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Wadestown, Wellington
New Zealand

Michael Dunn is the Managing Principal of Economic and Fiscal Consulting Limited (ECOFISC) which he founded in 2008. Michael has more than 20 years of experience in economic analysis and modelling, in revenue and fiscal forecasting, and in advising Governments in New Zealand and globally. 

Blog

Blog for "ecofisc" as the trading name of Economic and Fisacl Consulting Limited, Wellington, New Zealand. Pricipal author Dr.Michael Dunn.

 

Estimating the fiscal cost of United Future's priority policies

Michael Dunn

The United Future Party have four quantifiable policies among their election priorities.  These include:

  • Taxable income splitting between parents of dependent children, the fiscal cost of which was estimated in an official Government discussion document released in 2008 at $160 million per year if restricted to parents with a child up to age 5, and at $370 per year for all parents with a child up to age 18 (note that we consider this to be a tax cut policy);
  • The adoption of compulsory KiwiSaver, which we consider to be the same as Labour's universal KiwiSaver, with a fiscal cost of $374 million over the relevant three years;
  • Advance indexing of New Zealand Superannuation, based upon estimated inflation / wage growth, which we estimate will add 2% to the $12.5 billion average annual cost of NZ Super, amounting to $250 million per year, or $750 million in total over three years;
  • Flexi-Super, allowing people to take up New Zealand Superannuation from age 60 onwards at reduced rates, from age 65 at the standard rate, or from an age up to 70 at increased rates, in a fiscally neutral manner over the long term, but with a transitional cost - we estimate this below.

Fiscal cost of the Introduction of Flexi-Super

We assume:

  • an average standard annual payment net of tax of $16,120 (this is between the current single living alone rate and the partnered rate);
  • on policy introduction, 20% of those between ages 60 and 64 will elect to commence NZS early - at reduced rates, averaging 80% of the standard rate;
  • in future years, 20% of those reaching 60 will elect to take early NZS;
  • year by year, 40% of those reaching 65 without having taken up NZS will elect to defer NZS (for at least 3 years).

We calculate (using latest SNZ population estimates as at 30 June 2014):

  • 49,000 people age 60-64 elect to take average 80% of standard NZS at inception, fiscal cost $632 million
  • 9,600 people age 65 elect to defer NZS in inception year, fiscal saving $155 million
  • each year after the first, the number of 60-64 year olds with early NZS is unchanged
  • each year after the first, 7,680 more people reaching age 65 without having already taken up NZS elect to defer NZS, fiscal saving $124 million
  • the three year fiscal cost is 3 x $632m - 3 x $155m - 2 x $124m - $124m = $1,059 million.