What do Millennials owe Baby Boomers?

Last updated 11:38 22/04/2016

No one under the age of 40 should assume that there will be a government pension waiting for them, writes Mike Scott.

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New Zealand is facing tough decisions. Don’t be fooled by the wafer thin political surplus or balanced budget, New Zealand has some very big decisions ahead that cannot be put off indefinitely.

The budget is being supported by the massive immigration we have at the moment, but Auckland cannot keep adding a city the size of Napier to it every year indefinitely.

Auckland is already running out of room, houses and infrastructure and is log-jammed. Did you enjoy the city commute this morning?

Migration is masking the threats to the revenue side of the ledger. Dairy and other commodity industries are on their knees, and every country in the world thinks tourism is the saviour to the world slow down. Meanwhile, the expense side of the ledger is about to face exponential growth pressure as the baby boomers age and retire.

A cost that will fall to their children, the Millennials, those born between 1980 and 2000. The same generation that is currently being excluded from the housing market, and, according to some research, the first generation to be unlikely to enjoy the same prosperity and standard of living as their parent's generation 

* Millennials: Pampered selfie-takers or the super-savvy generation?
Why I hate the Baby Boomers 
Expat Baby Boomer thinks of home 

An already overloaded and strained medical system is about to be placed under a whole lot more stress as both the Baby Boomers age, and presumably require more care, and expect longevity with expensive science and medical advancements. The cost of the medical system in Australia is already running at 5 per cent more than inflation.

New Zealand will need to choose whether to fund this additional cost through increasing taxes, such as a capital gains tax or increased income or consumption taxes, or whether to prioritise medical care.

If we prefer prioritisation of medical services then perhaps, by way of example, retirees may have to either fund their own joint replacement from their assets or go without, as prioritisation is about focusing resources on maximising value, and future tax payers have more value than past tax payers. Retirees will argue that they paid their taxes, and many did, and are, therefore, entitled to state services, but the reality is that as a nation we are not paying enough.

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Similarly pension costs will soar as the Baby Boomers retire and live longer. Treasury released a report, its third Long Term Fiscal Outlook, that repeats its warning to future governments that net debt will blow out to an unsustainable 198 per cent of GDP by 2060 because of the increased costs of pensions and healthcare from an ageing population, unless government change their spending or revenue. Greece’s debt was 175 per cent of GDP in 2013. Presumably Baby Boomers do not want to leave the country bankrupt as their legacy to their children.

No one under the age of 40, or perhaps maybe even 50, should assume that there will be a government pension waiting for them. Just ask the Greeks.

Instead, an amped-up KiwiSaver, similar to Australia, or social security account, similar to some Northern European countries, should be considered to move the burden of retirement from the next generation to an individual responsibility, particularly as many skilled and educated from the younger generations will need to earn some of their money and pay taxes overseas.

We have already chosen to prefer migration over our children and younger and future generations. It is rapidly becoming impossible for young people to afford a home and raise a family, particularly in Auckland, without foreign earnings and savings. As Auckland median house prices go past $900k, Auckland has by some measures become the least affordable city in the world, which does not bode well for young and future generations.

Quit the online anti-Baby Boomer rhetoric 
The joys of being a millennial in a Baby Boomer world
More NZ retirees will become homeless without action on housing 

Goodness knows how Auckland will procure future teachers, nurses and police if they cannot afford to live in the city, unless there is a dramatic increase in their pay and, yes, therefore more tax.

What is clear is that Millennials will soon outnumber Baby Boomers. Totally unloved and ignored by this Government, Millennials will eventually take control of the nation from the Baby Boomers as described in the linked article above, and it is unlikely that they will be content living an inferior life to their parents, as much research suggests, loaded with debt, with poor employment and earnings prognosis, residing in poor and often squalid rented accommodation, paying rent to their parent's generation while they work their backsides off to fund the retirement and wellbeing of their asset rich parent's generation.  

The discontent of the young is growing.

Just look at how Bernie Sanders has tapped in the Democratic Party primaries, with the frustration of the younger generations at being locked out of the life that their parents enjoyed. While the young voting generation is still a minority, it is just a matter of time until they become the majority and even up the discrepancy between generations.

The Baby Boomers, to whom this Government pander to so much, want subsequent generations to load up on debt because it not only provides themselves with large proceeds from the sale of overinflated assets, but it means the next generations have to work so much harder to pay down the debt and pay, therefore, more tax to support their costs.

Perhaps younger generations should or will reject this expectation, and instead of the debt ball and chain, will take their education and skills to where they can best prosper, leaving the most unaffordable city in the world, Auckland, to retirees and immigrants.

I appreciate many people are not able to comprehend future challenges and structural changes, and will probably provide degrading comments of denial below, and look for candy and instant gratification at the next election.

But like it or not, tough choices for New Zealand are coming, and the changing demographic will most probably have a large say on the choices. If we don’t look out for young and future generations, then we should not expect the reverse when their generation becomes the majority. Enjoy your pension while it lasts.

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