Abstract
Why are nations failing to resolve the fiscal crisis caused by population ageing? Many economies are struggling with rising costs to the government budget of pension and healthcare due to population ageing. A potential solution is greater emphasis on mandatory private savings so future generations are not so dependent on a dwindling proportion of youth to pay taxes to support their welfare needs. However, few nations have buttressed Pay-As-You-Go (PAYG) public systems the past two decades in this way. We use New Zealand as a case study to highlight three salient political-economy barriers. First, ideology leads many right-wingers to oppose mandatory savings due to a desire not to curtail personal freedom of choice, but also left-wingers who prefer reliance on State pensions. Second, planners have been largely unable to design reforms that minimize loss of current disposable income to the median voter as savings are built for workers whilst at the same time public pensions for the existing retired, paid out of current taxes, are continued. Third, the long time period required to deliver significant savings boosted by compound returns deters politicians with short horizons.
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Leonard Hong 