Treasury warning on superannuation

The Treasury has warned Finance Minister Bill English the Government must start addressing the pressures of future superannuation costs and it makes a case for lifting the retirement age - one of Labour's policies going into the election.

It also argues the case for less variation in taxing capital, again similar to Labour's election policy of a capital gains tax.

It also argues against interest-free student loans, saying they have discouraged saving for tertiary education and failed to significantly increase access to tertiary education.

The advice is contained in the Treasury's post-election briefing papers to the minister, released yesterday.

Prime Minister John Key has rejected any rise in the age of superannuation while he is leader, but he is coming under increasing pressure to discuss future impacts.

In the hard-hitting advice on superannuation, it says leaving the retirement income settings in place would have to lead to higher taxes, which would harm growth, or large cuts in spending on other areas such as health and education.

It says as the baby-boomers move into retirement, New Zealand's 65 and over population is projected to grow nearly four times more quickly than the total population over the next 15 years, contributing to a rapid rise in health, aged-care and New Zealand superannuation costs.

"The resulting fiscal challenge is considerable and there is no way to avoid making trade-offs," the Treasury says.

"Given the potential economic and social instability that could result from any uncertainty about these trade-offs, we think it is crucial that effort be made to build broad public consensus on the way forward."

It says the current acceleration in the growth of the older population makes it "a matter of priority for New Zealand".

The briefing paper says that on past experience, when the age of super was lifted from 60 to 65 in the decade to 2001, it helped to reduce fiscal costs because people stayed in the workforce longer.

"Early signalling of future adjustments to retirement income settings allows households time to adjust and prepare, and, as a result, can also lead to an earlier impact on savings."

On the issue of taxes, the Treasury says a way the Government could reduce saving and investment imbalances in the private sector was to reduce tax distortions.

"Reducing the rate and variation in capital taxation has the potential to both encourage greater saving and increase the attractiveness of non-housing investments, which should support the non-tradeable sectors of the economy."

Labour introduced a policy of a 15% capital gains tax before last year's election on similar grounds, although the family home was exempt.

Neither National nor Labour supported ending interest-free student loans, which were introduced by Labour just before the 2005 election.