u/everysundae

Tldr: NZ promises a welfare state it doesn't tax enough to fund. Either raise taxes significantly and actually deliver it, or cut taxes and accept that things like ACC, universal super, and free healthcare get stripped back to essentials. No government will do either because both are electoral suicide. So everything slowly degrades and both sides pretend the next election will fix it.

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In 1973, Britain joined the European Economic Community. It was a trade decision, made in Brussels, by people who had never been to New Zealand. But it broke something.

For thirty years, New Zealand had sold its butter and lamb and wool to Britain at guaranteed prices. It had used the money to build hospitals and schools and a welfare state that was, by some measures, the most comprehensive in the world outside the Soviet Union. They people of that time didn't think of this as a subsidy. They thought of it as normal.

For thirty years, we had sold butter and lamb and wool to Britain at guaranteed prices. It had used the money to build hospitals and schools and a welfare state that was, by some measures, the most comprehensive in the world outside the Soviet Union. They didn't think of this as a subsidy.

When it ended, the money stopped. But nobody dismantled what the money had built.

In 1984, a Labour government hired economists who believed the welfare state was the problem. They cut taxes, floated the currency, removed subsidies, and sold state assets. GDP per capita fell or stagnated for eight straight years. Unemployment reached 11%. The finance minister who designed the programme later advised foreign leaders to implement their reforms as fast as possible, before the public could react.

But the programme was never finished. It was too painful to complete and too embedded to reverse. So every government since has done the same thing. They have kept the structure of a country that promises to look after its people, while slowly removing the ability to pay for it.

New Zealand is now the thirty-seventh richest country in the world per capita. In the 1950s it was THIRD. Our productivity gap with the developed world has not closed in sixty years.

But something else happened while governments argued about taxes and spending.In the decades after Rogernomics, as wages stagnated and the productive economy struggled to find its next act, house prices began to rise. At first slowly. Then remarkably. A home in Auckland that cost three times the average income in the early 1990s cost ten times the average income by 2024.

Nobody planned this. No politician stood up and said "we are going to replace a productive economy with a property market." But that is what happened. When we stopped making enough money from what we produced, we began making money from selling houses to each other at ever-increasing prices. The wealth felt real. It showed up in bank statements. People borrowed against it, renovated with it, retired on it.

And it changed the politics completely. Because now there were two New Zealands. One owned property and had, on paper, done extremely well. The other rented, and had watched the cost of shelter, the most basic human need, grow faster than anything they could earn. Both groups voted. Both groups were angry. And no party could serve one without betraying the other.

Not loudly, not explicitly but structurally, they all chose owners. People likely to be settled here in the increasing migration to Australia. Zoning stayed restrictive. Capital gains remained untaxed. Interest deductions came and went depending on who was in power. Infrastructure that might have unlocked new housing was deferred because it cost money the government said it didn't have, the same government that was foregoing billions in revenue by refusing to tax the asset class that was growing fastest. And lots of people without assets, thought they will one day have assets, didn't want to be taxed on the non-existing asset.

The result was a country that had found a way to feel wealthy without producing wealth. A country where the biggest financial decision most people would ever make, had become the economy itself. The longer it went on, the harder it became to change. Because the people who owned houses voted, and those that thought they will own a house(s) also voted for owner policies. And no party that threatened house prices could survive an election.

In the 2025/26 financial year, core Crown expenses are forecast at $150.3 billion. Of that, $24.7 billion goes to superannuation. $25.5 billion to social security and welfare. $21.5 billion to education. $7.3 billion to law and order. $7.2 billion to transport. Health, once you include the full Vote Health allocation, has risen from $18.2 billion in 2018 to $29.6 billion in the 2024/25 budget.

Tax revenue for the same year was calculated at around $140 billion. The gap is projected at 3% of GDP, the largest since COVID. Of that gap, 1.9% is structural. That means it does not close when the economy recovers. That means we are spending beyond our means.

Superannuation is where the maths becomes unavoidable. In 2023, it cost $19.5 billion. By 2026, $24.8 billion. By 2030, $31.6 billion. By 2035, $41 billion. As a share of every tax dollar collected, superannuation will rise from 16.6% in 2023 to over 20% by 2033. One in every five dollars we collect will go to a single universal payment. Nobody has actually changed the settings yet.

Luxon has said National will campaign on raising the retirement age. Labour has said it is open to discussing means testing. But some version of this has been discussed for 20 years. Clarke was fully opposed to means testing https://www.nzherald.co.nz/nz/prime-minister-hosts-online-chat/3BTUWFGY6C3MHFURVU72UBCKZI/

ACC, the no fault accident scheme that no other country has ever fully adopted, needs to collect $4.7 billion in levies in 2025/26 to cover roughly 930,000 claims. It has a $1 billion revenue shortfall. Levies will rise by up to 20%.

And while all of this grows, we spend 7.1% of GDP on public health. Australia, Canada, the Netherlands and Sweden average 10.7%. That number is projected to fall further, to 6.6% of GDP by 2029. We are not maintaining the health system. We are withdrawing from it so slowly that most people wont noticed.

Our total tax take is around 32% of GDP. Scandinavian countries collect over 45%. Austria collects 42%. The Netherlands 40%. Germany 38%. These are the countries whose hospitals and schools and trains and services and security and welfare we say we want.

Our GDP is roughly $345 billion a year. At our current tax rate, that yields around $110 billion for public services. If we taxed at Austrian levels, the government would have an extra $34 billion a year. At Dutch levels, $26 billion. At German levels, $21 billion. Twenty one billion dollars a year. That would close the structural deficit several times over. Fund superannuation growth for a decade. Bring health spending to the OECD average. Start building infrastructure again. But it would require the tax system to look completely different. Our top marginal rate is 39%. In Scandinavia it is over 50%. We have no capital gains tax. In 2019 we were the only OECD country without one. Seventy percent of capital gains go to the wealthiest 20%. We don't have inheritance tax for the ultra wealthy. We don't have health funding levies like the Medicaid scheme in Australia. We do have acc levies but acc is becoming unsustainable.

That is one path. Tax more. Tax differently. Fund what we say we believe in. Accept that it costs what it costs.

The other path is the opposite. Accept that we are a small, remote, low productivity economy and size the government to match. The core functions stay. Law and order at $7.3 billion. Education at $21.5 billion. Basic emergency healthcare. All will probably get funded better. Everything else gets stripped or eliminated. Superannuation at $24.8 billion becomes a means tested payment for the poorest retirees, costing perhaps a third of what it does now. ACC becomes a private insurance market. $25.5 billion in social security and welfare gets cut to a minimal safety net. Working for Families, Best Start, the accommodation supplement, all reduced or gone. But taxes drop drastically. Income tax in particular gets reduced by a ton, no capital gains, no inheritance tax, no gst. Citizens carry their own risk. The government does less and charges less.

That would mean if you get hurt at work, you buy your own cover. If you lose your job, you have savings or you have nothing. If you retire without assets, nobody is coming to help Countries run this way. But none of them pretend to be us.

Neither path has been chosen. Neither has been honestly presented to voters. Instead, benefit expenses are revised upward by over a billion dollars a year while the operating allowance is cut to $1.3 billion, the tightest in a decade. The government funds police and hospitals at levels that barely cover cost growth, calls it record investment, and projects a return to surplus that has been promised and pushed back every year. Both sides are the issue. Labour promises services but doesn't fund them through enough taxation. National say they'll reduce bloat but never fulfill tax back promises enough to make it affordable with wealthier citizens. Labour says we all should be provided support and national says with more money in your pocket, you can choose the support you want without funding someone else's.

Nothing is collapsing. Everything is gradually becoming inadequate. And that is the failure, because it is the one you can live inside for decades without ever feeling like we need to act.