Editorials on Super Fund
March 2nd, 2009 at 10:00 am by David FarrarTwo differing editorials on the Super Fund. The Herald sort of supports maitaining contributions:
The fund has lost the last two years’ worth of contributions in the downturn.
But it needs to be remembered that these losses exist only on paper.
It is easy to say they are only paper losses, but the fact remains that the Fund has earnt less money since it started, that one would have got by paying off debt. It is about opportunity cost. The Fund has actually left NZ less well positioned to pay for future superannuation.
Equally, it is misleading to single out the fund when talking of borrowing. It is simply part of the Government’s spending programme, some of which will be funded by tax and some by resort to the debt market. It would be just as rational to talk of tax cuts, or health or education for that matter, being funded by borrowing.
I disagree with this analysis. The Fund is not just another type of spending. It was set up specifically to be funded out of surplus income – the whole idea was to save money now to prevent having to borrow it later. It was never about borrowing money now to save.
It is important to stress that this whole question is about payments into the fund, not payments out. It is highly irresponsible of the Labour Party leader to suggest that the level of pensions might be at risk, now or in the future. This fund, as Phil Goff well knows, will do no more than partially fund future pensions when the bulk of the baby-boom moves into retirement.
Here we agree.
The Government needs to estimate whether the accumulated debt from borrowing to make a contribution this year would nullify the fund’s likely earnings on the borrowed sum over the next decade.
By this logic, if the Government thinks it can make more in the fund, than the cost of borrowing, it should borrow say $50 billion, and that way make heaps of money.
The ODT starts better:
At first glance, it defies logic to borrow money in order to save, so those commentators now calling for payments to the New Zealand Superannuation Fund to be suspended – either indefinitely or until the economy turns around and the country is once again able to run budget surpluses – are advocating from a position of some strength.
When the country is stretched, as it is likely to be in the coming months when the worst effects of the recession hit home, with businesses failing, unemployment figures rising and true hardship beginning to reveal itself on our urban street-corners, can the Government really afford to be putting $2 billion worth of liquidity away into a leaking piggy bank – and to be borrowing for the privilege? In such times of economic hardship, the answer would appear to be a firm “no”, but then for some economists and politicians, the concept of a super fund was always undesirable and illogical.
Absolutely the answer is no.
Labour opposes a suspension of payments, as do others who argue for a long-term investment view.
Just as many ordinary householders pay mortgages and at the same time save for their own superannuation through investments in bonds and equities – when economic orthodoxy suggests they would be better off ridding themselves of the mortgage first – it does not necessarily follow that governments should never borrow to save.
This is a false analogy. The key difference is the Household is in surplus. In fact it is so much in surplus it is able to pay its bills, save for the future and repay debt. This is very different to the Government that is so badly in deficit it is having to borrow billions just to pay the day to day bills.
If a government is able to borrow at a low interest rate, and with a reasonable degree of certainty predict a generous margin on the return, might this not make sense?
As I said above, why stop at $2 billion a year. Let borrow trillions and make ourselves all really rich.
Related posts:
- Absolute hypocrisy from Labour over NZ Super Fund
- Orr on Super Fund
- The NZ Super Fund
- More on Super Fund
March 2nd, 2009 at 10:22 am
Borrowing to invest works… just ask Iceland.
Nah, I still got nothing:-(
Vote:March 2nd, 2009 at 10:33 am
Whats the political risk David?
Suspending contributions might cost 5% in the polls?
It needs to be done.
Vote:March 2nd, 2009 at 10:36 am
I suggest that the the government should when possible also look at dismantling the Working for families – especially for those in the high income brackets. and gradually undue it all the way down the chain – replacing it with tax cuts. Not an easy thing to do – but can the country afford not to undo WFF given the looming deficits in coming years.
Vote:March 2nd, 2009 at 10:41 am
I still think that the best and most equitable way to lower taxes is to make the first $xK of income tax-free.
It works in a number of other countries and gives maximum benefit (as a percentage of income) to the poor but an equal benefit (in terms of actual return) to all.
An added bonus is that it also saves a *mountain* of paperwork for the IRD when dealing with those earning below the threshold.
It also makes life *much* easier for those who might be tempted to employ people on a part-time basis such that their earnings also fall below the threshold – no PAYE to worry about.
However, despite the many benefits such a move would offer, no government seems willing to actually relinquish the power that taxation gives them over even the most lowly paid.
I think that shows what the *real* priorities are for those in parliament.
Vote:March 2nd, 2009 at 10:58 am
Monty says at 10:36 am
That’s National’s long term plan based on the assumption that they make three terms in office. Just in time for Labour to get back in and stuff the country up some more.
That’s why New Zealand has no long term future. Failure has been locked into the system and the New Zealanders who remain in the country are collectively to stupid to do anything about it.
Vote:March 2nd, 2009 at 11:12 am
Monty – they wont ditch WFF till their next term
We gotta keep punishing those that have put off having kids!
Vote:March 2nd, 2009 at 11:40 am
So when a $50 dollar note blows out of your wallet.
It’s only a paper loss.
If you never manage to collect that note again, don’t worry. It was only paper.
What huge apologist BS from these journalists.
Presumably had the finds been vested in a large payout Ponzi schem and then successfully withdrawn intact that would have been an immaterial paper profit that wouldn’t count either?
Vote:March 2nd, 2009 at 6:09 pm
Earth pig’s comment on tax is relevant – Lived and worked in several different tax regimes and first time I’ve seen a tax on low income workers – what is the point? That’s right – to waste a bit of it on civil masters and then be seen to give it back.
Broken record – Cullen’s folly was never a reasonable economic concept – we have always had debt – it has never been likely to beat the debt costs in terms of returns – it was put in place after the longest bull market on record when, of course, returns would trend back to the long term average. It used professional investment advisors (professional not being my definition of them) most of whom cannot even beat passive investing. Maybe we could use the fund to fix up kiwifail?
However, it probably is not a good idea to get it rid of it at the current firesale prices – though the drop could go further. Damn! Cullen does it again. A genius at screwing NZ over. As soon as it looks like there has been some sort of recovery I would sell it all off and use the money for even more tax cuts. Taking money out of an economy slows its growth – after me – taking money out of an economy slows its growth – taking ……
Vote:March 2nd, 2009 at 6:57 pm
I agree with Monty, kick WFF to the curb, I would be happy to trade my WFF for a tax credit for the same amount as my current WFF. Last years tax was about $4000 more then our WFF, it’s fucking madness that the government hands out money with one hand then takes with the other, how many hands does this loot pass through and just what is the point, it’s got me stuffed. If WFF is to go it should go now as the moaning will have died down in 3 years. Just like every other form of welfare ( sorry not welfare, bribes) the evil socialists installed, WFF is now another drug for the people, it’s probably time to go cold turkey.
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