Editorials on Super Fund

Two 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.