The growing debate over the NZ Super Fund, is an excellent example of how politics has to manage perception, as much as reality.
I doubt even Dr Cullen would disagree that if we did not already have his “Cullen Fund”, he would not propose one in today’s circumstances.
I mean could you imagine getting up, just at the time credit rating agencies are warning that they may downgrade our credit rating, and saying “Hey I have a great idea – let’s borrow an additional $20 billion over the next ten years, so we can invest it in a loss making fund”? I mean, you would get laughed out of the House.
The NZ Super Fund was agreed to on an assumption that we would have a permament structural surplus, and out of that surplus could put aside around $2 billion a year. Maybe there would be the occassional year of deficit, but the consensus was that from 2000 to 2020, there would be lots of large surpluses, and hence why don’t we save some of that money to help pay for the cost of future superannuation from 2020 onwards, when an ageing population will make it harder to cover the cost.
So the whole idea was to save money now, to avoid having to borrow money later.
But we have the stupidity (highlighted by Michael Littlewood this week, but something I have been campaigning on for some time) of borrowing $20 billion over the next decade, to put into the NZ Super Fund. So we are borrowing money, so we can save money, so we won’t have to borrow money? Confused? You should be. Sounds more dodgy than a hedge fund.
But we now have the politics. In an ideal world, everyone would understand that continuing to borrow money to put into the Super Fund will not in any way affect whether or not future pension levels stay the same. John Key has made a “promise to resign” signed pledge that he would resign if they ever cut the pension level. And in fact his atx cuts have helped boost pensions.
But if he does the sensible thing and say “Oh it is stupid to borrow money (and risk a credit downgrade) to try and save money” and we are going suspend contributions until the books are back in surplus”, then Labour and others will launch a campaign of fear and confusion (remember their 2005 one about National evicting state house tenants) telling pensioners that this means their future pensions are at risk. And some people will believe them.
We see this today in the Herald with Phil Goff demanding the PM come clean on his plans for the Super Fund. And this is simple because Key said they have not changed their position, but they have yet to discuss the issue yet.
John Armstrong warns National to tread carefully:
John Key and Bill English ought to think very carefully before tampering with the New Zealand Superannuation Fund – even if the political risks of doing so may seem relatively slight at first glance. …
A short-term stop on contributions would avoid English having to borrow the money to fund the annual payment into the six-year-old fund. That would make it just a little easier for him to write a Budget which gets international credit rating agencies off his back. It might not be too difficult to convince people that it does not make much sense to borrow money to build up the fund – especially when world financial markets continue to nosedive.
Indeed. But …
There are further reasons not to tinker with the contributions. The first is whether the Government will have the political wherewithal to restart them them once they have stopped. More important, however, is the (mostly) all-party consensus on superannuation policy. It took an age to reach. It will not take much to dissolve it. …
Labour know it is daft to borrow money to save money. Phil Goff is not stupid. But Phil Goff wants to be Prime Minister. So sure as hell he’ll try and politicise what should be a sensible non-controversial move (a temporary suspension of contributions until we are back in surplus) into the equivalent of slashing pensions.
And Martin Kay in the Dom Post reports Peter Dunne is saying don’t do it:
Government support partner Peter Dunne is urging National not to tamper with the New Zealand Superannuation Fund, warning that it would again make state pensions a political football. …
“There’s an argument that because, at the moment, this might have to be funded out of borrowings rather than surpluses, it’s a bit dumb to be doing it. There’s some truth in that, but at the same time, it seems to me that if you’re going through a slow patch economically, given the role that superannuation has long-term, this is the one time not to be putting its future into some jeopardy or doubt.”
So you have the perception in conflict with the reality. You know borrowing to save money achieves nothing in terms of making future super more sustainable. But you know it will lead to a nasty campaign of fear if you suspend contributions.
So I guess you ask, the question the other way around. Sure borrowing to save money doesn’t actually achieve anything, but does it actually do any harm? The cost of the borrowing will be pretty close to the returns from the fund. So it isn’t like a bad policy which actually costs the taxpayers money. It’s just a bad policy that achieves nothing.
So maybe it just isn’t worth the hassle? Just keep the stupid status quo.
Mind you, I’d like a journalists to aggressively ask Phil Goff some questions, such as:
“Mr Goff, if you think the Government can guarantee superannuation by borrowing $2 billion a year to put into the Super Fund, why don’t you advocate the Govt borrow $20 billion a year to put into the Super Fund? Then we could triple the pension”
“Mr Goff, why did your party call for a WINZ staffer to be reprimanded for suggesting a beneficiary borrow money to pay off her debts, yet you advocate the Government borrow money for much the same thing ?”
“Mr Goff, do you think households should follow your advice and borrow money to pay off their mortgages, rather than suspend contributions temporarily”
I suspect the Government will stay with the status quo, as it is just too much hassle for too little gain.
UPDATE: I’m impressed and a bit amazed. The Greens have come out supporting a suspension of contibutions (as have ACT). NZPA report:
And Greens co-leader Russel Norman said any responsible government would reconsider contributions.
“I think people will understand we’re in a very difficult position,” he said on Radio New Zealand.
One can support the principle of the Super Fund, yet agree that it is stupid to currently pay into it, when we are forecast to have to borrow every cent we invest into it for the next decade. Will Goff now accuse the Greens of trying to undermine superannuation?