Nat stalking-horse’s attack on Cullen Fund falls flat

Written By: - Date published: 8:48 am, May 10th, 2010 - 23 comments
Categories: scoundrels, superannuation - Tags: ,

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The fact that Littlewood has chosen to rely on data that is nine months out of date when the Fund’s performance data up to March is online and easily accessible shows the essential dishonesty of his position.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.

23 comments on “Nat stalking-horse’s attack on Cullen Fund falls flat”

  1. Lanthanide 1

    “Tip: never let this guy help with your home finances.”
    I dunno, that’s probably the problem. He’s treating the country as if it were a household, whose primary objective should be to reduce debt when possible. But countries don’t work that way.

  2. ghostwhowalksnz 2

    They should pay the ‘windfall’ from the banks finally have to pay all their taxes into The Fund.
    It was from previous years revenue anyway ( while labour were in)

  3. Loco 3

    Exactly right, I hate when people use the disingenous comparison to households. Littlewood says

    “It’s the same as a household asking its bank for a loan and putting that all into, say, international shares.”

    No its not, not even close and even worse, he knows its not, but he puts it in to add emtional content to his argument.This sort of work should be held up for what it really is; propoganda.

    • ghostwhowalksnz 3.1

      Apparently his analysis was published in a peer reviewed journal, I dont if this was its entirety or its been “readers digested’ for the Herald readers

  4. SPC 4

    He is not alone in his view Mr Farrar of Kiwiblog has opined similarly.

    He wants the want the money dispersed into Kiwi Saver accounts and the accounts made compulsory – the reason is to allow tax cuts. The burden to save placed on the individual and end the tax burden of the Super Fund.

    English in deferring payments into the Fund has effectively partook of this strategy, without openly declaring this – it’s part of the softening up.

  5. randal 5

    he just another greedy pig who wants the money.
    give him nothing tell him nothing and take him nowhere.

  6. ghostwhowalksnz 6

    Littlewoods analysis seems to be based on suburban accountant thinking.
    Households would normally pay down debt because the taxation imbalance between income from savings and that spent on repaying principal. The government of course doesn’t charge itself tax.( except GST)
    However all saving for retirement is based on the compound interest effect over a long period.

    As I see it the policy reason for the Cullen Fund is to shift some of the retirement funding from future taxpayers to the current taxpayers ( who will be the ones spending the retirement money).
    This is because of the baby boomer bulge in population makes an imbalance in the age profiles.

    This is also the reason for governments ( and companies ) borrowing for capital works even when they dont need it. The cost is spread over those who will use the roads bridges hospitals, which would be for the economic life of say 50 years.

  7. Irascible 7

    More evidence of corruption in NZ politics- this time in the accountancy of the NACT policy process. This is an example of policy kite flying as the NACTers soften up the media for a campaign to destroy the Cullen fund.

  8. Ed 8

    Littlewood is a lawyer who pretends expertise in accounting, finance and economics. It is all part of the National propaganda that there isn’t enough money for anything except tax cuts for the wealthy – after all they need the incentive.

  9. Fisiani 9

    By not borrowing more money to gamble on the stock market, we have not realised a paper potential profit in a time of rising markets. If by this time next week the world stock markets take a major dive then I take it the Standard writers will be lauding the Finance Minister’s caution. Don’t hold your breath. Standard contributors always right. National always wrong.
    Only problem is 55% of people don’t agree. Probably 60% by 2011.

    • ghostwhowalksnz 9.1

      You should read more blogs, they are usually highly partisan. ooops you all ready know that, but hey you have no arguements and T S is sooooo unfair

    • Bright Red 9.2

      So, Fisiani. Are you denying the Cullen Fund gained $2.9 billion since Littlewood wanted to wind it up?

      Of course, there will always be ups and downs, but the Cullen Fund has beaten the market consistantly.

    • Draco T Bastard 9.3

      And yet I’m sure you laud JonKeys becoming such a “paper” millionaire.

    • SPC 9.4

      So Fisiani – let’s look at the reality of the marketplace concerned. The western economy baby boomer demographic is saving for retirement. They need a place to store their saving – a growing option is funding the sovereign debt – if this happens, then the cost of debt falls and thus the returns. If money is split between funding this debt and stocks, then stocks increase in value. It’s inherent that stocks will rise in value because of saver demand, the issue is whether when the baby boomers retire there will be new buyers for the shares. At this stage the booming developing economies with increasing national savings, appear to be gathering the economic resources to buy up the shares. Thus realising increasing/growing paper retrurns appears to be no problem (but this will involve higher levels of foreign ownership and invisibles deficits for the western nations concerned – little change for us as that has already happned here).

  10. Fisiani 10

    The Cullen Fund could drop $20 million in the next week. It only has proven value when capitalised.
    JK knows the difference between cashed up and paper profits. He knows that you have to borrow money at market rates and that this exceeds investment returns in the long term.
    Leftist thinking or rather non thinking is what made NZ enter recession a year before the rest of the world

    • Galeandra 10.1

      ‘Leftist thinking or rather non thinking is what NZ enter recession a year before the rest of the world.’ A big assertion, entirely emotive,which I am sure you can adduce with some hard data? You sound a bit more partisan ansd a bit less logical. “He knows that you have to borrow money at market rates and that this exceeds investment returns in the long term.” By which you cleverly explain why no one profits from borrowing to invest?
      Perhaps you need a few more grey hairs on your head, and to have passed on a little from Year 13 economics.

    • Draco T Bastard 10.2

      Actually, it was the drought.

      • Pascal's bookie 10.2.1

        And the Reserve Bank Act. The US economy was kept afloat for at least a year by the fed running extraordinarily loose monetary policy.

    • SPC 10.3

      Perhaps you could explain what proven value is for cashed up investments – is that in gold or what currency exactly?

  11. Nancy 11

    The concept of “saving money” is easier said than done for most people. I understand that it is ‘easy and logical’ for some people, but I also understand it can be a difficult habit to break for others.

    If you’re looking to save money or change your lifestyle, my advice is to take it in “baby-steps” because it won’t happen overnight. Here are some tips that helped me out.

    1. Always pay more than the minimum on any credit card payments – if you don’t believe me you can calculate it for yourself (
    2. Use coupons when grocery shopping
    3. Try online shopping – it’s saves on gas & they have bigger markdowns (
    4. Read a book – it’s cheaper than going to a movie (
    5. Know your budget! (

    Good luck and happy savings!

  12. infused 12

    Borrowing to throw in the stock market is retarded. You’re retarded for pushing such an argument. Yeah, we could have made 40odd million, but we could have lost that amount too. With the approaching euro crisis, I wouldn’t be putting money anywhere. This is bigger than what the media are making out.

    Recession #2, here we come.

    • SPC 12.1

      infused, the problem in Europe is the Euro – it allows Germany to have an export surplus per head greater than that of China and place the impact of that on the rest of Europe (rising Euro). Once the banking crisis hit that ended the borrowing binge that sustained the rest of Europe despite the rising Euro. Thus now there is recession. But the crisis in the Euro is resulting in a depreciating Euro, which offers the possibility of European recovery – via foreign investment in Europe attracted by the cheaper assets.

      As evidenced by the ME buy out of Harrods (declining pound).

Recent Comments

Recent Posts

  • Safety focus in improved drug driver testing
    Improving the safety of all road users is the focus of a new public consultation document on the issue of drug driver testing. Plans for public consultation on options to improve the drug driver testing process have been announced by ...
    2 weeks ago
  • Making it easier to get help from Police
    Police Minister Stuart Nash says calling a cop suddenly got a whole lot easier with the launch of a ground-breaking new service for non-emergency calls. “The single non-emergency number ‘ten-five’ is designed to provide better service for the public and ...
    2 weeks ago
  • More Police deployed to the regions
    Frontline Police numbers have been boosted with today’s deployment of 77 new officers to the regions. Police Minister Stuart Nash today congratulated the recruits of Wing 325 who graduated at a formal ceremony at the Royal New Zealand Police College. ...
    2 weeks ago