New Zealand: The Supreme Political Football

R. Kent Weaver

WP#2002-12

Abstract

New Zealand, like Australia, entered the 1980s without a mandatory earnings-related pension program. Unlike Australia, however, New Zealand also ended the twentieth century without such a program. Although the New Zealand pension system has been perhaps the most frequently changed of any of the six countries considered here, the basic shape of that program remains very close to what it was two decades ago. Indeed, one prominent analyst of New Zealand pension policy has likened it to an ”old-fashioned wobble doll [which] has taken many a thump from politicians in the last decade. But like the wobble doll, after some gravity-defying oscillations it returns to much the same position…of a basic, flat-rate, taxable, individual state pension, no compulsory private saving and no tax incentives…” Understanding those two seemingly conflicting attributes of New Zealand pensions—frequent pension policy change and the absence of a fundamental transformation of pension policy—is one of the primary objectives of this chapter.

The other primary objective concerns the lessons that New Zealand experience has to offer about the politics of major pension reforms. Since 1997, New Zealand has seriously both a move to an individual account system and a large collective investment fund. A contributory, individual accounts plan (although without earnings-related benefits) was put before voters in a 1997 referendum, and overwhelmingly rejected. A collective investment fund proposed by the current Labour-Alliance coalition government was enacted by Parliament in 2001, but it remains vulnerable to dismantling by a future government. Are there lessons that New Zealand can offer about the political hurdles that are likely to arise with each of these reform proposals? And does New Zealand suggest any lessons about ways in which these hurdles can be resolved?