No, this post isn’t about how National is cutting education at every level, which will damage our country for decades to come. Nor is it about how they’re cutting cost-efficient preventative medicine to fund ‘sexy’ elective surgery. It’s not even about how they’re pouring billions into holiday highways in the era of peak oil. This is about the Cullen Fund.
Remember when ex-Treasury official Bill English and money-trader John Key told us that investing in the Cullen Fund to pay for future superannuation costs was throwing good money after bad?
Remember how people tried to explain to them that, when you have a fund that is buying assets, it is a good thing if assets are cheap for it to buy and the losses of the global financial crisis would be reversed in the long-run?
Remember how by the time National actually cancelled contributions to the Fund, at the end of June 2009, it had been making positive returns for four months and was up 12% from its low?
Remember when leaked Treasury documents showed cancelling the Cullen Fund contributions would cost $8 billion by 2019?
Well, the Nats were wrong and we were right. I’ve crunched the latest performance numbers from the Fund and so far the decision to suspend contributions has cost us $153 million over and above the cost of the extra borrowing that would have been needed- that’s $2.3 million a week.
Nice one National, you financially illiterate dorks.
The cost of this awful decision is rising exponentially.
What a lot of people don’t realise is that cancelling the Cullen Fund contributions for now doesn’t get us off in the long-term. The Fund still needs to have enough money by 2030, when it starts paying out. There’s a contributions formula which means any break in contributions makes successive contributions larger. And, since we’ll have wasted the chance to earn $8 billion in returns, that money will have to come from higher taxpayer contributions in the future.
So, the ‘savings’ from not contributing to the Fund now are illusionary. But the lost returns are not. By 2030, the Fund is projected to be $30 billion smaller than it otherwise would be. All because Key and English hate the idea of the Cullen Fund and want to see superannuation become unaffordable.