Dom Post editorial on Super
June 3rd, 2009 at 9:26 am by David FarrarA somewhat mixed editorial from the Dom Post:
Last week’s suspension of contributions to the Cullen superannuation fund has made one unpalatable fact painfully clear. The age of eligibility for national superannuation is going to rise.
The suspension has not affected that fact significanly. It has always been likely at some future stage. Even Dr Cullen said so.
That is not what the Government says. Both Prime Minister John Key and Finance Minister Bill English say NZ Super will continue to be paid at a minimum of 66 per cent of the average wage from the age of 65.
And that will be the case while they are in office.
The reason the scheme will have to change is that there is a $31 billion hole in the government accounts. That is the hole that will be created over the next decade as a result of the Government’s decision to “temporarily” halt contributions to the fund established by former finance minister Michael Cullen to partially pre-fund the superannuation costs of baby boomers.
No, no, no, no. This is just crap. Even ignoring the reduced debt by suspending contributions, the impact on future superannuation is minimal. Taxpayers in 2050 will fund 91% of super, rather than 88%. The so called hole has minimal impact.
Our level of economic growth is what will determine future affordability.
Stopping contributions to the fund was the right thing to do. Despite the protestations of Labour, it makes no sense to borrow money to speculate on the world’s sharemarkets. Doubters should consider the performance of the fund since it was established in 2003 with the objective of exceeding the risk-free rate of return the interest rate on Treasury bills by 2.5 per cent. Its annualised rate of return is 3.26 per cent about half the Treasury rate and, in the year to April, the fund suffered losses of almost 30 per cent, more than double the average losses of retail managed funds.
Indeed. If the Fund had never been set up, NZ would be in a better position to fund future superannuation. That is a fact – not a projection.
Sure, the world is in the midst of the worst economic downturn since the Great Depression; sure, markets will eventually bounce back; but there is no certainty about which ones or when.
Politicians who think they can read economic portents are free to play the markets, but they should use their own money.
I think it is quite possible that there could be another crisis in five or six years when the level of US Federal Debt gets so high the Government effectively defaults by printing more money to pay its debts.
Related posts:
- More on super costs
- Some Super Facts
- Roughan on Super Fund
- Absolute hypocrisy from Labour over NZ Super Fund
June 3rd, 2009 at 9:32 am
So before the economic theorists get in here and start throwing numbers about with gay abandon, let me say what the bottom line of this issue really is.
Through all of the propaganda and lies to the contrary, this one measure shines through- there is no way the government can care for the aged because socialism has destroyed this country’s prosperity.
Vote:June 3rd, 2009 at 9:43 am
There was also a letter to the Editor this morning from Cullen, suggesting that if there were to be no Super Fund contributions for another 10 years that they should rename it “the English Fund”.
Time for a snarky letter to the Dom I think, along the lines:
A reply to Michael Cullen, as Bill English has merely implemented exactly the tactics with regard to contributions to the super fund that you set out when introducing the fund, that is contributions from surpluses, your suggestion is farcical. We should instead focus on the grossly incompetent stewardship you exhibited while Finance Minister for 9 years that has led to the forecast of a decade of deficits. You had 9 years of almost unprecedented good luck with benign overseas conditions, and you entirely stuffed it up by a shameless vote buying unsustainable expansion of government spending.
I suggest you should fade into a quiet but extremely well paid retirement, well paid mind you by the very taxpayers you screwed for years. If you poke your head out with such dishonest comments you will receive all the derision for your unpleasantly self serving and corrupt behaviour that you deserve.
Vote:June 3rd, 2009 at 9:48 am
“Redbaiter
Through all of the propaganda and lies to the contrary, this one measure shines through- there is no way the government can care for the aged because socialism has destroyed this country’s prosperity.”
No, that is completely untrue, if you can’t see why then that is because your a gormless knuckle dragging moron and there is no point even trying to explain to you why.
Vote:June 3rd, 2009 at 9:48 am
John Key ripped the super fund good and proper. Its a disgusting mess that future generations will have to clean up.
Vote:June 3rd, 2009 at 9:53 am
seems pretty obvious to me that if you want to afford to pay super in the future, invest in NZ’s capacity to do so (education, R&D, infrastructure etc) rather than play the sharemarket. Thats why the Greens opposed it in the first place.
Vote:June 3rd, 2009 at 10:04 am
Much as I’m enjoying some of the polemics from the left, this has to be recognised as a change that makes very little difference to future capacity to pay superannuation.
9/10ths of national super will continue to be met- with or without these contributions- through taxpayers.
Kiwi-saver has been made more accessible by reducing the contributions to the 2% formula.
The architect of the Cullen Fund said it ought to be funded out of surpluses, not borrowing.
The Cullen Fund is underperforming- even during finanically benign conditions. Note that these funds weren’t conjured out of thin air. They were taken from households and businesses. So we have basically deprived households and businesses of savings and capital to generate wealth. It’s gone to a fund that is not meeting it’s targetted returns. You have to be pretty nuts to consider borrowing money to put more into this fund as a smart idea.
This is a far dumber way to provide for future retirement income than trying to lift growth and productivity in this economy. A small increase in the long run growth rate for the economy will cover the hypothesised 3% gap easily- and without the risk of dumping borrowed money into ailing equity markets.
Vote:June 3rd, 2009 at 10:06 am
I like the way that the left are promoting the idea that the Cullen Fund provided extremely good returns, but only if you ignore the years when the losses more than wiped out those returns. By pretending that there was no risk in the past, they’ve dreamed up a risk free investment for the future.
Vote:June 3rd, 2009 at 10:35 am
The Cullen fund is a security blanket to help out future governments who want to fund retirement in case things turn bad. The money that would have been available for other uses, but then again it may have just contributed to inflation and been wasted on things like tax cuts, which would have caused inflation and more foreign debt. Unless you can find better ways of using the money during an economic boom, I cannot see what the problem with it existing is. I find it far more preferable to the situation that exists in Australia where the funds management industry cream off profit from taxpayers.
Vote:As any financial investor will tell you, performance of funds cannot be used to predict future performance.
June 3rd, 2009 at 10:45 am
Sorry, DPF, but I cannot agree with the second part of that statement.
You may be correct in that the return on the money put into the fund has been (to this specific date) less than the risk free rate of return from (for example) Treasury bonds. BUT, if the money had not been put into the fund what would have happened to it? The answer to THAT question is speculation, not fact. And my speculation is that Labour would have spent it.
I find it hard to swallow this one too. The problem is that NZ Super is index-linked to average wages, so the cost of it rises along with growth.
Vote:June 3rd, 2009 at 11:12 am
I have to agree with Nandor here. The way to pay for any future government spending is to invest in economic growth and hence the tax base. I may differ on the targets for such investment but the broad thinking is the same. Borrowing 100% to speculate on equity markets is a recipe for economic decline.
Vote:June 3rd, 2009 at 11:19 am
S.russell, “The problem is that NZ Super is index-linked to average wages, so the cost of it rises along with growth”
You should think outside of the square a little. Average wage does not reflect average income. Big problem with New Zealand is our lack of savings. Kiwisaver may correct some of this but it is not the total solution. With economic growth, people should be able to save more and have alternative income above wages earned. A better business environment may cater for more businesses and profit from small and medium enterprises. All this will grow our earnings and tax base outside of wages earned. While wages may need to rise, the rate will be less than for total income.
Vote:June 3rd, 2009 at 1:59 pm
Grizz,
I would love to see a higher savings rate, but I fear that higher income will feed straight into higher spending, without other structural changes. Where is the evidence that higher incomes result in higher savings rates? On the face of it higher incomes seem to have the opposite effect – many of the highest income nations are the lowest savers.
I must also point out that even if Kiwis save heaps and make themselves wealthy in retirement, this does not relieve the Govt of its obligation to keep paying out super to everyone over 65 at 66% of the average wage. So the fiscal problem does not go away.
Vote: