Episode 44- Economist Susan St John on rethinking Superannuation.

THE SUNDAY LONG READ (OR LISTEN ).It’s time to face the fact that our superannuation scheme is unsustainable. So what could we do to fix it? Associate Professor Susan St John has a viable answer. Listen to the podcast or read the transcription below.Bryan:Hello I’m Bryan Bruce, welcome to Head2Head. Today I’m catching up with economist Susan St John who is an Associate Professor at Auckland University, a founding member of the Child Poverty Action Group here in New Zealand, but these days is engaged and work nearer the end of life than at the beginning . Welcome to my aging world Susan!Susan:Welcome to you! (laughs)BryanWe've got rising costs of aged healthcare and superannuation and we need to be deciding what we're going to do about that because the costs are fast becoming unsustainable. Talk me through this problem. How did we get here and what do you suggest we do about superannuation?Susan:Yes, well you're right. As we look out we see that the costs for healthcare and for pensions are going to rise very steeply and they're doing that at the expense of other things. So if we think about The Welfare System as a whole, and the money that we've got to spend on all parts of the demographic spread, we're spending an inordinate amount at the top end without any questioning of it. And in the meantime what's happening is that what we're doing for working aged, and for children, has become incredibly mean, and less satisfactory over time and is getting worse. So it's contributing to the wealth divide that we're seeing emerging very sharply in New Zealand.Bryan:Thanks to the neoliberalism and the economic reforms of the 1980s and all of that ! So, we're here now. You did a working paper just recently on Superannuation as a basic income, universal basic income treated as a grant. Why should we change to that kind of system?Susan:Well there's some very good things about New Zealand Super. Of course it is going to be too costly and we'll have to do something about it, but the tools that we have to do some changes to Super are limited and they've got enormous costs. So we can talk about raising the age of eligibility and that's going to impact on an awful lot of low income people and disproportionately on Māori and Pasifika and so on, and it's not a quick fix. And we can talk about lowering the level of it and it's just going to create more poverty and we're seeing poverty emerge amongst the older age group now. So what else is there? It's some sort of surcharge, basically an income test which would have the effect of clawing back from the very top end where superannuation is a drop in the bucket, it doesn't matter in terms of well-being or anything else at that end, and there's potential to save significant amounts of money and to do some very useful things with that money.The idea of paying a grant is because we don't want to throw the baby out with the bathwater. We want to retain the very best aspects of New Zealand's Super so everyone is entitled to this basic income. It's an opt in. It’s like it is at the moment and if you opt in you get this grant, and for a person that would be about $21,000 as a nontaxable grant equal to what they would get today; and then the counter to that is that if you have opted to take that, your other income is taxed on a separate text scale and the way that is designed determines how quickly you can claw back that $21,000.Bryan:OK, so the wealthier you are and the more money you make the less you become eligible for this grant?Susan:No you’d be eligible for it in full that's thing. It is a basic income, it's there for everyone now you don't have to opt in and many people might think, by the time I pay this extra tax I may as well not bother, and particularly people in well paid jobs at 65 might defer their application, it's still there if they want it. The point of a basic income is it’s there if your circumstances change, it is an unconditional income there to support youBryan:So it's not means testing necessarily?Susan:It's a form of means testing as a broad term, which includes asset testing. It’s the sort of thing they do in Australia, and when you look at the draconian sort of means test they have on their age pension New Zealanders wouldn't have a bar of it . We want something more moderate I suggest. We did use the wealth surcharge and it operated for 13 years, and this idea is somewhat similar, in that if you have a lot of other income you pay a higher rate of tax.Bryan:You sometimes hear politicians say, “We're just going to have to raise the age at which you get the pension.” What's wrong with that?Susan:Well you hit the wrong groups. You have to really ask yourself what is the problem we're trying to address? And the problem is, of course, that people who are in well paid jobs and maybe millionaires can get it at 65. But if we address that problem by raising the age for everybody then you capture multiple people who are in no position to wait ...