Pākehā peers, have been paying taxes all their lives, yet when they finally get to the end of their lives they are missing out on seeing the fruits of their contributions.
Our position as a party has always been that superannuation policy should be reviewed to consider the appropriate entitlement age for groups whose life expectancy is lower than average. It is an idea we hope to revisit in the next Parliament, but until then we are happy to support this bill in the interests of supporting our elders. I have finished. Kia ora.
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
I am sorry, Dr Sharples; can I just explain. It is actually very confusing for people who are listening. The bill is called the Government Superannuation Fund Amendment Bill, but it is not necessarily about what people generally think of as superannuation. It is about a very specific group of people. So I am sorry; you were taking off, and I was trying to bring you back to the point.
TIM GROSER (National) Link to this
I did not expect to be asked to take a call on the Government Superannuation Fund Amendment Bill when I came down to the House tonight, because I have deliberately recused myself from any involvement in this issue as I have at least two conflicts of interest. The first is that I think my now very elderly mother is a beneficiary of this legislation, and, second, I, of course, am a beneficiary of the Government Superannuation Fund generally, although we are not discussing the fund.
In response to the comment made by the member opposite, I say I am very pleased to see this bill proceeding. I think this issue has been a very, very obvious anomaly that has affected a group of very much at-risk people in our community. Primarily they are very elderly people and primarily they are women, as a consequence of simple demographic facts and their social consequences. Many of them, as the Minister will be aware, are people who are living in quite straitened circumstances. For them, the increase and the additional sum of money, although it may not sound a great deal to other New Zealanders, will be deeply appreciated. In the informal discussions—precisely because of my conflict of interest on this matter—with David Swallow and David Thorp, I have been made aware of an emotional issue that is involved here. The issue was not just about the money involved; it was also about the perception of those people being wronged. So tonight I am very pleased to support this bill.
In terms of my own position on the Government Superannuation Fund scheme, I say I am a beneficiary of the scheme. To be perfectly frank, I am very pleased that at the age of 23, when I threw in a doctorate to join the Public Service for reasons of financial need, I was not given the choice of whether I would save for my retirement. Through the vicissitudes of life—and yes, I have had one or two little sideways steps on the way to getting here—it has proved to be probably the best decision I was never asked to make at a very young age. It is an age when people are not all that competent, no matter what their academic training or professional expertise is, to make decisions about their own financial futures 30 to 40 years hence. That has always informed my own personal views on all issues to do with superannuation and savings schemes. I will not go further than that, or else we would get into some very dangerous territory.
I think that there is very little understanding in our community generally about the Government Superannuation Fund. It is probably seen by many people—and, I think, absolutely inaccurately—as some kind of benefit that is being given to people who have served the public as members of the Public Service in a wide variety of fields. Those fields are as diverse as that of my father, who was a radio and TV actor until he became the head of radio drama, when he joined and subsequently became a beneficiary of this scheme, ranging through to that of my own background. A huge number of different New Zealanders have made their contributions to the Public Service over the decades and have been contributors to this scheme.
The key point is that the scheme is a contributory scheme, but it was set up on appalling principles originally. They were the classic “fly now, pay later” principles, in which the contributors, like my father and like myself in an earlier phase of my career, made contributions to the scheme with no matching contribution from the Government whatsoever. I am very pleased that that mess was cleaned out subsequently. It required quite radical change, and I think it is perfectly understandable that some technical errors were made. It is with a sense of regret that I see it has taken us as long as this to address this final step. I am a little surprised by the Minister’s estimate of the cost. I had thought that the earlier adjustment from 80 percent to 90 percent was in the order of $7.6 million, but I take the Minister’s statement that the cost is rather higher than that.
But essentially I just stand to support this bill. I think it is absolutely the right thing to do. A number of elderly New Zealanders will be pleased to see that a very longstanding anomaly is finally being corrected and corrected for good. Thank you.