Some Super Facts
June 2nd, 2009 at 12:00 pm by David FarrarThe Dominion Post appears to have a front page jihad against the Government. On Friday their front page boomed that it was the slash and burn budget, with holocaust fire type illustrations on their billboards.
Yes the budget that (despite the global recession) protected every existing social entitlement, boosted health, education and justice spending, and cancelled future tax cuts was headlined “slash and burn” as if it was the 1991 Mother of all Budgets. It has been years since I saw such a misleading front page. There are many criticisms you can make of the budget – but calling it slash and burn is not one of them. Disgraceful.
Then on Saturday the Dominion Post cries out “Who will pay for our super?“, saying there will be a $37 billion gap in the Super Fund in 2030, making future superannuation unaffordable.
This is economic illiteracy on two fronts, and I will detail both. The first is ignoring that borrowing to contribute to the Super Fund will equally make future superannuation unaffordable, and the second is what proportion of future superannuation is funded by the Fund.
First of all, it is true that under the 11 year contributions holiday, the Super Fund in 2030 will be worth only $81 billion instead of $118 billion – a $37 billion difference.
But let us look at what the cost of those contributions would have been. Over the 11 years 2009 to 2020, there would be $19.5 billion of borrowing. Then the interest on the borrowing (calculated at 6.73% – the average cost of Govt bonds according to the Super Fund) would be $7.7 billion. So by 2030, the Crown would have an extra $29 billion of borrowing. The difference between the extra debt and the fund’s level is estimated to be $8 billion – less than 1/4 of the $37 billion cited by the Dom Post.
An extra $29 billion of debt (costing $2 billion a year more in interest) makes future super almost as difficult to pay for, as having $37 billion less in the Super Fund.
And if we get a credit downgrade, leading to higher interest rates, you could end up with debt rising by far more than the shortfall in the Super Fund. Likewise of the Super Fund does not meet targets, you can end up with less money.
What the Dom Post failed to explain, is that what threatens future superannuation is not how much you invest in the Super Fund, but the level of economic growth New Zealand has. The $50 billion wiped off the economy is what has created the problem. You can not grow money – you need to earn it. The solution to future superannuation is increased economic growth – something worth remembering.
Treasury have done a useful report on the impact of the suspension of contributions. Now this only looks at the Fund, not at the overall crown accounts with the impact of an increase in gross debt. But even putting aside the debt issue, the viability of future superannuation is not greatly changed:
In 2050, without a contribution holiday, the withdrawal from the Fund would have paid for 24% of the increase in net NZS expenditure (to GDP) compared to 2009 (or 11% of nominal net NZS expenditure in that year).
This means that in 2050, the Fund would pay for 11% of superannuation, and current taxpayers pay for 89%.
In 2050, with an eleven‐year contribution holiday, the withdrawal from the Fund would pay for 18% of the increase in net NZS expenditure (to GDP) compared to 2009 (or 8% of nominal net NZS expenditure in that year).
And with the contributions holiday, it means that in 2050 current taxpayers will be paying for 92% of superannuation, as opposed to 89%.
So remember this. Even if you discount the reduction in debt and finance costs by suspending contributions (which you shouldn’t anyway), the long term impact is that future taxpayers have to pay for 92% of superannuation, instead of 89%.
So when the Dominion Post bleats on its front page, who will pay for our superannuation, the answer is future taxpayers – as always.
So again, for those who are really slow:
- It is the lack of economic growth, not the decision to suspend Super Fund contributions, that most impacts the future affordability of superannuation.
- The suspension of contributions will merely mean that the percentage of future superannuation not funded by the Fund will increase from 89% to 92%
Phil Goff’s (and the Dom Post’s) insistence on borrowing to save is bizarre. Think of the analogy if you are a household.
You earn $60,000 a year. However your living expenses comes to $70,000 a year. You have a $10,000 a year shortfall. Due to this shortfall you are not making any repayments on your $200,000 mortgage. In fact you are having to borrow an extra $10,000 a year against your mortgage to cover your living costs. Now your house is worth only $350,000 so you know you can’t keep borrowing for much more than a decade before your credit runs out.
Phil Goff’s brillant policy is that you should borrow an additional $2,000 a year and invest it in overseas sharemarkets. That a household that already is borrowing $10,000 a year, is unable to make repayments on its mortgage, is being charged compounding interest – should borrow an extra $2.000 a year.
And Goff claims this will make your household more secure, as it will provide security for your retirement.
Now you might think – wait – we are going to lose our house if we don’t eventually start earning more than we spend. But Phil is saying no need to worry about that.
Now for those of you who agree with Phil Goff, I have good news for you. You as individuals can follow his advice. The Government has decided not to follow Goff’s advice – but you can.
So here is what you should do if you beleive Phil Goff. Head down to your bank manager. Show them your overdraft, your credit card debts and your mortgage. Explain to the bank manager that yes you are spending $10,000 a year more than you earn. Also explain to him or her that you want to increase spending even more, even though your income is unlikely to improve for some years. But then most of all explain that you want to borrow some more money fro the bank, so you can invest it on the sharemarket.
The manager may be hesitant, but explain that you are sure you will make more money in the long run. And offer to mortgage your house further to pay for the extra borrowing. So long as you offer security the bank will eventually agree.
Then after having extended the mortgage on your house, go off to your investment advisor and tell them to invest it in a fund that mirrors the Super Fund.
Now I don’t want to hear any excuses about why you can’t do this. If you want the Government to do this on your behalf, you should have the courage of your convictions and go do it yourself.
Related posts:
- Dom Post editorial on Super
- Absolute hypocrisy from Labour over NZ Super Fund
- More on super costs
- Editorials on Super Fund
June 2nd, 2009 at 12:06 pm
“Think of the analogy if you are a household.”
Except this is not a household, it is the government, which can borrow far more cheaply than a private individual.
There is certainly a debate to be had about this, but with respect your analogy is “economic illiteracy”
[DPF: Not far more cheaply. The return from the Super Fund is predicted to be more than the interest on your mortgage so rush out and increase your mortgage like a good chap]
Vote:June 2nd, 2009 at 12:10 pm
stay in denial sonic
Vote:June 2nd, 2009 at 12:13 pm
Sonic: how much exactly? “much more cheaply” sounds very anecdotal, not to mention a tad vague.
Vote:June 2nd, 2009 at 12:20 pm
A NZ government 10 year bond is 5.73% at the moment JCW. As I said I’m agnostic about the super fund, but comparing the situation to a household (as Bill English did on Sunday) is economic nonsense.
[DPF: And Sonic overlooks that if we keep borrowing it would increase to around 7.2% thanks to the credit downgrade. Sonic also fails the did he check his facts before he posted test - you can get a mortgage for 5.99% at the moment]
Vote:June 2nd, 2009 at 12:29 pm
What else the government spends our money on is also a factor: is paying welfare to middle and upper income families affordable and if the choice came between affording that or superannuation which would win?
Vote:June 2nd, 2009 at 12:33 pm
“And Sonic overlooks that if we keep borrowing it would increase to around 7.2% thanks to the credit downgrade. ”
Really David, you can predict bond prices that far in advance, I’d suggest you chuck in blogging and go work for Citybank!
My reservation about buying assets just now is a suspicion that this market rise is a bit of a “dead cat bounce” and that another big crash may be on the way, however David needs to take a course in economics 101, rather than just regurgitating Bill English’s talking points.
[DPF: Sonic doesn't think we won't have a credit downgrade if we keep borrowing? Obviously a financial genius]
Vote:June 2nd, 2009 at 12:33 pm
you can get a mortgage for 5.99% fixed for 10 years?
[DPF: Not fixed, but the Super Fund return is not fixed either]
Vote:June 2nd, 2009 at 12:34 pm
It seems to me that if sonic and Labour are right, the govt should borrow not $2 billion a year for the Super Fund but $200 billion a year. This could then be invested in equities and – given the left reckons profits of 6.57% a year are a dead cert – we could all stop paying tax and the profits would fund all our govt expenditure.
Vote:June 2nd, 2009 at 12:36 pm
And sonic, if you can predict the sharemarket through to 2050, you should do the same.
Vote:Amazing that govt’s borrowing to invest is not more widespread seeing that its all a one-way bet. You’d think Obama, Rudd and Brown would be doing the same.
June 2nd, 2009 at 12:38 pm
What else the government spends our money on is also a factor: is paying welfare to middle and upper income families affordable and if the choice came between affording that or superannuation which would win?
The Nats are prisoners of their pre-election promises. Key and English couldn’t scrap WFF (or interest free student loans) as well as their second tranche of taxes – they’d get wiped out in the polls. And Key promised to resign if he changed the current Super arrangement. So instead they’ve cut the funding for the super without changing the entitlement leaving it for some future government to take the popularity hit. It’s breathtakingly irresponsible.
Yes they needed to suspend the fund for a year or two, but they also needed to cut back WFF and other frivolous spending commitments. It might be ‘crazy’ to borrow to invest in super but it’s flat out fucking insane to borrow money just to give it away to high income families with children just because they happen to be a swing voting demographic that neither major party wants to piss off come election time.
[DPF: Danyel try reading what I posted - you say the funding has been cut for future superannuation and this is irresponsible. Even if you leave aside the reduction id debt, the future taxpayer's funding obligation has merely increased from 89% to 92%. For fuck's sake you make it sound like their obligation has gone from 30% to 70%. The changes are absolutely minimal on long term sustainability.
I agree with WFF but they need to do it in a good faith way - work out the sums and campaign on it in 2011.]
Vote:June 2nd, 2009 at 12:42 pm
“you can get a mortgage for 5.99% at the moment”
Oh dear, David that is 5.99% per annum, government debt is 5.99% over the whole period of the bond.
[DPF: Please tell me someone managed your finances for you. The Government does not do a ten year bond for one payment of 6% over ten years.
What you should be comparing the Fund to is the risk free rate of 6.73% as stated on the Fund's website. ]
Vote:June 2nd, 2009 at 12:47 pm
Sonic suggests NZ should operate a highly leveraged position to take advantage of current equities growth Sonic believes is doomed to fail – says this is best economic practice. WTF seems redundant.
Vote:June 2nd, 2009 at 12:49 pm
unaha, did you actually read what I said before jumping in like an ill trained puppy
“My reservation about buying assets just now is a suspicion that this market rise is a bit of a “dead cat bounce” and that another big crash may be on the way,”
Do try and keep up.
Vote:June 2nd, 2009 at 12:53 pm
I don’t buy the Dominion any longer. Are Tracey WATKIN and Vernon SMALL their new economic spokespeople. They used to have a chap called Terry HALL who was widely experienced and respected on financial matters. and I see a Rob STOCK won a Quantas Business Award. I wonder if they endorse the philosophy of borrowing to invest in the market, certainly HALL never recommended anything so bizarre, yet it seems WATKIN/SMALL are supplanting him. I also note these reporters don’t seem able to quote any wellknown local Money experts such as Gareth Morgan or Chris Lee in support of their philosophy.
Vote:June 2nd, 2009 at 12:54 pm
1. **Your** figures at the start of this post show that the cost of having this $37b asset is to borrow $29b. How is this not an excellent deal?
2. Your doom and gloom scenarios here are based on all kinds of Chicken Little nonsense. According to you, not investing in the fund WILL lead to a credit downgrade, whereas in reality we just got an upgrade. There is no way that this singular decision is the difference between an upgrade and a downgrade, especially when (as your figures show) NZ’s net position improves by investing in the fund. Standard and Poors are plenty smart enough to recognise the long term value of that proposition, even if you are not. And, as others have pointed out, any analogy between government finance and personal finance (or government finance and corporate finance, by the way) is entirely silly. They separate macroeconomics from microeconomics for a reason.
[DPF: Rob by your logic we should borrow $10b a year, not $2b for the Fund. The Fund was not created by Dr Cullen on the premise of borrowing. He was explicit at the time that it was to be funded out of surpluses.
Your arguing to not suspend contributions is the worst kind of conservatism - arguing for the status quo for the sake of it. Think if there was no existing Super Fund and in the 2009 budget Bill English had announced this great idea to borrow $2.5 billion a year - at a time where crown debt was skyrocketing - to invest in international financial markets. You would be saying it was an insane idea. The only reason you are backing the policy if because Labour introduced it - and even then ou are ignoring the clear intent that it was to be funded out of surpluses.
Also you are far too glib about the credit ratings. The $27b of extra borrowing is probably the largest single factor. If the recession last a year longer than expected, and we had continued with contributions, we could well face a downgrade.
The bottom line is that the affordabilty of future super will depend on our average economic growth in the next 20+ years.]
Vote:June 2nd, 2009 at 12:55 pm
I am trying sonic, but you are hard to follow.
You are stating that a government can borrow cheaply and invest for profit – that this is best economic practice.
But you are also saying that returns greater than that cost of borrowing are likely to be impossible, because you predict an impending crash.
You think we should borrow billions so we can waste it all investing on stocks about to fall off a cliff? WTF?
Vote:June 2nd, 2009 at 12:58 pm
I see you are still having trouble with a nuanced argument unaha. I’m saying that while I’m not in favour of borrowing for the super-fund at the moment, David’s arguments are totally absurd (ie assuming govt debt is sold at the same rate as a mortgage)
Got it? want me to draw a picture for you?
Vote:June 2nd, 2009 at 12:58 pm
Labour’s economic illiteracy should be no surprise given their employment history.
Vote:The Super Fund’s performance to date has been nothing short of abysmal. They have been massively overweight equities when they were significantly overpriced and massively underweight bonds, hence the significant underperformance. Remember that this is our money they are pissing away. In spite of this the plonkers managing the fund refuse to acknowledge that they have screwed up.
I may be old fashioned, but why would you give a bunch of idiots more money to manage when they have shown that they are incapable of managing the initial amounts given to them.
If you want equity exposure then you should simply do a series of debt-equity swaps on the major indices. This removes the idiots from the equation.
Phil Goff and the others are showing themselves to be what we already knew.. first class morons.
June 2nd, 2009 at 12:59 pm
So Sonic, if another crash is on the way, do you really think it is wise to borrow money to invest in equity markets. If you will not borrow money to put where your mouth is, then shut the fuck up!
The sonic’s Visanomics 101: Learning to borrow money with your Visa card to invest in super, then paying your visa bill with your Mastercard!
Vote:June 2nd, 2009 at 12:59 pm
Sonic,
Just answer one simple question. Where can the government invest $X billions that is going to deliver a rate of return greater than the cost of borrowing? Feel free to adjust the cost of borrowing as low as you feel neccessary.
Vote:June 2nd, 2009 at 12:59 pm
Rob, idiot:
1) There is risk involved in that. If you really believe it is a one-way, dead-cert bet, then why not borrow $290b to make $370b – $80b profit for no risk!
2) You obviously don’t understand the difference between macroeconomics and microeconomics. The government’s accounts are part of microeconomics – money in and money out of one organisation.
Again, if you are so right, how come Obama, Brown, Rudd etc aren’t borrowing to invest? They have the same demographic issues NZ faces.
Vote:June 2nd, 2009 at 1:00 pm
unaha-closp – sonic also has to come up with investments that are risk free to make his argument work.
Vote:June 2nd, 2009 at 1:04 pm
Further to my point (1) above, I take DPF’s figures as an admission by him that, in expectation, National just torched $8billion. Straight up torched it. That is an extraordinary admission, and will come back to bite National for sure.
[DPF: Now you are just pretending to be stupid. It is a projection. Not a real loss. With your stupidity you could claim that by not doubling the size of contributions, the Government has torched $16 billion. And hey by not increasing them ten-fold the Government has torched $80 billion.]
Vote:June 2nd, 2009 at 1:04 pm
Personally I would borrow to protect jobs in new Zealand not to play the markets. All I was (it seems vainly) pointing out was that David’s argument was an economically illiterate repetition of Mr English’s equally stupid comment on Sunday.
Over your head I know unaha, but what can I do?
Vote:June 2nd, 2009 at 1:10 pm
According to Gareth MORGAN……….The Super Fund has received about $15.2b in contributions, but has been hammered by the global sharemarket collapse in the past year and is now worth about $12.5b….
Vote:June 2nd, 2009 at 1:11 pm
Rob, idiot – the Treasury figures DPF quotes show nothing of the sort. They show that if aproximateky $20 billion over the next decade can be accessed at 4% and invested in equities that turn out to return 6.57% then the profit would be $8 billion by 2030. Lots of IFs there. And if you seriously think that this is guaranteed to the extent that NZ should do this – despite no other govt in the developed world thinking it is a good idea – then why not make the number $200b to get $80b?
Vote:We currently have a prime minister who is very comfortable investing in equity markets but he doesn’t think this is a good idea. Nor does Obama, Rudd or Brown. How come little old Rob Salmond from Wellington New Zealand knows so much more about international investment?
June 2nd, 2009 at 1:12 pm
“The Government does not do a ten year bond for one payment of 6% over ten years.”
David, yes it does, thats the point of a bond.
Honesty you should talk to someone before posting nonsense like that.
[DPF: Sonic stop talking shit. There is no long-term bond where the total interest is 6% as opposed to annual interest]
Vote:June 2nd, 2009 at 1:14 pm
All the folk talking about risks (especially george) need to realise that there are both upside and downside risks **in both borrowing costs and in investment returns**. That is why we deal in expectations every time we make any prediction about anything. It is standard practice. In this case, the expectation is substantially positive, making it a good idea from our vantage point today. And the break even point is, in my view, far enough away from the expected return that we can feel fairly comfortable about an overall positive return over the long term. To get back down to the break even point, **long term** returns would need to be around a third less than the treasury estimated, or **long term** borrowing costs be nearly double what is estimated. I think those scenarios are unlikely.
Vote:June 2nd, 2009 at 1:19 pm
Sonic you are describing an analogy between “borrowing to invest” and “borrowing to invest” as economically illiterate, based on one of the entities doing the borrowing being able to borrow more cheaply. Good luck with that.
Vote:June 2nd, 2009 at 1:20 pm
There is no point borrowing more until the country’s economy can increase production and increase economic growth. For those who have forgotten, there is a deep recession in the world after leading economies kept on borrowing more money without increasing production and growth to pay for it. We may be able to afford more borrowings if we increase economic growth. It seems that Sonic and Fish Head are a little “prematuro ejacularo” when it come to borrowing to invest in future spending.
Vote:June 2nd, 2009 at 1:20 pm
George: “We currently have a prime minister who is very comfortable investing in equity markets but he doesn’t think this is a good idea.”
I would phrase this a little differently. Something like: “We currently have a prime minister who is very comfortable making hard decisions that hurt others but not making hard decisions that hurt him. That is why he pushed off the hard political decisions facing the country today on to the governments of the 2020s, making them even harder decisions in the process.”
Vote:June 2nd, 2009 at 1:22 pm
Rob (at 1:14 pm): Go and do it then. You’ll be a rich man.
Rob (at 1:20 pm): What hard decisions in 2020? Having to meet 92% of Super costs out of that year’s tax take rather than 89%? That is a mere rounding error in the context of this issue.
Vote:June 2nd, 2009 at 1:24 pm
All this wise economic counsel… from lefties whose beloved Labour govt had NZ demonstrating what a recession looks like well before our OECD friends, and before the financial meltdown in the US. You guys really are market contrarians. Say buy and I’ll short. Say sell and I’ll go long.
Vote:June 2nd, 2009 at 1:27 pm
“All the folk talking about risks (especially george) need to realise that there are both upside and downside risks **in both borrowing costs and in investment returns**. That is why we deal in expectations every time we make any prediction about anything. It is standard practice. In this case, the expectation is substantially positive, making it a good idea from our vantage point today. And the break even point is, in my view, far enough away from the expected return that we can feel fairly comfortable about an overall positive return over the long term. To get back down to the break even point, **long term** returns would need to be around a third less than the treasury estimated, or **long term** borrowing costs be nearly double what is estimated. I think those scenarios are unlikely.”
In other words, we could get lucky.
Vote:June 2nd, 2009 at 1:29 pm
George
Hard decisions is what to do about the baby boomers expecting pension, we can be honest now and say not a hope in hell or put it off till later and make the situation worse.
Vote:Because i and i suspect many others wont be be paying half our wages to support the elderly who have fucked the country with socialist ideals.
June 2nd, 2009 at 1:30 pm
Well said Redbaiter (and I don’t say that very often).
Vote:June 2nd, 2009 at 1:32 pm
Banana Llama – see http://www.nzsuperfund.co.nz/index.asp?PageID=2145833910
Vote:You won’t need to pay half your wages to support the elderly. The worst it will cost is 6.6% of GDP. The talk of crisis is nonsense.
June 2nd, 2009 at 1:32 pm
“The Government does not do a ten year bond for one payment of 6% over ten years.”
David, yes it does, thats the point of a bond.
Honesty you should talk to someone before posting nonsense like that.” ~Sonic~
D’Oh! I don’t even need to look that up to know its complete and utter nonesense. That gives 0.6% interest per year… No one in their right mind would buy that bond, you would have to be monumentally stupid when you could be earning several times that on a simple term deposit at a big bank.
Vote:June 2nd, 2009 at 1:34 pm
The fact that DPF’s defense here relies on reductio ad absurdem arguments (“by your logic we should borrow a gazillion dollars!”), unlikely hypotheticals (“what if Treasury was totally wrong about everything that hurts my argument, but spot on about everything that helps my argument!”), and unsupported assertion (“S&P would have completely hated it is NZ had tried to make its superannuation scheme more sustainable, trust me!”) shows that his argument is really weak given Labour’s actual arguments, Treasury’s actual projections, and S&P’s actual position. Happy spinning David, but the tide is against you on this one.
[DPF: Rob thinks it is an unsupported assertion that S&P would not like an $27 billion increase in debt. What planet is Rob on? Hin Rob - that downgrade warning before the Budget - that ws the little clue. You know the release they put out to say debt had to be reduced.
And I am still waiting for Rob to explain why Dr Cullen got it wrong when he said the Fund is to be funded out of surpluses]
Vote:June 2nd, 2009 at 1:40 pm
Idiot Rob says: “The fact that DPF’s defense here relies on reductio ad absurdem arguments (”by your logic we should borrow a gazillion dollars!”).”
Well, if not a gazillion dollars, then how much? Exactly $2 billion? $250 million like English is doing? $3 billion? $1.5 billion?
How much should be borrowed and invested in equities, because according to you it’s a one-way bet.
And ehat are Labour’s “actual arguments”? They don’t seem much more than Cullen set the fund up, and we like it and if you suspend contributions and don’t borrow everyone will have their Super cut in 20 years – all of which is crap.
Vote:June 2nd, 2009 at 1:51 pm
And so far all of you are missing the tax returned on the fund which makes it a much better investment than would otherwise be the case.
[DPF: I believe Treasury advice is that if the money was not invested in the Fund, but instead given to taxpayers, they would invest it in activities that would pay much the same amount of tax - so they do not believe you should take tax into account when looking at the benefits]
Vote:June 2nd, 2009 at 1:54 pm
Rob: By “S&P’s actual position” I assume you mean that their negative outlook on NZ’s credit rating has been reversed since the budget? And that reducing government debt growth was essential to this change.
My argument agaisnt super fund contribtions can be sumarised thusly: the cost of this debt is unlikely to be worth what is made in the superfund especially because the true cost of this debt is not only the interest payments on what is borrowed, but also the the inability to apply cash productively in the future (as in tax cuts or expenditure which would accelerate economic growth) as this cash is going towards paying governement debt.
In other words there are two ways to fund superannuation: 1) encourage economic growth 2) superfund. Personally I think preferance should be given towards number 1.
Vote:June 2nd, 2009 at 2:09 pm
# Trevor Mallard (88) Vote: Add rating 0 Subtract rating 0 Says:
June 2nd, 2009 at 1:51 pm
And so far all of you are missing the tax returned on the fund which makes it a much better investment than would otherwise be the case.
Like the past 9 years when the private sector and households borrowed huge during the “leveraged up to the hilt” party of the century, the govt as a result was getting a huge amount of tax income and was able to waste and spend like a drunk sailor without borrowing…
Now the private sector borrowing has stopped, no more debt driven GDP growth, tax income is in reverse, so let’s just get the govt to borrow instead huh…
What has changed? The left still thinks we can live beyond our means forever…
Vote:June 2nd, 2009 at 2:11 pm
Any remotely reasonable approximation of the efficient market hypothesis suggests that low-risk simple arbitrages for $8 billion cannot exist in such an obvious manner. It could only be the case if the New Zealand government could borrow money at considerably lower interest rates than any other individual, firm or government in the world, which I doubt. $8 billion in expected value might be possible, but it would have to be at the expense of very high risk.
Vote:June 2nd, 2009 at 2:12 pm
You would convince me George (1:32) if this country was paying it’s way in the world.
Vote:June 2nd, 2009 at 2:14 pm
The left want to campaign on the basis that we can have free money.
It’s like they’ve elected Charles Ponzi as their leader.
Vote:June 2nd, 2009 at 2:27 pm
The only thing nuanced about Sonic is his autofellatio abilities
Vote:June 2nd, 2009 at 2:30 pm
Hahaha – you guys really have lost it today:
“[DPF: Now you are just pretending to be stupid. It is a projection…” That is why I wrote “in expectation.” There is only one side saying stupid things today – and I certainly hope you are pretending.
“[DPF: Rob thinks it is an unsupported assertion that S&P would not like an $27 billion increase in debt. What planet is Rob on?...” I’m on the planet where if you borrow $29 billion and turn it into $37 billion, your position has actually improved. Keep looking at only one side of the ledger if you like, but NZers are not as stupid as you appear to think they are.
DPF: “Hin Rob - that downgrade warning before the Budget - that ws the little clue.” Yes, I saw the part there where S&P said they especially don’t want the long term NZ govt position to improve through wise prefunding of superannuation. And I also saw all those statements from Moody’s and the OECD supporting that position.
George: “Well, if not a gazillion dollars, then how much? Exactly $2 billion? $250 million like English is doing? $3 billion? $1.5 billion?” How about exactly the amount of contributions required by the governing legislation, which both National and Labour support.
“[DPF: I believe Treasury advice is that if the money was not invested in the Fund, but instead given to taxpayers, they would invest it in activities that would pay much the same amount of tax” Except you aren’t giving that money to taxpayers, so the argument does not apply.
Goodnight.
[DPF: Yes Rob I would run off rather than try and explain why you are going against what Dr Cullen said when he launched KiwiSaver. ]
Vote:June 2nd, 2009 at 2:50 pm
You cannot really expect better from Tories Rob, after all they still believe in a magical “invisible hand” that makes everything ok.
Vote:June 2nd, 2009 at 2:57 pm
LOL, wise prefunding of super. Yeah, lets borrow and lose value and still have to fund the debt. Wise as bro, eh?
Salmond is still a knobjockey
Vote:June 2nd, 2009 at 3:06 pm
3, Cut superannuation rates.
Vote:June 2nd, 2009 at 3:09 pm
Save money, impoverish the old!
You really have all the political judgement of a small pebble unaha.
Vote:June 2nd, 2009 at 3:18 pm
[DPF: Rob thinks it is an unsupported assertion that S&P would not like an $27 billion increase in debt. What planet is Rob on? Hin Rob - that downgrade warning before the Budget - that ws the little clue. You know the release they put out to say debt had to be reduced.]
I’ve been wondering what planet a lot of those in the blogosphere have been on since the Budget was released. The huge difference between those based in reality (the reality that the budget addressed), and naive ideologues has never been more apparent.
Vote:June 2nd, 2009 at 3:22 pm
Since everyone seems to be talking to the Old Troll, Catatonic/Sonic, today, he might like to elaborate on what he means in his post about Government bond rates: :…Oh dear, David that is 5.99% per annum, government debt is 5.99% over the whole period of the bond.”
Is Catatonic suggesting that the coupon rate of Government bonds is one fixed payment only of a measly 6 per cent for the whole period of the bond (does he mean 1.2 per cent annually on a six year bond), while the private money others borrow incurs a non-fixed or fixed annual coupon payment (sometimes paid quarterly) ? If so, this is remarkable garbage, even for a Leftist troll.
He might consider the effect of currency movement on Government borrowing. NZ Govt bonds are now overwhelmingly owned abroad. If the kiwi dollar goes into a long decline, overseas investors will demand higher interest rates from the Government to compensate for the falling value of their capital.
Catatonic should also consider that the Government is going to be competing with local bodies, which will borrow tens of billions for infrastructure work. They will pay above the Government bond rate, though they have almost as solid security. This is thanks to power of lenders to collect through special rates in the unlikely.
Supply and demand sets State borrowing rates, and the supply is shrinking while the demand is soaring.
Catatonic should also explain why he believes State borrowing is so much better than all private sector borrowing, when companies can use a mixture of equity and credit to raise capital, e.g. convertible preference shares. They can issue pure equity, too, in place of borrowing, of course.
Catatonic, come out from the troll hideaway under the bridge and compare the economic performance of old East Germany and West Germany, and current South Korea and North Korea. These prove free enterprise and the private sector provide higher living standards than socialism.
As for DPF’s assertion that the DominionPost seems to be biased against the Government, he’s dead right. Fairly Fucked Media is obviously panicking in the face of shrinking advertising revenue and pressure on circulation (the paid-for papers not the “readership” figures publishers cling to these tough days).
Sorry, new Editor, no matter how loud you yell, Labour’s got no room in its leaking lifeboat to rescue you.
Vote:June 2nd, 2009 at 3:23 pm
Well, I see the thread’s been bogged down in the borrowing aspect, thanks mostly to the troll sonic and those silly enough to respond to him. The future economic growth factor that DPF touched on has been ignored. More the pity. I can remember reading a statistic in the 90s that had NZ’s growth simply kept up with (not exceeded) the OECD average over the last 20-30 years i.e. (60s-90s) the economy, average incomes and therefore the tax take would have been twice as high! It’s just staggering how much an extra 1% or 2% economic growth a year can make over the course of a few decades. We need to start growing at 5% or more NOW so our economy can produce the higher tax revenues later to cope with the Super burden without deadening the economy with high tax rates. I’m so sick of Labour and Labour-lite (National) pissing away our country’s future with every Budget.
Vote:June 2nd, 2009 at 3:30 pm
Poor Jack, another economic illiterate, is there are school somewhere you all learn this stuff?
East Germany circa 1980, is that really the best you have?
Vote:June 2nd, 2009 at 3:39 pm
Re Catatonic at 3.30: No, Mr Troll, North Korea is a more current example.
Actually you could help North Korea towards democracy. Troll north of the 38th Parallel on the Korean peninsula and Crazy Kim would put you through a state prison brain washing programme, and you would surely drive the interrogators to suicide. It would be like trying to brainwash a possum. Impossible. Nothing to work on.
I notice you ignore the request to clarify what your statement about (coupon) rates for Government bonds vis a vis those you suggested or implied for private sector borrowing.
Vote:June 2nd, 2009 at 3:41 pm
So jack, is your considered position that the Government borrows at the same rate as a private mortgage (As David so laughingly suggested)
Simple question, awaiting a simple answer.
Vote:June 2nd, 2009 at 3:44 pm
Mr Troll: Please don’t answer a question with a question. Answer mine (3.22 post) and I’ll answer yours.
Vote:June 2nd, 2009 at 3:45 pm
When politics clash with economic reality it seldom results in a victory for “political judgement”.
Vote:June 2nd, 2009 at 3:49 pm
So the “economic reality” is that this country is too poor to to provide for it’s old people. Sorry I’m not buying that mate.
Vote:June 2nd, 2009 at 3:51 pm
Poor Jack, cannot even answer one simple question, because we both know where that would lead.
Perhaps you should find a forum where no-one calls on your your economic gibberish Jack.
Vote:June 2nd, 2009 at 4:04 pm
You are on a thread arguing about how to best adopt a strategy to meet a projected shortfall in superannuation funding, but you are “not buying that” such a shortfall is going to take place. Interesting…
Vote:June 2nd, 2009 at 4:07 pm
Catatonic (3.51)… the troll thinks he has hijacked the forum.
Catatonic shows yet again that it is pointless to try to debate any topic with him. He wouldn’t last in any debating team outside one made up of patients in a psychiatric hospital.
Catatonic, is it true that you’re a Glaswegian? If so what shame and stain you bring to the reputation of Scotland, home of the great Adam Smith. Are you one of the stirring stewards who helped wreck the mighty heavy industry on the Clyde?
Whoops, I’m breaking my own rule. The way to stop sabotage by trolls like Catatonic is to ignore them.
Auld Lang Syne McTrrrroll!
Vote:June 2nd, 2009 at 4:12 pm
I think we can take it as read that Jack does know the answer to the question “is it your considered position that the Government borrows at the same rate as a private mortgage (As David so laughingly suggested)” but does not want to embarrass Mr Farrar by answering it, hence the gibbering in his previous contribution.
Poor Jack, it’s not easy being him you know.
Unaha, you are the one suggesting we have to cut superannuation not me, I’d be interested in you backing that up rather than wandering “jack like” through some fantasy debate of your own.
Vote:June 2nd, 2009 at 4:16 pm
Idiot Rob at 2.30 pm says:
“George: “Well, if not a gazillion dollars, then how much? Exactly $2 billion? $250 million like English is doing? $3 billion? $1.5 billion?” How about exactly the amount of contributions required by the governing legislation, which both National and Labour support.”
Thr problem is that the governing legislation doesn’t specify an exact amount for times of economic deficit and in fact provides for suspension when there is a deficit.
But I assume you mean $2 billion which has been the practice during times of surplus.
But what’s so magical about that amount? It would have led to the Fund paying 12% of the cost of Super at the peak. Why not a bit more to raise the 12% figure, or a bit less to make it a bit lower.
Your position can’t be defended.
Vote:June 2nd, 2009 at 4:17 pm
There is one aspect in this whole debate which has been overlooked in the rush to take sides. If the Government’s credit rating slides through extra borrowing the cost of private sector borrowing also rises. Since the private sector borrowing is much higher than the Government’s this would increase production costs and put added strain on employment. It would also lower the tax return to the Government since this extra would be claimed as an additional cost to the business. Therefore the extra cost to business and the reduced tax returns should be charged to the returns gained by the added investment.
Vote:June 2nd, 2009 at 4:17 pm
unaha-closp one problem with cutting super.
Vote:We old bastards tend to vote against any government that even mentions cutting super.
But, it would be interesting to see if the Nats/ACT have the cojones to try it on.
June 2nd, 2009 at 4:30 pm
“You cannot really expect better from Tories Rob, after all they still believe in a magical “invisible hand” that makes everything ok.” ~Sonic~
Interesting comment. I think dismissing the invisible hand of the market like that makes you a radical. But then again, lefties still believe in the magical power of government to do things better than the individual, and to make everything ok.
Vote:June 2nd, 2009 at 5:31 pm
As Peter Drucker said in a lecture I heard at Berkeley, “In property it’s location, location, location. In just about everything else it’s demographics, demographics, demographics.”
You may not believe this from reading the Green pages and all the fear stories about health but every year the life expectancy of the average male in NZ increases by three months. That means the average male life expectancy increases by one year every four years.
The female rate of increase is slightly lower but the males are in catch up mode.
When universal super was first introduced (about 1907?) only 15% of adult males lived long enough to collect it.
I am now 68 and am working as hard as ever and my earning power remains high although I am struggling somewhat to pay the taxes calculated on last years’ incomes.
I cringe when I am asked if I have some golden oldie card or find I can get perks paid for by the struggling young.
I have not retired because I have known for about 50 years that retirement is the most deadly disease or activity you can catch.
Concert conductors are the longest lived people because they get reasonable exercise but mainly they always have a concert booked for the next year – so they can’t die can they? That is why gardening is so good for us older folk – we are always planning for next year’s bounty.
So some time ago we should have started increasing the retirement age by one year every four years, and we should definitely start now.
We are not only living longer but also we are living more active lives. A person retiring today at 65 probably faces another twenty to twenty five years of active life. This makes the other issues of super pale into insignificance.
We cannot expect the young to support a huge cohort of people living to be a hundred.
Face reality. No one aged fifty today should be expecting to get tax payer funded pensions before 70. And soon that will be 75.
Vote:June 2nd, 2009 at 5:46 pm
David you can’t really believe that the present value of the sum of individual tax payments as a result of this change could possibly equal the present value of the tax forgone as a result. The super fund pays tax upfront on its gains. Not many individuals do.
Vote:June 2nd, 2009 at 5:49 pm
I would like to respond to Trevor Mallard’s statement he made a while back:
“and so far all of you are missing the tax returned on the fund which makes it a much better investment than would otherwise be the case.”
This is a totally lame comment from a former government Minister and lack complete common sense. I have had property investment companies, ie Blue Chip clones, encouraging me to borrow against the equity in my own home to put a 100% borrowings into some property investment scheme. The big selling point is the tax rebate. When I point out that I will only get 39% of the money back that I have to find from my own back pocket, they start feeling a little silly. The capital gains they were promising on their apartments has fallen flat now that the bubble has burst.
The reality is that for the government to invest in the superanuation fund, it has to first borrow the money overseas. The borrowing costs in that respect are higher and are prone to currency fluctuations. It could Issue more bonds, but they would have to offer higher interest rates to attract foreign capital. At a lending rate of 6 percent, the fund would have to see a return of greater than 6 percent before there would be any extra tax (Using FDR rules). A bad year would see a net interest loss to the government. Realistically, it would be difficult to sustain a return above inflation once interest costs are catered for. As markets are volatile, a few bad years (maybe such as now) would see debts outstripping assests. The onus will come down to our children to have to pay them off. Personally I am mildly bitter at the debts that baby boomers left my generation. (It is bad enough to be responsible for the retirement of 3 generations, my grandparents, my parents and mine) I would not want to do the same to my children. For the sake of having to increase 3% the value of future super payments from the annual tax take, I certainly do not want to gamble the future of New Zealand on the international debt markets.
The better way to invest in superannuation is to increase productivity, growth and therefore increase the tax base. This would serve to balance government books, provide a surplus for future superannuation payments or even tax cuts, further increasing economic activity.
By the way, I think Sonic is actually a Tori. He just likes to play the steriotypical dumb and clueless pinko Lefty devoid of any financial nous. Much Like Trever (I am yet to apologise to Melissa) Mallard.
Vote:June 2nd, 2009 at 5:54 pm
The problem is Trevor, is that you have to guarantee that the super fund will pay returns greater than the borrowing costs year in and year out to increase the tax take. Given the last couple of years, at 100% borrowing, you are wasting tax dollars trying to cover your borrowings.
Vote:June 2nd, 2009 at 5:56 pm
Lets put it another way Trevor, it is not common practice for individuals to buy shares at 100% margin. This is the domain of extreme risk takers, not that of a responsible government!
Vote:June 2nd, 2009 at 6:01 pm
Sonic:
I really can’t believe you wrote this!
One learns in Finance 101 that the coupon rate of a bond is expressed as an annual interest rate. Jack5 (at 3:22 pm) set out the correct position, and your glib response was rather disappointing.
If you won’t take any notice of DPF, Jack5 or me, then perhaps Wikipedia will set you right:
Let me rephrase your 12:33 pm comment:
Vote:June 2nd, 2009 at 6:10 pm
If you invest with 100% borrowings, during times of economic troughs, as in present times, Liabilities can well outstrip asset values. Should the government have a cash flow crisis, (as in 1984, alternatively as in a severe drought) the government will be forced into taking the drastic action of selling its better investments at depressed prices and be left holding the more toxic assets it cannot dispose of.
It is a nice idea to try to beat the interest rate, but it is a gamble responsible government should not take.
Vote:June 2nd, 2009 at 8:58 pm
How does two years of negative economic growth make NZ Super more affordable?
Vote:June 2nd, 2009 at 9:47 pm
I’ve come in late here (work, you know, dollink …)
The Dominion Post (or whoever runs it these days) is pissed off about the tax cuts. And that’s all.
Also: The Dominion Post’s political coverage is inadequate. Perhaps if they stopped Bloggink (yes, Bloggink) and concentrated on the job of providing good analysis. Does anyone take their Press Hackery team seriously any more? I gave up reading them for serious political journalism about before Christmas. I except Jane Clifton, of course.
Vote: