Why Bill won’t be feeding the Cullen Fund

The Government coffers took another blow in the nine months to March, when tax revenues (lower than forecast) and investment losses (higher than forecast) dragged the budget operating balance $7.7 billion into deficit, just a week or so ahead of Finance Minister Bill English presenting his 2009 budget.

No-one should be too surprised, as a consequence, if English decides to stop pumping money into the New Zealand Superannuation Fund (also known as the Cullen Fund, although Alf regards this as bad language and an expression to be avoided in polite company).

Those payments – in all likelihood – will be suspended because the dosh would come from borrowing and raising the public debt. Not smart.

The prospect of this happening became further apparent when Alf’s colleague from Napier, the admirable Chris Tremain, asked what measures the Government would consider in the Budget to ensure the long-term security of New Zealand superannuation.

English advised him:

The Government has given a strong commitment to maintaining New Zealand superannuation. Entitlements will remain at 66 percent of the average wage after tax, to be paid from age 65. Future funding at this level is locked into the Government’s long-term spending projections. The best guarantee of New Zealand superannuation entitlements is sound Government finances and a healthy economy that can afford and deliver future retirement incomes. That is what the Budget will focus on.

Tremain had more questions.

Chris Tremain: What risks result from funding future superannuation payments through buying investment assets?

Hon BILL ENGLISH: Such investments over the next few years mean that the Government accumulates investment assets on one side of the balance sheet while increasing public debt on the other. As the Crown accounts released today show, such investments can be risky. Over recent months the New Zealand Superannuation Fund has lost many billions of dollars in value. The Government accounts are, in fact, around $5.5 billion below expectations. As entitlements are guaranteed, this loss is borne by taxpayers, and is not available to be spent elsewhere or returned via lower taxes. The Government is carefully considering how much risk it is appropriate to bear, so that it can avoid such losses in the future.

Chris Tremain: What other financing options are available to address the demographics of an aging population?

Hon BILL ENGLISH: It makes sense that the cost of an aging population be smoothed over time—and, in fact, National voted for the legislation when it came in. However, that requires the Government to run stronger Budget balances before the baby boomers retire than it otherwise would have done. Reducing debt is also an approach that can help deal with the demographics of an aging population and provide a safe and sound guarantee that future superannuation payments will be affordable. I am a bit surprised that Labour, which used to believe in running surpluses in order to finance an aging population, now believes that we should spend and run up debt.

Inevitably, some twerp in the ranks of the Labour gang popped up to try to embarrass the Government.

Just as inevitably, the bugger got his come-uppance.

Hon David Parker: Why does the Minister hide from the reality that cutting the $2.2 billion due to the New Zealand Superannuation Fund means cuts to future superannuation entitlements; and does he think that New Zealanders are so gullible that they will believe his claims to the contrary when they know that when National was last in Government and he was the Minister of Finance, National repeatedly cut superannuation?

Hon BILL ENGLISH: Any decisions about that will be announced in the Budget. The member should go back and read the legislation his own party drew up. It allowed for Governments to make decisions in each Budget about what the contribution should be, and to explain any departure from the standard formula for the contribution. That was because the fund was set up on the assumption that there would be permanent surpluses. Because of Labour’s reckless spending and a global recession, there no longer are permanent surpluses.

ACT’s Roger Douglas wrapped things up by reminding us why we should be glad to be rid of Winston Peters.

Hon Sir Roger Douglas: How does the Minister intend to safeguard the long-term security of New Zealand superannuation from politicians like Muldoon and Peters, who were prepared to make unaffordable promises in order to win votes from the retired?

Hon BILL ENGLISH: The voters seem to have dealt with, at least, the more recent version of Mr Muldoon; he is not here any more. The Government is walking a well-judged line between maintaining entitlements in order to give people a sense of security in the shorter term, and measures to lift our economic productivity and growth in the longer term. In the longer term, it is growth and productivity that guarantee entitlements, not politicians’ wish lists.

Come to think of it, what ever happened to Winston?

On second thoughts, who cares?

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