The means testing of National Super argument again

National Superannuation is ‘universal’ – everyone from age 65 is eligible to receive it. While you don’t have to apply for it, presumably most people do once they turn 65.

The argument of whether it should be means tested keeps coming up, and it has recently.

RNZ: NZ Super costs up as NZ retirees on $100k passes 30,000

The number of New Zealand retirees getting their superannuation while earning more than $100,000 has topped 30,000 – costing taxpayers more than half a billion dollars each year.

Their table shows that as of 2017/18 that there were actually 31,048 people getting NZ Super.

Retirement Policy and Research Centre director Susan St John said the numbers were really an underestimate.

“It doesn’t count PIE (portfolio-investment entity) income and it also of course doesn’t count the capital gains many in those brackets will have enjoyed.”

Economist Shamubeel Eaqub said the figures weren’t surprising because a lot of people were continuing to work later in life and many had accumulated large amounts of wealth.

He wanted Super to be means tested – related to wealth and income.

He said based on the current fiscal year, and on the average Super payment being $19,592, not paying it to people on incomes of $100,000 or above would save taxpayers around $608m.

But $608 million is just a gross amount. For people on high incomes their Super will be effectively taxed at the highest rate of 33%, which totals about $200 million, so the net cost is $408 million – still substantial but well short of half a billion dollars.

An average Super payment of $19,592 surprises me. Here are the current rates:

  • Single: living alone $21,380
  • Single: Sharing $19,735
  • Married, civil union or de facto: one partner qualifies $16,446
  • Married, civil union or de facto: $16,446 each
  • Married, civil union or de facto couple: one partner qualifies and the other is included $15,631.50 each

A lot of people 65+ must be single. That will be more likely the older they get.

If the NZ Super is spent then much of it it will be taxed at a further 15% (GST).

People earning over $100k will be paying more tax than they receive in Super. Tax on an income of $100,000 is $23,920 which is more than nett Super (taxed at 33%):

  • Single: living alone $21,380 less 33% is $14,324.60
  • Single: Sharing $19,735 less 33% is $13,222.45
  • Married, civil union or de facto: $16,446 less 33% is $11,018.82

The point also often made that people earning larger incomes from age 65 are likely to have earned high incomes – and paid a lot of tax – over their lifetimes.

But this is all theoretical. There is no sign that Parliament or parties have any inclination to introduce means testing of National Super – especially in an election year.

Another approach to limiting the rising cost of Super is to increase the age of eligibility.

At the last election party policies were:

ACT

  • Raise the retirement age. Starting in 2020 we will raise the age of entitlement to Super from 65 to 67, at a rate of two months per year, finishing in 2032.
  • Trim back overly generous entitlements such as pensions after only ten years’ residency.
  • Read more here.

Green Party

  • Maintain universal New Zealand Superannuation for all New Zealanders 65 years and older, adjusted annually in accordance with movement in the Consumer Price Index.
  • The rate for a couple cannot fall below 65% of the average ordinary time weekly earnings or exceed 72.5 % of the average ordinary time weekly earnings.
  • The rate for a single person living alone is 65% of the rate for a couple, and the rate for a single person not living alone is 60% of that for a couple.
  • Identify ways to allow flexibility in the age a person may receive New Zealand Superannuation.
  • Oppose compulsory retirement savings.
  • Read more here.

– last year National proposed lifting it to 65 (by 2037).

Labour

  • Maintain the Superannuation age at 65, maintain Superannuation with inflation adjustments as at present, and restart contributions to the Super Fund.
  • Review the legislation around superannuation portability.
  • Read more here and here.

Maori Party

  • Amend existing retirement policy to enable all eligible retirees to take their superannuation at the full rate, earlier than the current eligibility age of 65 years.
  • Review and reset the eligibility criteria for accessing superannuation for Māori and Pacific and consider lowering the age to 63 until life expectancy outcomes for Māori and Pacific are the same as for non-Māori and non-Pacific.
  • Read more here.

Those proposals would increase the cost of Super, possibly substantially.

National

  • 750,000 superannuitants will receive a further increase on 1 April on top of their normal annual increase, with the couple rate going up by a further $680.
  • 15,000 superannuitants with high housing costs will benefit by an average of $1508 a year from 1 April 2018 from the changes to the Accommodation Supplement from the Family Incomes Package.
  • Increase the age of entitlement for New Zealand Superannuation from 65 to 67, starting in 2037.
  • Committed to resuming NZ Superannuation Fund contributions, so that everyone has certainty about saving for their retirement.
  • Tighten residency requirements, so that migrants moving to New Zealand from 2018 have to live here for 20 years before being eligible for Super.
  • Read more here and here.

NZ First

  • Maintain New Zealand Superannuation entitlement at 65 years, as a universal, non-contributory, publicly funded pension scheme with no means-testing.
  • Raise the minimum residency requirement for full New Zealand Superannuation from 10 to 25 years after age 20.
  • Superannuation applicants retain their overseas pensions without any deduction from their New Zealand Superannuation, or from their spouse’s, New Zealand Superannuation.
  • End the labyrinth of bureaucratic complexities and unfairness caused by existing reciprocal pension agreements with other countries; overseas pensions are no business of the New Zealand Government.
  • Restart taxpayer contributions to the NZ Superannuation Fund and end its taxation.
  • Read more here and here.

Parties may or may not amend these policies this year. National restated their intention to raise the age of eligibility last year: National would still raise super age to 67 in 2037 if elected, finance spokesman Paul Goldsmith says

No party has suggested means testing National Super, so perhaps it is a futile argument.

High Court rules loans are not income

I’m surprised this issue has had to go to the High Court to find that loans are not income. Alarmingly, it took over eight years to resolve – if it isn’t appealed.

RNZ:  Solo mum’s loans were not income – High Court ruling

A solo mother of two has won her eight-and-a-half-year fight against the Ministry of Social Development (MSD), which unlawfully tried to argue bank loans and credit cards constituted income.

The Ministry was trying to recover $109,852 from the woman, who has name suppression and can only be identified as ‘Ms F’.

MSD claimed it overpaid her to that amount while she was earning a benefit between 2005 and 2010 because she borrowed from her mother, a finance company and the bank to stay afloat.

But in a High Court appeal released today, Justice Paul Davison ruled MSD was wrong to classify those sources of money as income.

“The bank loans did not truly add to Ms F’s resources as she was required to repay the funds she received,” Justice Davison wrote.

“Bank borrowings by use of a credit card have the same essential characteristics as a bank loan, in that credit card expenditure is to be repaid. Credit card spending is therefore a loan, and is not properly treated as income.”

Justice Davison said it was not for him reconsider the financial advice given to the Authority, only whether it “erred in law in its interpretation and application of what constituted income”.

“The Authority plainly preferred the evidence of the Ministry’s financial analyst and its preference for the evidence of a competing expert is not a matter for this Court to review,” Justice Davison said.

Justice Davison ruled that Ms F was entitled to costs.

More from Catrionna Maclennan at The Spinoff:  Winz is meant to help the vulnerable, not hound them through the courts

In what parallel universe would the agency charged with assisting our most vulnerable citizens cut a mother’s benefit because she borrowed money from her family and her bank to stay afloat?

In 21st century Aotearoa, that is how the Ministry of Social Development thinks it should carry out its job.

It established a massive debt against a woman who borrowed – and repaid – money while she was on a benefit. The ministry then spent years pursuing her to repay her benefit, as it said the loan money meant she was not entitled to state support.

The woman was forced to waste hundreds of hours providing details of her situation to MSD and explaining her finances, at the same time as caring for her children, studying for a degree and trying to start a business to support her family.

She lived outside Auckland at the time and owned a property, which she was trying to hang on to so that her children would have a home. She borrowed to buy paint for the property and to fix a leak to prevent sewage from running through the floor.

The benefit review form did not ask Ms F to list loans.

Ms F also provided detailed information to MSD showing that the loans had been repaid.

MSD’s argument was that the loans, even though they have been repaid, were “income” and accordingly disqualified her from benefit support.

The case went to the Benefits Review Committee and the Social Security Appeal Authority. The amount she was alleged to owe was adjusted several times, so that the figure ranged between $109,852.91 and $127,275.05.

The Social Security Appeal Authority ruled that two bank loans should not have been treated as income, but held that other loans were income and that Ms F should be required to repay $109,852.91.

But the High Court has now ruled that the loans are not income.

This could have wider implications. RNZ: Call for review into ministry’s penalities for beneficiaries getting loans

Lawyers and beneficiary advocates want an urgent review into the Ministry for Social Development’s (MSD) debt recovery programme.

Child Poverty Action Group spokeswoman Susan St John…

…said there was no way debt should ever have been considered a resource.

It was hard to know how many borrowers were affected by the lending restrictions, but Ms St John said every one of them suffered.

“It’s really like just opening up a can of worms.”

Auckland Action Against Poverty spokesman Ricardo Mernendez…

…said over the past few months he had met with many people who were also penalised by MSD for receiving loans.

“At least half a dozen – that’s just people who come to our office in Onehunga there will be many across the country who are in similar situations,” Mr Mernendez said.

Lawyer Catriona Maclennan…

…said the problems went beyond just loans classed as income, with systemic issues around the ministry’s pursuit of money from beneficiaries.

She said Social Development Minister Carmel Sepuloni should step in and immediately stop debt recovery cases that were before the courts.

But this could take some time.

Ministry of Social Development spokesperson Simon MacPherson said the ministry would be studying the court’s decision carefully and thoroughly and consider its response.

Ms Sepuloni said she would not be commenting until she received a report from ministry officials.

I’m surprised it has taken so long to resolve this.

IRD don’t treat loans as (taxable) income. MSD should never have considered loans as income affecting benefits.

Read the full High Court decision here:

 

How much tax do we pay?

The average wage earning or small business person pays quite a lot of tax.

Damien Grant at Stuff: The National Government a Labour PM would be proud to lead

In my small business, for every dollar that comes in almost half of it goes out in tax: GST, PAYE, FBT, ACC and in the event there is anything left over, income tax comes clobbers a third.

So, I was pleased to see John Key elected. National has a set of principles. These include limited government and personal responsibility. They have had nine years to implement their principles. How have they done?

When Bill English became minister of finance government spending was $60 billion. It is now $80b. Sovereign debt was a mere $10b when National took office. It is now $60b. In nine years of relatively unfettered power, National has failed to roll back a single penny of the welfare state, failed to confront the disaster of the Resource Management Act, unwind restrictive building regulations or do anything consistent with their stated principles.

This is a centre-left government Norman Kirk would have been proud to lead.

So how much tax do we actually pay? PAYE has different rates of tax at different thresholds, plus there is ACC Earner Levy. And we get taxed on interest earned or gains in investments – including on our Kiwisaver. And on top of that we get taxed on all the goods and services we pay for.

PAYE has different rates of tax.

  • Income up to $14000, taxed at 10.5%
  • Income over $14000 and up to $48000, taxed at 17.5%
  • Income over $48000 and up to $70000, taxed at 30%
  • Remaining income over $70000, taxed at 33%

Plus the current ACC Earner levy is 1.39% on top of that, up to earnings of $126,286.

Payroll tax:

TaxIncome

Payroll tax plus GST on quarter of income:

TaxIncomeQuarterGST

Payroll tax plus GST on half income:

TaxIncomeGSTHalf

Payroll tax plus GST on all income:

TaxIncomeGSTAll

 

Votes by age and income

Interesting charts showing voting patterns for parties based on the average age and income of the area they voted (most probably live in the same vicinity) – from Age, income, and votes

This gives us an approximate indication of the age and income of those voting for different parties.

Might as well say it: the older and the richer your area, the more likely you are to vote National, and the less likely you are to vote Labour. At the same time, even in their weakest spot, National still score 22%, which indicates just how favourable the ‘baseline’ is to them.

If Grandma is pulling in six figures, odds on she’s not pulling for Winston.

We call it the Swarbrick quadrant.

While Greens have put a lot of emphasis on speaking and advocating for the poor that’s a demographic with a low vote turnout. Perhaps it’s environmentalists who are their well off supporters.

About that concentration of the Green’s in the bottom right… This is not saying most of the Greens vote comes from the young and rich (see health-warnings below). What it’s saying is that the Greens do comparatively better in areas where the population is on average both young and richer.

The specific places captured in those boxes are for the most part Wellington Central and Auckland’s inner west (Grey Lynn, Kingsland).

 

There is also relatively strong support in Dunedin North for the Greens, but I suspect that is less from scarfies and more from staff and their families.

Method

Each of these heat maps shows the relationship between: the percentage of the party vote each party received at each polling place in 2014, and the average age (for the total population, not just eligible voters) and average household income of the StatsNZ Area Unit (read: suburb) the polling place is located in, according to the 2013 Census.

I did the analysis at an area-unit and polling place level because that’s as granular as you can get. But I can’t stress this enough, this is a guide only. All the polling places and suburbs here have a lot of internal diversity, so don’t make too much of the trend. As a helpful tweep pointed put, there’s a lot of ecological fallacy risk here

The underlying data comes from a database I’ve rigged up using information published by the Electoral Commission.

More details, plus heat maps for the minor parties (Maori and Mana tend towards poor,  ACT towards rich and leaning young) in Age, income, and votes.

Dunedin North

I have checked the votes per polling booth for Dunedin North in 2014 and it roughly matches these heat maps.

National did best in more affluent suburbs like Maori Hill (52%), and in rural areas like Hampden, Palmerston, Dunback and Waikouaiti. They did poorly in lower decile areas like Brockville (22%), Port Chalmers (about 15%) and strong university areas.

Labour did well in South Dunedin, Pine Hill, Halfway Bush, Bradford and particularly Brockville. They did poorly in rural areas like Moeraki, Dunback and Herbert.

Greens did well in university polling booths and suburbs popular with university staff like Opoho and St Leonards, and also in alternative living areas like Waitati, plus at Age Concern They did poorly in poor areas like South Dunedin and Brockville, and also in rural areas.

NZ First oddly did poorly at Age Concern, and in university areas and affluent suburbs. They had stronger pockets of support in Brockville, Halfway Bush and Hampden, Moeraki and Long Beach.