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If I have a reasonable amount of assets that I have accumulated over my life, why should a solo mother who is working, trying to improve the circumstances of her children, be taxed to provide me with superannuation?

If I have earned a million dollars over my working life, but not saved any of it for my retirement, then why should a child doing a paper run to save for university, be taxed to provide me with full superannuation?

If I have not had the opportunity to work during my life, and nor do I have any assets, I would hope to live out my old age in dignity and respect.

If I had worked hard during my life and accumulated assets, but had lost these through misfortune or bad judgement, I would hope that society would provide a safety net to provide me with my basic needs.

The present scheme doesn't differentiate between someone who has considerable assets or is a pauper. It also provides a negative disincentive to save for retirement for a considerable group of people.

The rejected Peters scheme would have forced people to save for their retirement using a narrow range of 'approved' options, and would have been a blunt economically inefficient instrument.

The following proposal avoids these problems, is equitable, economically efficient, provides positive incentives and freedom of choice, but also ensures there is a safety net.

With this alternative proposal above the age of 65, if you wanted to receive government superannuation, you would need to be means tested on both your present assets AND past earnings. More specifically, the means testing of past earnings would be on the potential savings available to individuals as a result of the tax cuts [under National, or avoided tax increases under Labour/Alliance].

If your assets and income were above a specified amount you would not receive any government assistance. (A minimum specified amount of assets could be exempted to allow for continued ownership/occupation of a house).

The amount of assets (in the absence of other income) above the specified minimum asset level, above which no government assistance would be received, would be the amount required to purchase an annuity equivalent to the present superannuation (about $200 per week in 1997$$). There would, however, be no compulsion to actually purchase an annuity.

If your assets were less than the amount required to purchase an annuity equivalent to the current super level (AECS), then the government would 'top-up' your income with a regular allowance. The 'top-up' would be equivalent to the income that could be purchased by the difference between the amount required to purchase an AECS and the greater of EITHER existing assets (excluding the exempted amount) OR accumulated tax cut "savings" (ATCS).

The ATCS is derived as follows: the Inland Revenue Department would keep an ongoing tally of the additional amount of income each individual receives as a result of the tax cuts.

The amount would be cumulatively totalled each year and indexed/multiplied by a 'long term investment index' (LTII).

The LTII would be the average after inflation increase in representative or across the board long term savings mechanisms (bonds, stocks, property, etc.). The ATCS would appear annually on individuals annual tax statements. This would allow individuals to assess the performance of their own investments.

If your assets were less than the amount required to purchase the specified annuity but greater than or equal to your "accumulated tax cut savings" then you would be able to purchase an annuity, get a government top-up, and receive the equivalent of the present superannuation.

If, however, your 'accumulated tax cut savings' were greater than your assets, then the weekly income that you received from the annuity purchased from the assets, and any government 'top-up', would be less than the present superannuation level. As a result individuals would have a strong incentive to save, invest, or set aside the extra income received from the tax cuts for their retirement.

Having the cut-off for the government "top-up" as the greater of either assets or the ATCS would act as a disincentive to save above the ATCS level for people whose ATCS is below (say) $120,000 (as any additional savings would not provide any benefit - the "substitution effect"). One way to avoid this would be to calculate the "top-up" amount from (say) the halfway point when assets exceed the ATCS. There would need to be a maximum limit on what this amount is above the AECS.

There would, however, have to be a minimum amount of government top-up to provide for those who had not been able to save any of the tax cuts that they had received, or who had lost their assets due to misfortune or bad management. (This amount could be set at, say, $1 above the official poverty line).

Individuals make the choice of what they do with the savings available from the proposed tax cuts (pay off their mortgage, invest in their business, buy shares or bonds, bet it at the TAB, etc.) and are individually fully accountable for their actions. They however have a very strong incentive to ensure maximum return on their assets while minimising risks, but are assured that there is a minimum safety net if things do go wrong.

This proposal also avoids the significant transaction costs that the rejected Peters scheme would have imposed on the economy.

The proposal would need to be phased in over the next 20 years by increasing the asset cut off level by 5% each year (inflation adjusted) and decreasing the payments made under the present superannuation scheme by 5%.

A person who has never received an income (and so consequently does not have any ATCS) and has no assets above the minimum level would, above the retirement age, would receive full government assistance of $200 (1997$$) per week.

A person who had non-exempt assets of more than (say) $120,000 and accumulated tax "savings" of $120,000 would receive NO government assistance, as they could, if they chose, purchase an annuity which would provide them with at least $200 per week.

A person who had non-exempt assets of than (say) $60,000 and also had accumulated tax "savings" of $60,000 would receive some government assistance. They could, if they chose, purchase an annuity which would provide them $100 per week. The would also receive a "top-up" of $100 per week, giving them a potential income of $200 per week.

A person who had non-exempt assets of (say) $120,000 but had accumulated tax "savings" of only $60,000 would receive some government assistance. They could, if they chose, purchase an annuity which would provide them $200 per week. The would also receive a "top-up" of $50 per week, giving them a potential income of $250 per week.

A person who had only accumulated (say) $30,000 of non-exempt assets but had accumulated tax "savings" of $60,000 would also receive some government assistance. They could, if they chose, purchase an annuity which would provide them with $50 per week. The would also receive at "top-up" of $100 per week, giving them a potential income of $150 per week.

A person who had not accumulated any non-exempt assets but had accumulated tax "savings" of $90,000 would also receive some government assistance. Following the rules strictly would mean that this person would only receive $50 per week. As this is below the poverty line a specified minimum would be provided.

It is considered that the above proposal is economically, socially and politically rational. The approach described is equitable, economically efficient, provides positive incentives to save, gives freedom of choice as to how those savings are invested, allows for dignity in old age and provides a safety net.



	Original 1997 paper Home QUESTIONS If I have a reasonable amount of assets that I have accumulated over my life, why should a solo mother who is working, trying to improve the circumstances of her children, be taxed to provide me with superannuation? If I have earned a million dollars over my working life, but not saved any of it for my retirement, then why should a child doing a paper run to save for university, be taxed to provide me with full superannuation? If I have not had the opportunity to work during my life, and nor do I have any assets, I would hope to live out my old age in dignity and respect. If I had worked hard during my life and accumulated assets, but had lost these through misfortune or bad judgement, I would hope that society would provide a safety net to provide me with my basic needs. PRESENT SCHEME & THE PETERS' PROPOSAL The present scheme doesn't differentiate between someone who has considerable assets or is a pauper. It also provides a negative disincentive to save for retirement for a considerable group of people. The rejected Peters scheme would have forced people to save for their retirement using a narrow range of 'approved' options, and would have been a blunt economically inefficient instrument. ALTERNATIVE PROPOSAL The following proposal avoids these problems, is equitable, economically efficient, provides positive incentives and freedom of choice, but also ensures there is a safety net. With this alternative proposal above the age of 65, if you wanted to receive government superannuation, you would need to be means tested on both your present assets AND past earnings. More specifically, the means testing of past earnings would be on the potential savings available to individuals as a result of the tax cuts [under National, or avoided tax increases under Labour/Alliance]. SELF-SUFFIENCY If your assets and income were above a specified amount you would not receive any government assistance. (A minimum specified amount of assets could be exempted to allow for continued ownership/occupation of a house). The amount of assets (in the absence of other income) above the specified minimum asset level, above which no government assistance would be received, would be the amount required to purchase an annuity equivalent to the present superannuation (about $200 per week in 1997$$). There would, however, be no compulsion to actually purchase an annuity. GOVERNMENT ASSISTANCE If your assets were less than the amount required to purchase an annuity equivalent to the current super level (AECS), then the government would 'top-up' your income with a regular allowance. The 'top-up' would be equivalent to the income that could be purchased by the difference between the amount required to purchase an AECS and the greater of EITHER existing assets (excluding the exempted amount) OR accumulated tax cut "savings" (ATCS). SAVINGS FROM TAX CUTS The ATCS is derived as follows: the Inland Revenue Department would keep an ongoing tally of the additional amount of income each individual receives as a result of the tax cuts. The amount would be cumulatively totalled each year and indexed/multiplied by a 'long term investment index' (LTII). The LTII would be the average after inflation increase in representative or across the board long term savings mechanisms (bonds, stocks, property, etc.). The ATCS would appear annually on individuals annual tax statements. This would allow individuals to assess the performance of their own investments. INCENTIVES TO SAVE If your assets were less than the amount required to purchase the specified annuity but greater than or equal to your "accumulated tax cut savings" then you would be able to purchase an annuity, get a government top-up, and receive the equivalent of the present superannuation. If, however, your 'accumulated tax cut savings' were greater than your assets, then the weekly income that you received from the annuity purchased from the assets, and any government 'top-up', would be less than the present superannuation level. As a result individuals would have a strong incentive to save, invest, or set aside the extra income received from the tax cuts for their retirement. AVOIDING DISCOURAGEMENT OF SAVINGS ABOVE ATCS LEVEL Having the cut-off for the government "top-up" as the greater of either assets or the ATCS would act as a disincentive to save above the ATCS level for people whose ATCS is below (say) $120,000 (as any additional savings would not provide any benefit - the "substitution effect"). One way to avoid this would be to calculate the "top-up" amount from (say) the halfway point when assets exceed the ATCS. There would need to be a maximum limit on what this amount is above the AECS. SAFETY NET There would, however, have to be a minimum amount of government top-up to provide for those who had not been able to save any of the tax cuts that they had received, or who had lost their assets due to misfortune or bad management. (This amount could be set at, say, $1 above the official poverty line). FULL CHOICE Individuals make the choice of what they do with the savings available from the proposed tax cuts (pay off their mortgage, invest in their business, buy shares or bonds, bet it at the TAB, etc.) and are individually fully accountable for their actions. They however have a very strong incentive to ensure maximum return on their assets while minimising risks, but are assured that there is a minimum safety net if things do go wrong. This proposal also avoids the significant transaction costs that the rejected Peters scheme would have imposed on the economy. The proposal would need to be phased in over the next 20 years by increasing the asset cut off level by 5% each year (inflation adjusted) and decreasing the payments made under the present superannuation scheme by 5%. EXAMPLES A person who has never received an income (and so consequently does not have any ATCS) and has no assets above the minimum level would, above the retirement age, would receive full government assistance of $200 (1997$$) per week. A person who had non-exempt assets of more than (say) $120,000 and accumulated tax "savings" of $120,000 would receive NO government assistance, as they could, if they chose, purchase an annuity which would provide them with at least $200 per week. A person who had non-exempt assets of than (say) $60,000 and also had accumulated tax "savings" of $60,000 would receive some government assistance. They could, if they chose, purchase an annuity which would provide them $100 per week. The would also receive a "top-up" of $100 per week, giving them a potential income of $200 per week. A person who had non-exempt assets of (say) $120,000 but had accumulated tax "savings" of only $60,000 would receive some government assistance. They could, if they chose, purchase an annuity which would provide them $200 per week. The would also receive a "top-up" of $50 per week, giving them a potential income of $250 per week. A person who had only accumulated (say) $30,000 of non-exempt assets but had accumulated tax "savings" of $60,000 would also receive some government assistance. They could, if they chose, purchase an annuity which would provide them with $50 per week. The would also receive at "top-up" of $100 per week, giving them a potential income of $150 per week. A person who had not accumulated any non-exempt assets but had accumulated tax "savings" of $90,000 would also receive some government assistance. Following the rules strictly would mean that this person would only receive $50 per week. As this is below the poverty line a specified minimum would be provided. CONCLUSION It is considered that the above proposal is economically, socially and politically rational. The approach described is equitable, economically efficient, provides positive incentives to save, gives freedom of choice as to how those savings are invested, allows for dignity in old age and provides a safety net. Home