'Perfect storm' of cost of living increases

Letter to Rt Hon John Key from Age Concern national president Liz Baxendine.

I am writing to express Age Concern New Zealand's opposition to your proposal to increase the rate of GST to 15 percent.  

Older people are predominantly low-income earners who would be particularly badly affected by GST increases.

Around two-thirds of older New Zealanders rely on NZ Superannuation for the bulk of their retirement income. 

They are particularly vulnerable to increases in the cost of living. They have few prospects for increasing their incomes, yet they are faced with unavoidable expenditure on home heating, health care, and nutrition if they are to maintain their health. They also face increasing local authority rates bills if they are home owners, and increasing rents if they are tenants.

Age Concerns around the country are already assisting older people who have inadequate income to maintain their health, social connection, and ultimately their human dignity. 

These are people who have cut their food budgets to the point that their basic nutrition needs aren't met; who endanger their health in homes so cold and unheated that our Accredited Visitors become concerned; who lose contact with their communities because they stay in bed all day to keep warm; and people facing loneliness so chronic that it makes them physically ill.

Ministry of Social Development research found that up to 13 percent of older people are living in hardship, and we believe this is an understatement as older people tend to 'put on a brave face' and withdraw from society rather than admit to poverty.

We think there is potential for any GST increase to combine with price rises already announced and those projected for this year to produce a 'perfect storm' of cost of living increases that would greatly increase the proportion of older New Zealanders living in financial hardship.  

Two danger signs are:

1. Statistics New Zealand's latest Food Price Index, which found food prices rose 2.1 per cent in January alone.  This is an increase in food prices of 12 percent in the past two years, far outstripping the overall CPI, and therefore the annual Superannuation cost-of-living increases.  For comparison, Super was increased just 3.3 percent last year.  Economists expect further demand-driven increases this year as international markets recover. 

2. A major electricity supplier's 5 percent price increase – despite widespread disbelief (including by the Minister of Energy) – that such a rise can be justified. This again shows the competitive market model is failing to protect retail power consumers.  When voluntary price freezes end in October this year, what protection will the government offer electricity consumers, beyond exhortations to shop around? 

If despite our representations, your Government decides to go ahead and increase GST, your commitment to 'upfront increases' in benefits and pensions would need to be fully realised

Age Concern considers that adjustments to NZ Super for CPI and any GST increase must take adequate account of older people’s specific circumstances and that adjustments must reflect the change in costs of essential services, such as power, water, phone, housing (rates), and expenses associated with maintaining involvement in society, including transport.

To help prevent the perfect storm of increasing hardship outlined above coming to pass, Age Concern New Zealand is asking for improved protection for the welfare and dignity of older New Zealanders. This includes: 

• No increase in the rate of GST.
• Cost-of-living adjustments to NZ Superannuation based on the real expenses faced by seniors, and that these adjustments be made quarterly, rather than annually. The current annual regime delivers small increases long after superannuitants have absorbed price increases. 
• An increase in NZ Super to the maximum of 72.5% of the individual average wage as provided for in the 2001 Act. (We continue to be concerned by the common misconception that over-65s receive 66% of the net average wage.  In fact senior couples currently receive 66% of the average wage for individuals. Single older people get less)
• Action to contain electricity price rises, beyond relying on a market model which does not protect retail consumers.

I look forward to your acknowledgement of the challenges being faced by older New Zealanders, and receiving your commitment to protect their welfare.

Yours sincerely
Liz Baxendine
President
Age Concern New Zealand

16 February 2009