Michael Cullen Address to Grey Power AGM

St Margaret’s Hall of Residence, Otago University

I would like to convey to you the best wishes of the Prime Minister, the Rt Hon Helen Clark, who was unable to be here because she is out of the country on official business. It is a pleasure for me to address your Annual General Meeting in her place.

I am especially happy with your choice of venue. As many of you will know, I taught social history at Otago University before entering politics in 1984. So revisiting the Otago campus is a very welcome experience.

As both an historian and a politician, I have been privileged in being able to observe at close hand an era of significant change in policies affecting older New Zealanders, in particular state superannuation policy. During much of that period, Grey Power has been a dogged and effective advocate for the interests of older New Zealanders.

It has engaged governments of varying political shades and compositions on issues of importance to its members, and has sponsored an attitude of growing assertiveness amongst older New Zealanders.

Grey Power was, if you like, an early political manifestation of what is now called “Positive Ageing”.

At times it has been a turbulent period. Older New Zealanders, like the rest of the community, were tossed about by the winds of change that blew in the late 80s and 90s. At election times you were courted with promises, some of them disingenuous, others sincere but misguided. Many of these promises were broken. Some, I would argue, were so obviously unrealistic that they should never have been believed.

It is not this government’s style to court any group within the community. That is why in the last two elections we sought the support of New Zealanders on the basis of a number of specific, realistic pledges and in government we delivered on each one of those pledges.

We promised to create jobs through sound economic management and the promotion of New Zealand industries, especially exporters and small business. Our efforts have borne fruit. The economy has recovered from its fragile state in 1999. Last year we grew faster than any other OECD country with growth running at 4.4 per cent.

We have maintained low interest rates and low inflation, alongside a strong labour market. Well over 100,000 new jobs have been created since we took office, the bulk of them full time. As a result, unemployment beneficiary numbers are at their lowest levels for 15 years.

We are predicting some tough times ahead for the economy, with the drop in world prices for agricultural commodities, and the severe flow-on effects of the Iraqi war and the SARS virus on tourism and other export industries. However, through prudent management we have given ourselves sufficient headroom to see the economy through the next 12 to 15 months, after which most economists forecast the world economy will start to recover.

We also promised to live within our means, without burdening New Zealanders with excessive taxes. We were up front about increasing the top tax rate by 6 cents for those on incomes of $60,000 plus a year. But we promised that we would not raise income tax for those earning less than $60,000 – a group which includes the vast majority of older New Zealanders – and that we would not raise either GST or the company tax rate. We have been true to our word. We have made great strides in reducing public debt, which in the past has hampered our efforts to grow the economy and provide good quality public services. The government is running strong fiscal surpluses, providing us with the ability to invest in such things as securing the future of superannuation and improving our health and education systems. In education we promised to cut the cost to students of tertiary education, starting with a fairer loans scheme. We think education is the most crucial investment we can make in our young people. Many of you will have grandchildren who are preparing for their careers. We want to invest in our young people; not chase them out of the country by saddling them with levels of debts they can only service by fleeing to high paying jobs in London, Sydney and New York. In the area of housing, we promised to restore income related rents for state housing so that low income tenants – many of whom are elderly – paid no more than 25 percent of their income in rent. Income related rents were restored in December 2000. In law and order we said we would crack down on burglary and youth crime. The results have been promising. The number of recorded burglaries has dropped by a fifth since the government took office. This means that we have prevented 270 burglaries a week on average. I am especially proud to say that we have delivered on our pledges to older New Zealanders by putting in place a set of fair and sustainable policies in superannuation – fair and sustainable for today’s retired people, and for today’s working generation who are beginning to plan for their retirement in ten or twenty years time. We have made two important advances on superannuation policy. First, we reversed National’s decision to reduce the benchmark for a married couple from 65 percent to 60 percent of the average, after tax, ordinary time weekly wage. By the time we came to power in 1999, that policy had effectively taken $21 a week out of the budget of a retired couple. We have restored that $21 a week, at an extra cost of around $210 million per annum. We believe that to go below 65 percent for a married couple means forcing people into hardship, and this Government will not do that, especially as most retired people have only modest private savings or pension schemes, and are principally dependent on New Zealand Superannuation. The policy of this government is to retain 65 as the age of entitlement for New Zealand superannuation. Just last month, National’s finance spokesperson and pretender to the leadership, Dr Don Brash, floated the idea of increasing the retirement age. This was not his idea; the ACT party thought of it first. Their argument is that, because life-expectancy has increased, so too the age of entitlement should rise. That is a very churlish policy. Dr Brash and ACT obviously believe that the most effective state pension system is one that hardly anyone lives to receive. Indeed their policy runs counter to the whole notion of positive ageing. It would rob many New Zealanders of a period of their lives when they remain in reasonable health and can enjoy the fruits of their labours. It would rob young families of the time and energy of grandparents. And it would rob communities of many of their most productive and dedicated voluntary workers. Our second major step forward has been the establishment of the New Zealand Superannuation Fund. The Fund will play a major role in making New Zealand Superannuation financially secure for the next fifty years. Throughout my years in parliament, I have been pointing out that we cannot ignore the fact that, starting in about the year 2015, a permanently higher proportion of the population will become eligible to receive payments of New Zealand Superannuation. This change arises primarily from increasing longevity and declining fertility in the population, and is exacerbated slightly by the passage of the 'baby boom' generation into retirement. There is no point hoping this will not happen. And it is unforgivable for political parties to say they will deal with it at the time. By then it will be too late.

The Fund will prepare us to both fulfil the expectations of retired New Zealanders and to maintain stability in tax rates and in other areas of essential spending. It will build up a portfolio of Crown-owned financial assets over the next few decades while the annual cost of New Zealand Superannuation remains relatively low.

The Fund currently has around $1.3 billion of assets, and by 2007 it is expected to have grown to $12.4b (or 8% of GDP). It will peak at around 50 percent of GDP in 30 years time. Those assets will progressively be drawn on to supplement the annual Budget as the Crown's finances adjust to a much higher level of ongoing expense for New Zealand Superannuation. It is a smoothing mechanism for what remains fundamentally as a "pay as you go" universal benefit.

The New Zealand Superannuation Fund represents one of the most significant political initiatives in decades. For the first time we are planning how to finance our commitments over the long term, rather than each successive government trying to get the books into a decent state for the next election.

Provided that a National-ACT government does not undermine it, the Fund should greatly assist in the task of stabilising superannuation policy, and thereby providing for all New Zealanders an environment in which they can plan for retirement with certainty.

National, ACT and the Greens all opposed the establishment of the Fund, and have promised to liquidate it if they get the opportunity. What they won’t say is how they will address the issue of an ageing population in the absence of the Fund. Given that the cost of New Zealand Superannuation is forecast to rise from the current 4 percent of GDP to around 9 percent in the middle of the century, their options are limited. Indeed there are essentially only three things they can do:

Increase taxes significantly, thus slowing the economy and risking resentment and revolt amongst working age New Zealanders;

Reduce the rate of New Zealand Superannuation, like National began to do the last time they were in government; or

Reduce the number of people who are eligible, either by Dr Brash’s proposal to increase the retirement age, or by a means-test, or (most probably) both.

Getting the opposition to come clean on their alternatives to the Fund has been an interesting game. At the moment they are still cowering naked in the bushes, afraid to emerge until they find some kind of a fig-leaf.

In addition to our undertakings on superannuation, we made a variety of other promises before the last election. And we have delivered on each one.

We have recently confirmed the timetable for the removal of all asset-testing on long-term residential care. It is not fair that people aged 65 and over have to use up their assets to contribute to the cost of their care, whereas younger people do not.

To reiterate the details of the decision: From 1 July 2005, single people and couples with both partners in care will be able to keep up to $150,000, including property and savings, before their assets are used to contribute to their care costs – up from $15,000 for single people and $30,000 for couples.

Couples where one partner is in care will retain their current exemptions of a house and car (whatever their value), and their cash asset exemption will rise from $45,000 to $55,000. The exemption thresholds for all groups will then increase by $10,000 a year, progressively removing asset testing.

The new policy means that five and half thousand additional people will be eligible for the subsidy from 1 July 2005, taking the proportion of those in care who receive the subsidy to 70 per cent.

I appreciate that many people cannot see why the implementation needs to take such a long time.

The reality is, we have had to balance human rights considerations against the huge costs involved – starting at more than $100 million in the first year and rising to $345 million by 2020/21.

We simply don’t have the resources to remove asset testing all at once, which is why it will occur over time, beginning on 1 July 2005.

Having said that, I don’t need to remind you that a National-led government introduced asset-testing, and the parties on the right have made no commitment to remove asset testing, either now or in the future.

One of the inescapable facts of ageing is an increased need for health care. Promoting healthy lifestyles can go some way towards reducing this need.

But as a nation we need to get smarter at providing health care in a way that provides quality of life without placing too much strain on our ability to finance it. We realise that there will always be more expectations in health than can be delivered.

No country in the world has developed a health system that satisfies all the demands placed upon it.

Almost all of the inputs into a modern health system – health professionals’ salaries, pharmaceuticals, and medical supplies and equipment – are priced according to international benchmarks.

So it is easy for costs to spiral out of control; and when that happens it means ultimately that somebody misses out on treatment, or has to wait longer than they would wish. Over the course of the last three and a half years, this government has made significant injections of new funding into the health system.

In December 2001 we announced a package of $3 billion of additional spending, spread over three years.

This includes more resources to reduce surgical waiting times; and $400 million of new funding to improve primary health care. The primary care initiatives are particularly important.

It has long been acknowledged that good quality primary care is the key to creating a health system that meets our needs without breaking the bank. Building effective fences at the top of the cliff is preferable to funding an increasingly expensive and over-burdened ambulance service at the bottom.

However, governments in the 1990s failed to grasp the nettle on the need to make investments in primary care that would only pay dividends in terms of reduced pressure on hospital services after years and possibly decades. One of our specific pledges was to transform the health system so that problems were tackled earlier, thereby reducing the impact of ill health and in time also freeing up resources that would otherwise have been spent on more intensive forms of care. We have grasped that nettle, and are investing an additional $400 million in the Primary Health Care strategy.

A good example of the new strategy is the pilot project being run, with government funding, by Presbyterian Support in Dunedin and Hamilton. The service is called ‘Community First’, and it is designed for older people who have been assessed as being eligible for rest home care, but who would prefer to stay in their own homes (as do most older people, given genuine choice).

The services are individually tailored to the older person’s changing needs and, most importantly, designed in consultation with them and the people close to them. They might include assistance with personal care and housework, social and recreational activities, rehabilitation services, respite care, carer support, and links with other health and disability providers and community groups.

Community First puts older New Zealanders and their families in the driving seat in a way that has not been possible in the past.

It is another way in which government policy can support positive ageing in a practical way. Of course, there will always be a place for residential care. Indeed, we are addressing a funding shortfall in that area brought about by the failure of the previous government.

Over the last two years, we have injected an extra $25 million into residential aged care services, with at least $22.7 million earmarked over the next two years, on top of funding for volume growth.

But entering residential care should be a choice made when other options have been explored and found to be impractical.

It may sound strange to you that, as a Finance Minister, I am enthusiastic about increasing government spending provided it contributes to our social and economic objectives.

The fact is, the primary objective of this government is to build a sound economy with healthy public finances so that we can afford high quality public services such as health, pensions, roading, environmental protection, education and law and order. There are still parties in parliament who think that we need to sacrifice public services in order to kick-start the economy.

They ignore the fact that the economy is already working better than it has in a long time; but they also refuse to see that strong public services are essential to create a society in which people want to live, a society in which young and old alike have a stake, and have a voice. The task is by no means over.

My Cabinet colleagues and I have a very full agenda for the rest of the year, with tricky issues to be dealt with, such as negotiating a long-term solution to Auckland’s traffic woes, finding a stable future for Air New Zealand, and securing our energy supply.

In the short term we face a malign combination of circumstances which should be distinguished from the broader framework issues even though they interact to some extent.

They include the very real prospect of a dry winter and the lowered estimates of the Maui gas reserves. If the former occurs it will place real stress on our ability to manage our way through the coming winter period with minimal social and economic disruption.

Pete Hodgson is already working hard at this and will, I am sure, succeed, as he did in 2001, in minimising any adverse impacts. The question still remains as to whether the current very complex electricity market, and the proposed changes to it, will deliver sufficient security of supply in such a small market as this with its peculiar mix of generating capacity.

It is important to maximise where possible the elements of competition within the system to reduce inefficiency and avoid unnecessary costs. The question is whether the existing framework concentrates competition in the right areas – at the generating and retail ends – especially in the light of the emergence of the so-called “gentailers.”

It is also questionable whether occasional very high price spikes send the appropriate long term pricing signals to encourage adequate generating capacity investment, including a sufficient dry year margin. These are not easy issues but are ones which we will approach with a proper mix of principles and pragmatism.

We received a strong new mandate from the electorate last July, a mandate that confirmed that the majority of New Zealanders agree with where we are leading the economy, and agree on the need for partnerships between government, the business community and the voluntary sector.

We can work together, even though we disagree on some points. What we have to avoid is a return to the old days, when political parties promised their way into power, and then spent the next three years ducking for cover.

This government is aiming to restore a more mature approach to balancing the interests of New Zealanders.

We look forward to an ongoing constructive relationship with Grey Power, as part of this mature approach.

Thank you.

© Scoop Media