This part of Vernon Small’s article today deserves an extended quote:
“The numbers are stark. If full payments resume in 2020, contributions will have to be more than $1b a year higher than if we continued as normal now. Even then, from 2020 till 2030 the fund will be $37b smaller than it would otherwise have been (not $20b – that is only the contributions shortfall, and does not account for the loss of compound earnings).
Those who support stopping full contributions have argued that, like households, governments would be nuts to borrow to save. But in case you haven’t noticed, governments are different from households – they have longer-term focuses and the ability to adjust income. They can borrow more cheaply and make decisions on future expenditure in a way you and I never can.
There have also been some spurious arguments advanced – including by the prime minister who ought to know better (and no doubt does) – that if it is a good idea to borrow to save, why not borrow huge numbers, $50b or more?
Well, there is a big difference between borrowing prudently and reduction to absurdity. Borrowing $50b creates a risk out of all proportion to the Government’s balance sheet; borrowing $2b a year to keep the fund growing and on track till surpluses return does not.
Mr Key and Mr English must also know that the fund has been enormously successful, has suffered a bad patch along with the rest of the world in the current recession and is now growing again as markets rebound.”
The arguments for not making the contributions are nonsense. John Key and Bill English, both former bankers, know that.
On Q+A yesterday, Guyon Espiner quoted a Treasury official as calling the cancellation of contributions to the Cullen Fund a “fraud” that will cost the country $8 billion even above the cost of borrowing to make the payments. If those figures are right, and they’re Treasury’s numbers, then fraud seems to be the right word.
It’s becoming increasingly obvious that the real reason for cancelling the contributions is to fundamentally undermine the Cullen Fund and with it, the future affordability of Superannuation as we know it. It’s hard to see how Key and English are going to get away with it as an increasing number of journalists cotton on to the plan and start informing the people.