Doing nothing about super

Sensible, prudent and fiscally responsible – National markets itself as a party leading a government responding to economic challenges.

But it has a super-sized problem – a problem it refuses to deal with because of short-term political expedience.

New Zealand's superannuation bill last year was $8.8 billion.

Fastforward four years and this bill will be about $12.3b.

What is the Government's response? Well, it hopes the economy will grow.

As Labour leader David Shearer pointed out in the Budget debate, the chances are good this hope will not become reality.

"The minister of finance promised in 2009 to deliver real GDP growth of 1.5 per cent over the last three years; he delivered 0.6 per cent," Mr Shearer told Parliament.

"In 2010 National projected real GDP growth of 3.1 per cent a year, and it delivered 1.3 per cent.

"In 2011 National projected real GDP growth would rise to 4 per cent per year, and it delivered just 1.1 per cent."

So why, he wondered, would Finance Minister Bill English's projections work out this time?

The projections do not really belong to Mr English, of course.

They are made by experts, though economic forecasting and management seem to have become more difficult since the global financial crisis. It's like trying to forecast the weather when something has made the model go haywire. The experts predict sunnier times ahead, but their text books and formulas are looking dated and they know not where to turn.

What should be done amid international economic volatility? Nobody knows.

The Government, meanwhile, is banking on economic improvement. The forecasts feel optimistic, but what is more telling is that National would rather focus on growth than deal with the looming reality of an unsustainable superannuation burden.

Economic growth is not really controlled by the Government. The level of growth or decline is influenced by the state, which can try to create the right environment for businesses to prosper.

One thing the state does directly control is its spending.

Why then is it doing nothing about the nation's increasing superannuation bill?

Why does the Government refuse to entertain obvious responses such as raising the age of entitlement for superannuation?

Why does it regard the super debate as a mere "distraction"?

The answer is that Prime Minister John Key promised before the 2008 election to keep super at its current level and not to raise the age of entitlement. He pledged to resign if he backtracked.

Now, the global financial crisis may have turned this promise into fiscal folly, but Mr Key won't eat humble pie. Ageing population and economic difficulty or not, a fiscally responsible super policy is out of the question. So, while Mr Key holds sway, we're stuck with generous spending in one area and cuts have to be made elsewhere.

It's not that the Government is naive or ignorant of population demographics; it is burying its head in the sand on purpose.

In April last year, Treasury warned about the perils of rising pension costs. GST would have to rise to 19 per cent, or personal taxes would have to increase by $30 a week from early next decade – or the Government could slash total spending by about 7.5 per cent from the early 2020s, Treasury deputy chief executive Gabriel Makhlouf told a Wellington audience.

Back in 2009, Treasury warned the Government to peg superannuation costs or other public services would suffer.

The Government remains committed to its course, however, and appears not to mind if this results in inter-generational unfairness and warped budgeting.

It remains hopeful of brighter days, but if international markets, and therefore our economy, refuse to come right in the next few years, the Government's brand will suffer.

It cannot continue to paint Labour as a party of reckless spending while doing nothing about big super costs. If the credibility gap is not obvious to voters, it will be obvious to Treasury, credit agencies and the media.

So far, the Government has made cuts where it is easy to make cuts, but it has done little to rebalance the economy.

Perhaps tinkering and hoping for the best are its ongoing strategy.

* Grant Miller is the Manawatu Standard's head of content and a politics junkie.

Manawatu Standard