Michael Littlewood argues in this paper that neither ACC nor Superannuation should be pre-funded.
He argues that pre-funding of ACC should not just be delayed until 2019 (instead of 2014), but is inappropriate for a Government entity.
I suggest people read the full paper, bus his points in summary are:
- The ultimate owner of the provider, the government, will never disappear. Also, the government has the power to tax to meet future liabilities, expected or unexpected. The ACC has therefore no apparent need to maintain a pool of invested assets to pre-fund its expected, contingent future obligations.
- By maintaining the ACC Fund the government is effectively in the business of portfolio investing.. That is because, when the accounts for the ACC are consolidated as shown in Chart 1, the ACC’s investments become the government’s. The ACC does not itself
need to address the issue (whether or not to be a portfolio investor) but the government should.
- Borrowing to buy portfolio investments (shares, bonds etc) is speculation – again, not necessarily a bad thing in itself. The borrower takes on the risk that the returns from those investments will be at least as great as the cost of the debt used to acquire them.
Borrowing to invest magnifies the yields and the losses. It turns a good return into an excellent return; and a bad return into a potential disaster.
Interestingly both Labour and National support pre-funding of ACC.Tags: ACC, Michael Littlewood, pre-funding