Absolute hypocrisy from Labour over NZ Super Fund

March 12th, 2009 at 11:12 am by David Farrar

I’ve been looking back through what said when they established the in 2000, and it is gold. Their protests about the Government moving to reduce the level of contributions into the fund are of the highest order.  Let me quote from Dr Cullen’s Q&A when he launched it:

How will the government pre-fund future New Zealand Superannuation costs if there are insufficient surpluses?

The government will make contributions to the Fund from available surpluses. Where these are insufficient for making the required contribution a reduced contribution would be made.

John Key and Bill English are doing exactly what Michael Cullen said would happen. Not only do we have an insufficient surplus – we have a decade of deficits.

This also shows up those morons who argue the Fund is not funded out of surpluses, but is just like any other competing area of expenditure. In Labour’s own words:

The government will make contributions to the Fund from available surpluses.

And further:

What level of surpluses will the government need to run to pre-fund future NZS costs?

The actual contribution will be determined by the size of available surpluses. Future governments may, however, decide to make contributions at the required rate even when surpluses are less than this rate.

Once again a clear statement that the contributions are determined by the size of the surplus. And while they have indicated that yeah if the surplus drops a wee bit, you might have a slightly higher contribution than the surplus – there is absolutely no suggestion that if you are running a $6 billion deficit you’ll put in a $2 billion contribution.

Labour’s hypocrisy on this could almost enter the Guinness Book of Records.

But wait there is more:

What are the benefits of setting up a fund versus paying off debt?

We are balancing two fiscal priorities in paying down debt and pre-funding superannuation. It is important to keep government debt low and we have set out long-term objectives for debt that will ensure that it remains low. However, we believe we can achieve these debt objectives and smooth the costs of superannuation at the same time.

So the fund was linked to keeping debt low. Debt is now projected to increase by around $80 billion or so. It is set to treble in less than a decade.

Debate is now over.

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34 Responses to “Absolute hypocrisy from Labour over NZ Super Fund”

  1. slightlyrighty (2,475 comments) says:

    My first response was to smile.

    My second response is “why is the MSM not all over this?”

    My third response is that the MSM does not have the ability to do any more than the most superficial research.

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  2. Brian Smaller (4,023 comments) says:

    DPF – You don’t understand that when Labour said those things they had just won lotto and saw never ending surpluses stretching out to the far future as they stole more and more off the taxpayer – and wouldn’t really have to suspend contributions.

    Either that or your first assumption was right – Fucking hypocrites.

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  3. getstaffed (9,186 comments) says:

    slightlyrighty – you beat me to it. why won’t one of these ‘so called’ reporters put the lense on Goffs ugly mug, quote Cullen as per the above, and then ask why he’s now saying the exact opposite

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  4. s.russell (1,642 comments) says:

    Yes, Labour is hypocritical. But decisions should be made on the basis on careful analysis and rational thinking, not what Labour says about something.

    Keeping debt low is certainly a good thing. But the critical number is surely NET debt, rather than gross. And international markets and rating agencies are surely smart enough to appreciate this too. So long as the NZ Super Fund is able to make long-run returns superior to the Government’s cost of borrowing, there should be no effect on credit ratings or interest rates.

    Now if I were to borrow money to invest in markets that would be stupid, because a) I would pay more to borrow and thus find it much harder to get a real positive return, and b) the risk created by such leverage would be too high.

    But the NZ Govt can afford the risk (for the same reason an insurance company can afford the risk of my house burning down while I can’t), and can borrow much more cheaply.

    The Herald reports: “AXA Global Investors chief economist Bevan Graham said that given the low prices of shares, now might be a good time to borrow to buy them.” He is right (although note the “might”). The best time to invest is when markets have gone down by a lot. Personally, I would not do this myself yet, but maybe by year end I will shift my investment from fixed interest to shares.

    Consider this too: the need to fund the Fund helps the Govt impose spending discipline on taxpayers’ money, and that in itself is a positive investment in New Zealand’s future.

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  5. Fernando (11 comments) says:

    This is an economic question not a political question. If the fund is expected to deliver returns over the long run that exceed the cost of borrowing, then contributions should continue. To do otherwise would be irrational. This issue is too important to be turned into a political football.

    [DPF: By your analysis then we should borrow $50 billion a year to invest into the Fund. I agree with Dr Cullen in 2001- you make contributions out of your surpluses]

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  6. wreck1080 (3,906 comments) says:

    According to labour, it is ok to change your mind.

    eg, helen clark, stating on the radio that she would never ban smacking, then proceeding to do just that.

    This, is the labour secret agenda in action.

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  7. Ross Miller (1,704 comments) says:

    Fernando …

    remind me just how much money the Fund has lost recently over and above the $2b Government contribution.

    The ONLY Party trying to turn it into a polical football is Labour. John Key has repeatedly stated he will resign as PM and Member of Parliamant if NZ Superannuation is changed.

    What’s changed?

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  8. Razork (375 comments) says:

    TVNZ last night showed their true colours with their reporting on this.

    If fran moll is to believed it’s the end of superannuation for all baby boomers.

    unbelievably uninformed and irresponsible.

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  9. Glutaemus Maximus (2,207 comments) says:

    TVONE and all its other media activities to be sold ASAP.

    Preferably by IPO to NZ qualifying citizens.

    And NZ Institutions initially as underwriters.

    This needs to go private ASAP, and there has never been a better time!!

    Plus, I think the AIA deal with Canadian Super Scheme needs exhuming.

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  10. Fernando (11 comments) says:

    Ross – the fund is designed to deliver returns over the long term. We aren’t there yet.

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  11. georgebolwing (846 comments) says:

    Two issues.

    First, contributions to the fund are funded from taxes, which have economic costs, which economists call “deadweight costs” or the “excess burden” of taxes. So any calculation of the social cost and benefits of the fund have to include these. While very difficult to measure, international studies suggest that, at the margin, these deadweight costs can be in the order of 30-50% of the revenue raised.

    Second, the Government is not a business, making rational investment decisions. It is not the role of the government to directly acquire increasing portions of the productive sector and use the income to fund programmes. The logical conclusion of this is full state control of the whole economy.

    The biggest risk is that the Fund’s purely commercial role gets perverted into social objectives. This way economic ruin lies. We will end up with the Fund investing in low-performing assets, like SOEs, to achieve the political objectives of the Government of the day.

    The sooner the Fund is closed down and its assets given back to their owners – the taxpayer, the better.

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  12. Ratbiter (1,265 comments) says:

    Ahh yes.

    Where would political commentary be, without that reliable old chestnut “The [other side] are all just a pack of hypocrites” eh?

    But not any old hypocrisy – oh no. Now they’ve plumbed new depths, committing ABSOLUTE hypocrisy! Wow. I see your bling and raise you a bling bling, gangster..

    [DPF: Yep this is about as hypocritical as you can get - attacking the Government for saying they will consider doing exactly what Dr Cullen said would happen when they launched the scheme. There are minor hypocrisies all the time. This is about as big as it gets.]

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  13. Brian Smaller (4,023 comments) says:

    [DPF: Yep this is about as hypocritical as you can get - attacking the Government for saying they will consider doing exactly what Dr Cullen said would happen when they launched the scheme. There are minor hypocrisies all the time. This is about as big as it gets.]

    Not to people like Ratibiter. His masters could say anything and he will defend it no matter how demonstrably hypocritical it is.

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  14. gd (2,286 comments) says:

    dear me By now DPF you and the others here must realise that for the Socilaists words mean what they want them to mean and at the time they want to mean what they want them to mean

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  15. transmogrifier (522 comments) says:

    gd: please be fair and replace “socialists” (sorry, Socilaists) with “politicians” in your sentence. You’d be on to something then. Otherwise you’re just another silly little cheerleader.

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  16. Fernando (11 comments) says:

    DPF – My analysis doesn’t result in that outcome. There would obviously be limits to the size of a sensible investment but the decision on how much we invest should not be constrained by the size of a surplus.

    Why should the investment be limited necessarily to surpluses anyway? If you accept that the benefit of investing surpluses in the fund outweighs the benefit of repaying debt, how does incurring more debt to fund investment cause concern? This surplus constraint seems arbitrary and to have been driven by political expediency, no more.

    [DPF: There are numerous responses. The first is that the higher our gross debt goes, the more likely our credit rating drops. That means not only does the NZG pay more for every dollar they borrow - so will every business and homeowner in NZ. ]

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  17. GPT1 (2,121 comments) says:

    Cullen Fund was dumb to start with. Investment in infrastructure to grow the economy so can afford old people would have been better. Borrowing to keep it going whilst times are tough. Madness.

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  18. burt (8,269 comments) says:

    Fernando

    There would obviously be limits to the size of a sensible investment but the decision on how much we invest should not be constrained by the size of a surplus.

    So you disagree with Labour & National. Well done! Here was me thinking you were a sock puppet for Labour when really you are just a sock puppet for the current Labour party position. Phew – it’s good to know your position has no basis in ideology or reason – just follow the current party lines without thinking.

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  19. Manolo (13,754 comments) says:

    People like Ratbiter, and others of the same ilk, are just echo chambers for their socialists masters. They repeat the mantra fed from higher up the command chain without considering it or even thinking about it.

    Ratbiter suffers from “mental slavery”, i.e., the inability to question orders but to follow ideology blindly, despite of the gaping holes in it.

    Try to engage a socialist in debate and most of the time you get the denial line (never being tried anywhere, the USSR wasn’t bad, etc), or the blame line (the culprits are the oppresor white men, the rich, capitalism, etc.).

    Lefities are at a loss to explain why socialism and communisn have caused so much misery over the years. Despite all this, they insist on foisting these abject systems on us.

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  20. Kimble (4,438 comments) says:

    “Why should the investment be limited necessarily to surpluses anyway?”

    Off the top of my head: generating more debt is likely to lower our overall credit rating meaning we have to borrow at less favourable rates. Ergo the level of debt can itself alter the payoff of borrowing to invest.

    Also, part of the point of the super fund was to use the tax surpluses generated by workers today, to pay for the pension costs of those same workers in the future. By borrowing to invest, all we would be doing is paying for the pension costs of tomorrow by forcing the workers of tomorrow to pay off our debts today. In my opinion, the intergenerational equity imbalance issue outweighs any expected premium from borrowing to invest.

    One more thing to consider, while the difference between the expected gain from investing and the expected cost of borrowing may look signiciant right now, borrowing to invest increases our risk. Currently, if there is a shortfall in the final value of the investment, then money will have to be borrowed in the future to make it up. If we borrow today to invest today, an equivalent shortfall will require money to be borrowed to make up the difference PLUS we would need to borrow to pay back the previous loans.

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  21. Wycroft (873 comments) says:

    Where’s Trevor Mallard when you need some reasonable and objective commentary on Labour’s hyprocrisy?

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  22. david (2,557 comments) says:

    IMHO the Cullen Fund was never about superannuation as it’s prime rationale. That was just a by-product used to sell it to a gullible electorate.

    The real reason for the fund was that it was a big enough black hole into which Cullen could pour any gods amount of cash and avoid reducing the tax take. Remember this – the surpluses he talked about were purely the result of overtaxation.

    Labour was philosophically opposed to reducing taxes as that might allow the electorate to make rational decisions for itself and would ultimately result in pressure going on to the role of Government in society so … he created a bloody great slop bucket that he could fill with as little or as much overtaxation he could manage in any particular year.

    It matters not that the fund has had enormous losses (and for the ignorant, some of these are definitely realised losses as the equities were held in some cases in companies that have folded and in others where the shareholding has been massively diluted by the good grace of the Obamamaniac).

    That is why he built in the facility to vary the contribution amount.

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  23. Poliwatch (335 comments) says:

    The big problem with this fund is that it is called the NZ SUPER FUND (I know that is not its exact name). And sold to us as to be used at the time as being when us baby boomers (I’m at the very end of that tail) retire.

    Lets get real. It is a fund set up by Cullen (wisely – grief, did I just say that) to put surplus cash away for a “rainy day”. This is what any wise household or business does. It stops reckless spending (OK, they managed to that as well). When you don’t have surpluses then you cannot put the funds away – it is that simple.

    The question is when is the “rainy day”. Is it in 20 years and to be used for retirement or is it in fact now when we need to stimulate the economy. But I could see the howls of protest if the government started to use it for that now – and I am not sure that I agree that it would be a good move. John Key is a bit smarter than that by making the fund now invest 40% of its funds in NZ projects. He is pulling the funds out for what it is needed for but making it look like a continuance of the fund by calling this investments. It will only be seen as such when the calibre of the projects can be identified AND more importantly when the investment returns start to flow back to the fund. But like Cullen, Key knows exactly what this fund is about.

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  24. dad4justice (8,217 comments) says:

    Key knows what he is doing. Thank God caustic Kullen hasn’t got his greedy hands on the funds. The Liarbour fallout is massive, many causalities, while Aunty Helen gets a plumb UN job! The demented fools put us in the crap! I hope history is savage to the absolute power regime of corrupt scum.

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  25. Poliwatch (335 comments) says:

    David, you were obviously typing the same time I was and I agree with your comments.

    In regards to the taxation question, it is a moot point if the over taxation went into the Super Fund or into excessive spending.

    At least the Super Fund was an investment whereas the excessive spending was just consumption.

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  26. gd (2,286 comments) says:

    transmogrifier Moi little little cheerleader? I dont think so Actually “Freedom fighter” is more the term that fits this persona

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  27. Fernando (11 comments) says:

    DPF – I agree but the surplus constraint is still arbitrary as it assumes that any additional debt will affect credit ratings (not necessarily the case) and it assumes credit agencies only look at gross and not net debt levels. I also don’t understand why super fund investments have been landed with this constraint when no other government spending is expressly so limited (where’s the debate on the tax cuts, for example?).

    [DPF: Again you are wrong. It is not just a form of spending. The scheme was designed to be funded from surpluses. Dr Cullen says so. I doubt Parliament would have ever voted for the scheme if it had been sold on we will put money into it even if running huge deficits.]

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  28. Ratbiter (1,265 comments) says:

    Manolo & Brian Smaller – where am I defending, repeating or echoing what Labour said re the super fund?

    I was talking about cries of “Hypocrisy!!” and how they are becoming a bit of a staple. Pay attention, dears.

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  29. transmogrifier (522 comments) says:

    gd: why on earth would you be fighting freedom? I like freedom. It’s awesome. Leave it alone.

    manolo: easy on those generalisations there buddy, save some for the rest of us. You keep wasting them like that, price is going to shoot up and we’ll have to actually start thinking about stuff and addressing people individually. Who needs that?

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  30. Ratbiter (1,265 comments) says:

    All who disagree with me = Socialists.

    Generalisations? Don’t know what you’re talking about. But don’t try it with me, you dirty SOCIALIST :-P

    Indeed Baiter has taught young Manolo well…

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  31. RightNow (6,994 comments) says:

    Borrowing to invest in this climate seems pretty foolish. One would have to be drunk, high, wearing rose coloured glasses and prepared to buy some prime beach-front property in Waiouru.
    This is a global recession in it’s early stages. There isn’t a magic fix that is going to avert it. There will be blood.

    Does iPredict have anything going on the value of the Cullen fund? I’d put a bit on it to lose another 5% by the end of the year.

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  32. david (2,557 comments) says:

    Poliwatch re your 2.05
    Snap.

    The surpluses I was referring to were calculated AFTER the big Gummint spendup. But even Cullen couldn’t sell the idea of the gummint spending even more than the obscene amounts he already had without his own centrists revolting on grounds of xcessive waste.

    Mind you he tried. Take the increase in Vote Health – billions without discernible effect, education – billions without discernible effect, Overruns on prisons, blowouts in ACC, total loss of budgetary control in defence procurement – throw away several more billion, more Government departments several hundreds of millions with no discernible effect, an attempt to build a National Stadium – failed but would have chewed up another billion or so, upgrade all departments’ accommodation in Wellington, refurbish Government House – it goes on and on. The only thing he was a bit slow on was the Train Set – that would have (and surely will) soak up a couple of billion when it is counted after a year or so.

    Would have been nice to have had a couple of power stations though.

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  33. thedavincimode (6,759 comments) says:

    Surplus shmerplus

    There were never any “surpluses”. NZ Inc has always been a net borrower. The decision to invest (ie contribute) should be driven by a risk and opportunity cost adjusted return that exceeds gummint’s marginal cost of funds. Macro drivers mean those sums are more complicated at the g’mint level relative to the entity/household level, but the principle remains the same.

    Goverments aren’t businesses but they still borrow. The types of arguments advanced by Brian Fallow et al that, in effect, suggest you should average down the cost of funds across all sources of g’mint’s funds is simply rubbish . Every choice regarding expenditure is at the margin. The fact that we might view some expenditures (eg health or education) as primarily reflecting social returns doesn’t mean that we shouldn’t evaluate expenditures with predominantly financial returns on the basis of the marginal financial returns. The Fallow type arguments are indicative only of the prospect that the brains of the proponents were sufficiently small to fall out of their ears when they were asleep the night before.

    The REAL problem for the fund is downside in value and, assuming the right opportunities come along, whether investment (ie contribution to the fund) compromises other fiscal objectives (eg though our ability to borrow for more important purposes, or the effect on G’mint funding costs). We are confronted with both issues now.

    Only a bunch of utter cretins and a pointless flapping seagull squawking “look at me, look at me I’m still important” would advocate contributions to the fund without regard to these factors.

    … and they have.

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