English ponders individual accounts for social services

An unspoken long-term dimension of National party leader Bill English’s economic and tax policy to be released next week will be individual accounts as a means of accessing some social services.

Mr English will announce a commitment to income tax cuts in the first term of a National government: from a top marginal personal rate of 39c to 33c and from 33c to 30c for corporate rates.

Reliable sources say National MPs decided at their caucus last week to make the personal cut in three stages. They also decided to take personal and corporate rates lower in a second term — to 28c each, sources say, though Mr English will say only “lower”, with a Buddha-like smile.

The cuts are being promised partly in an attempt to shore up National’s core vote, particularly that of small business, in the face of a determined bid by ACT to muscle in. Mr English justifies them by saying that he will abolish Finance Minister Michael Cullen’s superannuation fund, which requires Budget surpluses 1.6 per cent to 1.8 per cent higher than otherwise would be necessary.

Mr English has in the past offset this by planning to continue to run debt down as a percentage of GDP. But this would lay National open to charges of planning social services cuts. Mr English now accepts Dr Cullen’s alternative — to leave debt roughly where it is and thus enable social spending to stay roughly at its present level of a quarter of GDP.

But that in turn lays Mr English open to charges, which Dr Cullen will press, that when baby-boomers reach retirement age in large numbers after 2020, the pension will have to be cut or the qualifying age lifted.

Mr English’s counter is individualised accounts, not just for superannuation but for some other social services. But not yet. The public overwhelmingly rejected them for superannuation (by 92 per cent to 8 per cent) when asked in a referendum by Winston Peters when he was Treasurer in 1997. It is too early to try them again, at least in that form.

Instead, Mr English comes at the issue via health. He has for some years talked of the need for the state to “customise” its services, as business does, instead of the applying the “factory” model of uniform mass-produced services that consumers now reject in the private sector.

This leads him to some form of individualised accounts on the strength of which individuals could make claims on the health care system.

For the moment, however, he says there is a belief, fostered by both this government and the preceding government, in which he was Minister of Health, that the state can provide. “The electorate wants to believe the system can still deal with the issues and politicians are going to go on trying to meet that expectation.”

But, Mr English says, health is a highly complex system, ranging from “support for families with an autistic member to how much of plastic surgery is cosmetic rather than health care”. Technology is making it more complex and also raising demand. And so it has to be rationed, by politicians denying funding and by clinicians making arbitrary decisions.

“Can politicians devise the tools to handle that level of complexity?” he asks, implying a “no” answer. And will the rising generation of voters — those who have grown up used to customised private sector goods and services — tolerate politicians making the decisions on their behalf? Again, the implied answer is, “no”.

Mr English says voters believed in the 1990s that “National was the problem” with health. Now, as issues continue to compound, he says they are realising that “the problem is the problem”.

So in time, he believes, “the punter is going to look for more control over how the health system works”. As disillusion grows when voters realise Labour cannot meet their demand for customised services, “they will get an appetite for debate” about alternatives.

But this will take time — maybe two or three elections down the track. Individual accounts in this country are seen as a “new right experiment” and a way to cut government costs, instead of being seen as a more flexible funding mechanism — and, Mr English says, it will take time for that to change (to which he might add: especially if proposed by the National party).

And then what alternatives might National then offer?

On this Mr English is cagey. That is partly because he is way ahead of his MPs’ thinking. It hasn’t been discussed in the caucus.

It is also because he hasn’t thought it through himself. There is a wide range of options, both in how individual accounts might be funded, how they might be managed and what they might be used for under what constraints.

Singapore has a state-run scheme of individual accounts, part-funded by the state and part-funded by compulsory levies on income, which funds health care and old age.

Mark Latham, an Australian Labor party frontbench federal MP, has argued accounts could be used for re-skilling and unemployment as well — and could be funded by the state, compulsory wage levies and options for individuals to top up their accounts.

This is not Labor party policy but the 1990s Labor government in Australia did introduce compulsory levies on wages, with compulsory contributions also from employers, to fund individual superannuation accounts, which are now building to substantial levels.

Employees there have a strong sense of ownership of the system, which chimes in with Mr English’s belief that people are suspicious of governments running their savings for them and instead think that “if I put my name on it, I can trust it”.

Compulsory levies on wages are not practicable here, given the 1997 vote — at least not yet. But Mr English is looking closely at tax incentives for private individuals’ self-generated superannuation savings. One option is something akin to the United States 401(k) government-supported individual accounts.

And then, he muses, “people say other things could be built out of it”.

But for that there will need to be first a change of public opinion. And that requires a changed assessment of National so it is not seen, as in the 1990s, as not worthy of the trust of the vulnerable.