Editorial: Danger! Cliff ahead

by The Listener / 10 January, 2013
It’s not too late to introduce strategies to avoid our own fiscal cliff.
Editorial - Danger! cliff ahead
photo Getty Images

If you’re not already sick of the phrase “fiscal cliff”, you soon will be. As the calendar counts down to March 1, the new date by which the United States needs to sort out its finances, we’re going to hear it again and again. And again and again and again.

There’s another phrase many Americans would probably be delighted to shelve for a while: “kicking the can down the road”. That one hasn’t been quite so prevalent here, perhaps because we prefer the more culturally relevant “kick for touch”. But it has certainly been heard a lot lately in the US in relation to the fiscal cliff.

It means, of course, that politicians have been far too willing to defer some difficult decisions about how to get the US budget into better shape. The US economy might not be in quite as dire a state as Europe’s, but its citizens certainly can’t afford to be complacent. And in case we need reminding, nor can New Zealand’s.

This time of year is traditionally a tough one for Kiwis trying to balance their budgets. All that Christmas spending comes home to roost while we are trying to pay for our annual holidays. It’s a good time to take stock of our financial health, as well as our physical health. And it’s a good time to remind ourselves of the dangers of deferring difficult decisions.

As esteemed economist Alice Rivlin has pointed out, one of the most important issues the US has yet to deal with is how it will continue to pay social security to those who are retired, given that their numbers will soon swell to a much larger proportion of the population.

Rivlin knows what she’s talking about. She is a former vice-chairwoman of the Federal Reserve, was an adviser to President Obama and spent much of the latter part of her career coming up with solutions – many of which were ignored – to America’s debt woes.

In New Zealand, Retirement Commissioner Diana Crossan has done a commendable job over the past decade of raising the same issue here. She can probably take at least some of the credit for the Labour Party proposal to raise the age of eligibility for New Zealand Super to 67.

But Crossan has finally given up her role and is looking for a new job. And unfortunately National has shown no sign of wavering since John Key’s pious promise to leave the current scheme alone.

It’s true the problem is more complex than it appears. But as Rivlin has demonstrated, there are ways of dealing with such issues as how to factor in people who work in physically demanding occupations.

That so many New Zealanders in their fifties and sixties continue to back National’s stance simply shows how shallow many people’s understanding is of the issue, despite years of public debate. The sooner decisions are made about what will happen in 20 years’ time, the less likely it is that those in their fifties and sixties will be affected. People in their thirties and forties are much more fatalistic, and still have plenty of time to plan. But they, too, will be understandably grumpy if changes are foisted on them at the last minute.

As Rivlin recently noted in the New York Times: “We have to increase revenue and reduce scheduled benefit growth to keep the system solvent. If we act quickly, the changes can be phased in gradually and need not affect those already retired or close to retirement.”

There are those who insist there is no need to panic. But history tells us that is a risky strategy. Who could have foreseen the huge fiscal shock caused by the Christchurch earthquakes, for example? If you haven’t yet bothered to make a New Year’s resolution, make one now: sort out your retirement plan. If you’re already sorted, then great – maybe you should be encouraging others in your family to do the same.

But don’t let politicians get away with kicking the can down the road. New Zealand’s fiscal cliff might appear to be way in the distance, but that doesn’t mean it’s not there.
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