Divided We Stand: An Accord May Not Be Possible, but Progress on Retirement Poli

Listener 15 November 1997.

Keywords: Social Policy;

That 92 percent of voters rejected the proposed Retirement Superannuation Scheme tells us just how out of touch officials are with the public. Instructed to devise the best possible scheme, they chose a privatisation of New Zealand Superannuation akin to ACT’s 1996 election manifesto proposal. Despite a massive advertising campaign, support barely exceeded the ACT election share, indicating just how ill-advised the proposal was.

The option put before the voters was so different from the NZ First scheme – a supplement to existing arrangements, not a replacement of them – one wonders whether the officials had their scheme planned for the incoming government. Given the inability of our politicians to resist extreme policies, we might have ended up with the privatised scheme, had there been a majority single party government and no referendum. That is, after all, what happened with the ill-conceived health reforms.

One would like to believe that an outcome of the referendum is that the officials now accept there is a mandate for the existing universal, flat rate, tax funded, pay-as-you-go scheme, a mandate which should last at least a generation. Certainly there are economic problems two decades away as the elderly proportion of the population rises, but nothing which cannot be overcome by the application of a common sense which the design team apparently lacked.

There are calls for the political parties to agree to a common retirement policy, reviving the Accord of 1993, because long term policy for the elderly is too important to leave to the whims of short term politics. Maybe so, but the politicians are reflecting our disagreements. While there may be overwhelming support for the idea of an accord, any referendum on what it should contain would reveal major disagreements among the public.

Indeed there was much less accord in the 1993 Accord than was popularly thought. New Zealand First was not a signatory, and the Alliance had a quite different interpretation of the surcharge on additional income. The essence of the Accord was agreement between Labour and National. That broke down in 1996 when Labour changed its surcharge policy.

In 1993 there was the FPP electoral system so Labour and National were confident that one of them would be the government in the future. Think of them as a couple of firms disputing over market share. FPP meant there were no serious competitors – at most a few minor parties with a handful of seats. In economic terms it was a duopoly (a market with two significant players). The duopolists could do a stable deal on retirement policy.

By 1996, MMP had replaced FPP, and the two large parties had no certainty of dominating the market. MMP makes the political market contestable, with relative ease of entry (and of exit). Who three years ago thought of ACT as a viable party? We cannot rule out a new significant party in the 1999 elections (nor one of the existing parties electorally exiting). Labour faced a challenge in its political market for voters in 1996, especially from NZF with its electorally attractive policy to end the surcharge. So Labour responded (as might have National if it not been lumbered with being the government and keeper of the existing policy).

The parties were trying to represent the wishes of the electorate. But because the electorate is divided, the competitive electoral process creates opportunities to offer different policies. Suppose there was no ACT party today. Some political entrepreneur would observe that about 8 percent of the public (more than the MMP threshold) favoured a privatised scheme, and would seize the opportunity to form a party which could win seats.

This competitive electoral process means there will no true accord (although we may expect a lot of cynical manoeuvring by the parties over one). But it is our fault, not the politicians. Once a substantial majority agree on retirement policy, a significant accord will be fall into place.

Now a substantial majority has voted for the existing scheme. So there may be place for child of the 1993 Accord. This would involve the signatories (probably most, but not all, of the parties) agreeing to a universal, flat rate, tax funded, pay-as-you-go, scheme. It may be agreed that the age of entitlement would be 65, and the basic minimum be 33 percent of the average wage for each beneficiary (much like the current system). There would be the usual platitudes on the need for private retirement provision, and there might be some all-party monitoring (as the Todd group has been doing this year, but on a continuous basis). Little else could be agreed, and there would probably be differences (or weasel words) on an income surcharge, on income supplements, and on second tier occupational strategies.

That would give the population some sort of guaranteed minimum provision to plan their retirement, which is really what they want from an accord. We can then get on to our private provision. Meanwhile there would be opportunities for party policies to offer improved conditions above the agreed minimum, reflecting our diversity of views and interests.