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Farce

Written By: - Date published: 10:01 pm, October 7th, 2008 - 17 comments
Categories: kiwisaver, tax - Tags:

It was with wry amusement I read Bill Ralston’s revisionist history of New Zealand superannuation today. According to Bill it was Muldoon who created an “unsupportable” super scheme as an election bribe in 1975. Of course anyone who remembers the situation (as Bill certainly should) knows full well that the real story was big Norm’s compulsory super scheme and the fact that Muldoon scrapped it in order to push cash into the pockets of voters in the face of what were looking to be, and indeed became, very dark economic times.

Over a year ago AYB discussed that super scheme and the fact that it would have provided for more than $280bn in investment capital for New Zealand today if it had been kept, so I won’t go into great detail about it but Muldoon’s scrapping of it was a truly grand political error that we are still paying the price for.

Bill Ralston may have got his facts wrong but that point in New Zealand’s economic history is one that is particularly pertinent as it is tomorrow that National will announce its tax cuts which are expected to be funded by cuts to the employer contribution to Kiwisaver. That would free up the $20 a week credit the government provides to employers for every worker in the scheme. An opportunist political decision made at our expense as we head into dark economic times. Sound familiar?

As I’ve written before cutting the employer contribution to Kiwisaver would cost an average worker with forty years of work ahead of them up to $190,000.

But the loss won’t just be to New Zealanders in Kiwisaver but to the businesses now and in the future that would have been able to access that capital.

In short it would be a move that sacrificed long-term stability and wealth for short-term political gain. Exactly the mistake Muldoon made over thirty years ago and one that Bryan Gaynor has described as our worst economic decision over the past 40 years.

We know Key has claimed an admiration of Rob Muldoon in the past but I can only hope that doesn’t extend to cutting a hole in New Zealand’s economic future just so he can save face on his over-hyped tax cut promises.

Because despite Marx’s claim history repeats itself first as tragedy and second as farce, I’d prefer if this particular piece of our history didn’t repeat itself at all.

Update: after re-reading this post this morning I’ve tightened the description of the outcome of Muldoon’s cutting of Kirk’s scheme to more accurately reflect its political implications.

17 comments on “Farce”

  1. Tane 1

    Word I heard was that the Nats were going to reduce the minimum employee contribution to 2% and halve the government contribution to a maximum of $10 a week. Of course, that’s just a rumour.

  2. randal 2

    and what about the 410,000 jobs…that pig didn,t fly.

  3. IrishBill 3

    Tane, assuming 700,000 workers in Kiwisaver, just cutting the employer contribution would free up $728m a year for National’s tax cuts and have the beneficial side-effect of letting their business support base off the hook for super payments.

    Of course workers get a 9% super contribution from employers in Aussie so a loss of all employer contributions here will make crossing the ditch an even more inviting prospect for Kiwi talent.

  4. Pascal's bookie 4

    If they are stupid enough to do this, Labour’s tv campaign ad’s pretty much write themselves.

  5. the sprout 5

    Ralston has become the new Garth George.
    It’s terrible what old age can do to a person.

  6. In Canada, the province of Alberta has charged a royalty on every barrel of oil pumped out of the ground or extracted from the tar sands. That royalty has gone into a “Heritage Fund” against the day when the oil runs out as it surely will.

    “As of June 30, 2008, the fair value of the Heritage Fund stood at $17.1 billion. Throughout its 32-year history, the Fund has generated approximately $30 billion in investment income that has improved the quality of life in the province.”

    The return on that fund allows Alberta to be the only province in Canada without a provincial sales tax. Albertans pay only the federal GST.

    There is nothing like savings to help a jurisdiction build wealth and prosperity…..which is why it is fascinating to the watch the party that would have us all believe it offers wealth and prosperity undermine saving and instead turn to borrowing.

    There is no doubt Kiwis are not savers. Most have incomes too low to allow them to save any significant amounts of capital out of cash on hand. Instead, they must rely on their homes appreciating in value as population grows over time. They don’t make land anymore, but we keep making more and more people every day.

    Cullen was doing a not-bad job at saving for all of us who can’t….and the usual squanderers rubbished him for it.

    Sad, really…..but there it is. The parties of the left have proven to be fiscally responsible and the parties of the Right want to pillage the piggy bank….bare though it is.

  7. deemac 7

    Rod Oram on Radio NZ today was carefully balanced but made it clear that he was as baffled as the rest of us by Key’s remarks today about tax cuts. When Oram said that no politician could “repeal the laws of arithmetic” it was obvious to me at any rate who he meant…

  8. According to Bill it was Muldoon who created an “unsupportable’ super scheme as an election bribe in 1975.

    Um, that’s true.

    Of course anyone who remembers the situation (as Bill certainly should) knows full well that the real story was big Norm’s compulsory super scheme and the fact that Muldoon scrapped it in order to pay for a series of election bribes in the face of what were looking to be, and indeed became, very dark economic times.

    Not true. As the Gaynor column you linked to explains, Muldoon’s scheme removed compulsory contributions from workers and employers and loaded the entire obligation onto the taxpayer. It cost money — heaps of it.

    But your contention is otherwise right: had Labour’s scheme been retained to the present day, New Zealand would be in a vastly better position, and far more in control of its economic destiny. And screwing KiwiSaver risks a repeat performance.

    Where Ralston is completely wrong is his claim that Muldoon’s scheme was “scrapped”. It wasn’t. It’s what we have today.

    IrishBill: My reading was that he was mistakenly talking about the Kirk fund because (as you point out) he described it as being scrapped and went on to draw parallels between it and Kiwisaver (a scheme much closer in nature to the Kirk fund than Muldoon’s superannuation scheme). Having read Bill’s post again I concede you may be right but it’s sufficiently lacking in clarity that it’s hard to tell if he has mixed his schemes up or if he’s just stretching the interpretation of the situation to create a tenuous and confused comparison.

  9. sean 9

    “An opportunist political decision made at our expense as we head into dark economic times. Sound familiar?”

    No – not at all, its actually a response to Cullen screwing the pooch and not having anything left out of the billions in surpluses that Labour so proudly parroted about.

    [lprent: They were only surpluses by one of the measurements used. When calculated with forward liabilities (ie super) then they were still deficits. Of course people like yourself only read the headlines.

    Besides the government wasn’t trumpeting the surpluses – that was coming from the pathetically short-term thinkers in the opposition]

  10. Ari 10

    No – not at all, its actually a response to Cullen screwing the pooch and not having anything left out of the billions in surpluses that Labour so proudly parroted about.

    Because he already spent it all on the tax cuts you were clamouring for so loudly?

    Come on, be fair.

  11. Spider_Pig 11

    You’re kidding right? National are likely to remove the employer contribution tax credit, not the employer contributions themselves. This will save the government $750 million pa, but not at all impact the overall contributions to employees Kiwisaver accounts.

    Employers will be placated by an ongoing lowering of the company tax rate and policies to improve productivity.

    I would have thought that stopping the handout to employers would have been right down The Standards alley?

  12. Paul 12

    Yeah what Russell said – I distinctly remember that election – Muldoon not only offered a better scheme from the point of view of voters but arguably a more socialistic one (the irony of which was certainly pointed out at the time) – it was also unsustainable in the long term

  13. jcuknz 13

    While I agree that Muldoon made a seriopus mistake from the Country’s point of view I personally am damm glad he did it becuase I now have my personal superanuation to help above the barely adequate national super us older folk get.

  14. Er

    I really like the Standard and most of the comments are spot on.

    I think that Ralston was talking about National Superannuation however which the nats brought in. Piggy Muldoon destroyed the Roger Douglas superannuation scheme and promised universal superannuation. It was unsustainabile, not funded, but the elderly loved it and this helped get him elected.

    9 years later we had a 9 billion deficit. Piggy called the 1984 election early because he was unable to write a choerent budget.

    Makes you realise how lucky we are under Helen!

    IrishBill: I think you might mean “Kirk’s” superfund.

    IrishBill: Actually, scratch that, I’d forgotten Douglas designed it! Probably the only decent thing he ever did in his life.

  15. Janet 15

    I had just started contributing to Norm Kirk and Labour’s compulsory NZ Super Scheme as a new worker when Muldoon came in and scrapped that NZ Super Scheme and just promised everyone super without having to pay for it in advance. So I got my contributions back. I put them in the PSIS which soon collapsed (although it was rescued and survived strongly).

    Those who don’t learn from history are really doomed to repeat it.

    I predict Key will have a go at the Cullen Fund, the ACC fund and Kiwisaver to pay for short term tax cuts.

    The other thing I remember about the 1975 election was the day after the election and the shock of Muldoon’s landslide win everyone was jolted into action and there was a huge revival and rejuvenation in the Labour Party and the left in the following years, so by 1978 Labour won more votes than National (but not more seats in the unfair FPP era). Also some huge political demonstrations were common place after Muldoon cut the public service and did other short sighted and dangerous things.

  16. Dom 16

    I wonder if National have underestimated how the public feel about Kiwisaver being tampered with – the same underestimation of how they felt about Kiwibank being sold…

  17. Oh it’s a farce alright… But one of those cruel and dark ones like something by Beckett…

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