A welfare reform for New Zealand: mandatory savings not taxation

Abstract

© 2019, © 2019 New Zealand Association of Economists Incorporated. Many nations are seeking to reform their welfare states so that costs to the government can be reduced and the quality of outcomes improved. In this paper we show how mandatory savings accounts can be established in order to turn a publicly funded welfare system into one that relies more heavily on individuals funding welfare payments out of their own accounts. To our knowledge, showing how a tax and welfare reform can be jointly designed to enable this transition to occur in a way that minimizes any effect on the current disposable incomes of workers has not been done before. The paper takes a new unified approach to the funding of health, retirement and risk-cover, using New Zealand as a case study. Our proposed reform relieves the fiscal pressures which an ageing population is forecast to place on the government budget in the coming decades.