You might remember Michael Littlewood, the Government’s anti-Cullen Fund, pro-privatisation of superannuation stalking horse, from the last Budget.
Back then, he was arguing that we should stop contributions to the Fund, or even wind it up, because of the deficit. Now, he’s arguing we should never have a Cullen Fund while the government is carrying any debt at all. And, unfortunately, his maths and economics haven’t improved since last year.
The nub of his argument is:
the Government should not resume contributions in six years unless it has by then repaid all debt. As explained here, that is a straightforward investment decision.
In the extremely unlikely event that all debt was repaid, the Superannuation Fund still wouldn’t be a good idea. The case for that rests on economic arguments.
This is not to suggest that the Government should repay all debt – only that, in the presence of debt, the fund makes no investment sense and little economic sense.
It’s like saying that you shouldn’t have a savings account while you have a mortgage or a student loan – even when the return on your savings is greater than your cost of borrowing. Littlewood implicitly acknowledges that it’s perfectly sensible to save while borrowing if you get more for saving than it costs to borrow when he writes:
If the Guardians do not achieve a return of at least the cost of the Government’s most expensive debt each year, the NZ Superannuation Fund has lost taxpayers real money. Over the six years to last June 30 (the last period for which audited accounts are available), the fund’s Guardians have missed that most basic target by a significant amount.
Yeah, due the the global recession, the Fund’s lifetime returns were less than the cost of borrowing – last June. That’s not true any more. The Fund has performed so well that it has unwound its losses from the recession already and the life-time average annual return to March this year was 6.64% – 0.5% greater than the cost of borrowing at 6.15%.
The fact that Littlewood has chosen to rely on data that is nine months out of date when the Fund’s performance data up to March is online and easily accessible shows the essential dishonesty of his position. Littlewood can’t plead ignorance of the up-to-date numbers – I’ve been writing about them for months and I know he reads the site.
I’ve already written about the $48 million the Nats have cost the country over and above the cost of borrowing by canceling the monthly contributions to the Cullen Fund. Let’s look at what we would have lost if we had followed Littlewood’s stupid plan of canning the Fund altogether and using the money to pay off debt.
In the nine months since June last year, the Fund has made 22.27%, 20.28% in excess of the cost of borrowing. If Littlewood had had his way and we had wound up the Fund in June last year when it stood at $14.445 billion, the country would now be $2.9 billion worse off – and that’s not counting the tax the Fund pays.
Tip: never let this guy help with your home finances.