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Nats’ ideology costing us millions

Written By: - Date published: 11:24 pm, October 19th, 2010 - 40 comments
Categories: bill english, john key, superannuation - Tags:

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.

40 comments on “Nats’ ideology costing us millions”

  1. smhead 1

    Here’s a policy idea for Labour that is better than the other stupid policy ideas they’ve come up with lately. It has to be a good idea because it\’s based on marty’s logic. They should be telling NZers that we should borrow a hundred billion now to put in the Cullen fund because it such a good investment and such low risk. No wait make it a trillion. Up it to a gazillion and all our problems are solved.

    I’m going to go and book my overseas holiday in 2030 on the expected returns from government borrowing infinite money to gamble on international equities.

    • Colonial Viper 1.1

      Borrowing a metric shit tonne of money to buy into the market when it has crashed through the floor in order to make killer profits is what decent currency traders and property investors do all the time. But Bill and John only have the guts to lose New Zealand money, borrow to pay for tax cuts for the rich, but not invest it in their own people. Gutless right wingers, who would’ve thought.

      Good to see the right wing economic morons go to bat for Bill and John’s bad calls. Sorta makes Marty’s conclusions look even more spot on.

      PS smh, Labour is going to make sure the Cullen fund gets far more invested in NZ entrepreneurial talent, not just in international equities, thanks.

      • NZ Groover 1.1.1

        Marty, CV it’s very easy to criticise investment decisions in hindsight were you already know the outcome of the market. When the payments were suspended nobody knew what was happening with the global economy and \”borrowing a metric shit tonne of money to buy into the market when it has crashed through the floor in order to make killer profits\” would have been hugely irresponsibly.

        The markets could just as easily have continued to fall and the Cullen Fund lost $1B

        Any Government (Labour/National) is in the business of responsibly Governing a country not speculative \”high risk currency trades and property investment\”.

        Anybody can make the right investment decision when they already know the outcome.

        Marty, I challenge you you to predict the where the market will be 12 months from now.

        • bbfloyd 1.1.1.1

          actually, groover ….all the people who were in aposition to judge were pretty much universal in their opinions on how foolish it was for the govt to suspend the cullen fund payments.. if you would try to remember, even treasury were privately saying that it was going to cost us in the long run…

          what specifically do you have a problem with, regarding governing for the long term future and economic protection for future generations? it can’t be that difficult to comprehend the fact that in thirty years, new zealand will still exist. and if you can grasp that concept, then understanding the desire to avoid loading future generations with massive bills in order to provide for our elderly, allowing them the breathing space to be able to get on with the business of running public infrastructure according to the priorities of their times.

          cutting money out of the scheme also puts downward pressure on our ability to pay pensions at a rate that allows the elderly to live at a level that should give them the dignity that we assume that they will have earned through sensible governance in our time. as you know, the debate is already underway as to what level of payment can be afforded in the near future, as well as the age of entitlement..

          is this, considering many, many knowledgeable people, who, by the way, don’t write articles on this site, a sensible piece of governance? or, as is being mooted across the spectrum of political commentary, simply the national government pursuing an agenda of dismantling the previous governments legacy purely on idealogical grounds?

          • NZ Groover 1.1.1.1.1

            “actually, groover ….all the people who were in aposition to judge were pretty much universal in their opinions on how foolish it was for the govt to suspend the cullen fund payments.. if you would try to remember, even treasury were privately saying that it was going to cost us in the long run…”

            You state opinion as if it was fact. “They” can’t have been “universal in their opinions” if they cut the payments to the fund can “they”?

            “what specifically do you have a problem with, regarding governing for the long term future and economic protection for future generations? it can’t be that difficult to comprehend the fact that in thirty years, new zealand will still exist. and if you can grasp that concept, then understanding the desire to avoid loading future generations with massive bills in order to provide for our elderly, allowing them the breathing space to be able to get on with the business of running public infrastructure according to the priorities of their times”.

            You appear to be under the impression that I have a problem with the Cullen Fund. This is not the case. I think it’s one of the best ideas that Labour has came up with. I merely stated that it’s easy to criticise in hindsight when you already know the outcome and there is absolutely no risk, when actually the reverse was true. Significant risk in a “once in a lifetime” economic downturn.

            “cutting money out of the scheme also puts downward pressure on our ability to pay pensions at a rate that allows the elderly to live at a level that should give them the dignity that we assume that they will have earned through sensible governance in our time. as you know, the debate is already underway as to what level of payment can be afforded in the near future, as well as the age of entitlement..”

            Again, the benefit of hindsight. What if that opposite was true, we’d all be saying it was the right decision by minimising losses for future generations.

            “is this, considering many, many knowledgeable people, who, by the way, don’t write articles on this site, a sensible piece of governance? or, as is being mooted across the spectrum of political commentary, simply the national government pursuing an agenda of dismantling the previous governments legacy purely on idealogical grounds?”

            IMO not borrowing money to bet on a highly unstable global economy was a sensible piece of governance. IYO it was idealogical.

            • Colonial Viper 1.1.1.1.1.1

              IMO not borrowing money to bet on a highly unstable global economy was a sensible piece of governance. IYO it was idealogical.

              And now? What about starting up contributions to the Cullen Fund now?

        • Colonial Viper 1.1.1.2

          I’ve never heard of an investment consultant who said stop buying quality, even as the market was diving. That’s how Buffet and Soros do it. Dollar cost average into the market as it completes the steepest parts of its falls.

          I mean, Bill and John were happy to buy into SCF as that was looking shakier and shakier.

          • NZ Groover 1.1.1.2.1

            Not receiving additional funds doesn’t preclude the Cullen Fund from taking advantage of opportunites in the market. That’s how Buffet and Soros do it.

            • Colonial Viper 1.1.1.2.1.1

              Correct – but why in your view would that be considered ‘sound governance’ when giving the Fund more capital to take advantage of is not (in your opinion)?

              Why would you not, for instance, say that the Fund should have moved largely into cash and cash equivalents?

    • Marty G 1.2

      no-one’s arguing for stupid behaviour, smhead. But the government borrows money to fund health, education, benefits, and (in National’s case) tax cuts for the rich. Why wouldn’t they continue to fund the Cullen Fund contributions at a time when assets can be bought for record low prices?

      The increase in gross debt would have been marginal (about 1% per annum) and net national debt would be lower (by 0.1%) now than it is.

    • bbfloyd 1.3

      smhead.. you are the gift that just keeps giving aren’t you.. i have to admire your tenacity, even if all you do is remind us constantly how small your database is…. verrrrry small…..

  2. We will be lucky if anyone is left alive by 2030, let alone an economy worth a darn.
    Who’s DPB payment or dole are we to cut to find the 2.3 million? If Bling and John IL weren’t borrowing $240 million a week now, there would be a lot of people suffering finical problems, to the point of soup kitchens etc.
    The Cullin Fund is just like Kiwi Saver, it is a con based on converting nature into garbage, and turning your children’s environment into a cesspool.

    The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

    – Jacques Cousteau (1910-1997)

    More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.

    – Woody Allen

    Can we trust politicians?

    «The National Government will regard it as its first and foremost duty to revive in the nation the spirit of unity and cooperation. It will preserve and defend those basic principles on which our nation has been built. It regards Christianity as the foundation of our national morality, and the family as the basis of national life.»

    – Adolph Hitler, My New World Order
    Proclamation to the German Nation at Berlin, February 1, 1933

    Spam word Consumption. Who picks these words?

    • bbfloyd 2.1

      Robert… i hope you feel better after that little rant.. then at least someone will have gained from it.. btw, i think the spam words are automatically generated..

      [lprent: They are. There is a list of 4932 words of between 4 and 7 letters (from memory) that I used. I told it to remove all punctuation and added it. It would have been easier for me to just use a random generator, but I find that most people like a word because it is easier to type. So long as it keeps out the bots… ]

      • Robert Atack 2.1.1

        bb unlike most on this site at least I have the ‘courage’ to put my name to my posts, I think if you can’t do that why bother.
        Which leads myself to ask why I am even replying to gutless anonymous fools ?
        And no my posts do not make me feel ‘better’ they make me gutted and depressed, especially when no one else gives a toss, or has enough smarts to work out what I am saying paints a far more accurate picture of our combined futures than 99% of the rubbish spewing from this government or the opposition parties
        Please do some research and engage your brain before making comments about subjects you obviously do not understand … and that would go for most contributes to this site.
        It took me about 3 weeks to work out we are in deep do dos … the challenge is – can you do it faster… hint you will need to forget all your closed minded conditioning … imposable I know … so we all crash and burn, bad luck 😉

        [lprent: The standard here is to use psuedonyms – see the about for some of reasons why the authors use them. We’ve had people commenting using “real names” that aren’t and there is no way to verify one way or another. Using a “real name” is just another pseudonym as far as I’m concerned. To use it as a verbal weapon here is frowned on… ]

  3. Craig Glen Eden 3

    National put up GST by 2.5% then say, its ok because we will give you a bigger income tax reduction (which is totally untrue for the majority I think once all increases are actually realised ) which they have had to borrow to pay for. So at the end of the day they have borrowed for what . To increase the nations infrastructure or improve our workforces skill/education level or protect us from boy races?
    No they have put the nation in further debt so the likes of Bill ( double Dipton can get more),mean while the economy tanks and people barely get by. What a mess they have created in just two years Bring on the election I say cant wait for this lot to be gone Goff’s looking better and better as the weeks go on no wonder smile and wave wants to see him gone.

  4. roger nome 4

    “cancelling the Cullen Fund contributions for now doesn’t get us off in the long-term”

    That’s just it though isn’t it? The Nat’s aren’t interested in getting anyone off except themselves.That’s why we call them wankers.

    • KJT 4.1

      It is a stretch that any investment fund offshore will keep growing. There is already more debt in the US than their future production can ever repay. The whole thing has to collapse at some stage.

      No matter how much money superannuates have to spend on retirement, if the economy does not have the productive capacity to absorb that spending then it will only result in inflation.

      We would be better putting our money into a sustainable future for NZ, including education for today’s Kids, so that they can support everyone in their old age.

  5. felix 5

    “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?”

    People need to get out of this mindset that the Nats are financially illiterate. They know perfectly well that that’s the right time to buy, and that’s exactly why they don’t want the super fund competing with their own business interests.

    It’s not that they’re stupid and getting it wrong, it’s that they are simply not working in our collective interest.

    • Colonial Viper 5.1

      A plausible hypothesis Felix, but when we are talking about international equities, a piddly hundred mill NZD a week from the Cullen Fund is *not* going to move the Dow Jones, the Dax or even the ASX one iota.

      So I reckon that the financial illiteracy – or perhaps I should say the economic illiteracy – of the Nats remains a viable theory.

      it’s that they are simply not working in our collective interest.

      OK this I have no issue with.

      • felix 5.1.1

        Surely the buying power of the super fund is pretty significant in the NZ market though innit? Doesn’t the fund have the ability to buy stakes in NZ companies?

        • Colonial Viper 5.1.1.1

          It does and I think they increased that ability recently. However the fund is still guided by its own investment rules and those rules mean that something like 80% of it must be invested offshore in foreign companies.

          • felix 5.1.1.1.1

            So 20 million a week then. If I were in the market for under-valued NZ assets I think I’d take that sort of player pretty seriously.

        • smhead 5.1.1.2

          Oh now it gets stupider from you lefties.

          If the Nats were only in it for the money they wouldn’t be in Parliament would they. Key would be a billionaire by now if he had stayed out of NZ.

          • felix 5.1.1.2.1

            You mean if he kept working at ML? He’d probably be broke actually. Duh.

            And your premise is stupid anyway, smeg, it rests on a false dichotomy. It’s not a case of EITHER be in parliament OR run a business empire.

  6. randal 6

    the whole thrust of natoinals policy is about putting pressure on working peiople and lowering wages.
    every high falutin proposition is just another variation of these jerrks having fun at working peoples expense.

  7. Fisiani 7

    Cullen said that investments in the fund would come out of the Government surplus. There is no Government surplus now thanks to the reckless policies of the last 9 years with big budget blowouts in ACC, ECE unfunded health promises and overspending on a train set to name just a few. We were faced with a decade of deficits. Bill the Brilliant has brought that down to 6 years. Investments will continue when there is a surplus.

    Your pathetic analysis is a bit like a gambler with a dollar in their pocket at the casino bemoaning the fact that they did not place their bets on the numbers that have come up on the last five spins of the roulette wheel.
    Bugger if I had put a dollar on number 4 I would have won $36 . Has I put $36 on number 21 I would have had $1296. Had I then put $1296 on number 17 I would have won $46656. Then put that on number 31 I would have had $1679616 and then $60,466,176.

    The reality of life is that at some point you would be left with nothing!

    That why this blog is easily the best comedy site in NZ.

    • Colonial Viper 7.1

      Cullen said that investments in the fund would come out of the Government surplus. There is no Government surplus now thanks to the reckless policies of the last 9 years with big budget blowouts in ACC, ECE unfunded health promises and overspending on a train set to name just a few.

      Uh, Labour had consecutive years of budget surpluses, National have had none. Pretty clear who’s unable to manage the economy Fisiani.

      The fact that you consider investing in NZ = gambling simply shows the weakness of your right wing ideology.

      • Fisiani 7.1.1

        Yet more comedy. Stop it. Rolling about with laughter. You know the weakness of your argument and the reasons why Labour left NZ with a predicted DECADE OF DEFICITS for National to inherit. Happens every bloody time that we toss out Labour.

        • Colonial Viper 7.1.1.1

          Oh its not a coincidence that the deficits start up and roll in for a decade whenever National is in economic control mate.

          • smhead 7.1.1.1.1

            Of course it’s not a coincidence, because national governments always follow labour governments that run up the deficits in the first place. Did you forget that Cullen gloated that the cupboard was bare and there was nothing left for National to spend?

            • Rob 7.1.1.1.1.1

              Yep and that was before he brought the trains.

            • felix 7.1.1.1.1.2

              Wrong, smigel (and Rob).

              Even Bill English says Cullen left the economy in good shape.

              http://www.nzherald.co.nz/news/article.cfm?c_id=1501219&objectid=10548753&ref=imthis

            • lprent 7.1.1.1.1.3

              smhead – wrong name – should be dickhead. You are rewriting history (again).

              Michael Cullen was referring to fact that he’d already put in the tax-cuts that National was promising. That was why the “cupboard was bare”. To do more tax cuts than were already in place, National would have to borrow money rather than pulling it out of the ‘surplus’.

              The reason that he’d done it was because National had framed their entire election campaign around a largely mythical surplus going to tax cuts. That unfortunately meant that Labour had to follow the morons of the right to get electoral support. At least Labour did the tax cuts it did do on a far more equitable basis than National would have done, or that they did do later.

              National of course were over committed to ‘tax cuts’, so they put a bit more on top of the existing ones to favor their constituents, idiots like you who don’t bother to think about economic impacts. To pay for those, we have to borrow. For some strange reason it turns out that National’s promised productivity boost from tax cuts hasn’t materialized and neither has the boost in the tax take. Now part of that is the recession – but my guess is that it never will eventuate.

              So what we will get is steady rise in the amount of debt that we owe and eventually more taxes to pay it back with accumulated interest. The better approach by both parties would have been to ignore mindless morons like yourself squealing for tax cuts – it’d have been better to keep accumulating money into the Cullen fund while we had slight surpluses, and less debt when the accounts went into deficit because of rising unemployment and a slower tax take during the recession.

              The only reason that the debt isn’t a major issue at present is because the previous government had dropped our government debt down to essentially zero

              But really the problem is with idiots like yourself who don’t think about the longer term….

        • lprent 7.1.1.2

          You mean because Labour put in the tax cuts that National was going to do anyway?

          In the last thirty years the history has gone pretty much the opposite way to your fantasy. Labour inherits a mess from National and slowly fixes it, then National get in and screw it up.

          In 1984, Labour inherited what was essentially a bankrupt nation from Muldoon and National where all of the indicators were that we we going to continue going down the toilet. While the situation in 1990 wasn’t good, it was no longer terminal.

          National promptly initiated an artificial recession by screwing around with the demand side of the economy with excessive cuts to the welfare system. Needless to say this resulted in an increased size of the deficit because the tax take plummeted and the payments to unemployed rose sharply. National eventually managed to climb to a similar level of debt to that which they’d inherited before getting dumped in 1999.

          Labour slowly dropped the debt to close to zero. However whining from the right about tax cuts caused them to eventually make some tax cuts at an unfortunate time, just as a recession hit and National got re-elected in 2008. It was unfortunate because they shouldn’t have listened to the whiners of the right and should have at least cancelled those tax cuts when the extent of the recession became apparent. At the time of the budget in March 2008 there was no forecast of significant deficits.

          Rather than doing something sensible. National then stupidly proceeded to make more tax cuts having to borrow to do it. That increased the deficit. They followed up with a subsequent set of tax cuts and tax increases that are not “fiscally neutral” but instead will increase the size of the deficit.

          Basically in my adult life, National makes major deficits, Labour stabilizes and reduces deficits. But I guess that you’re too stupid to actually read any history – you seem to prefer slogan fantasies instead.

          • Colonial Viper 7.1.1.2.1

            The trick is for Labour to be able to prevent the long term damage that National does by making the electorate ‘geddit’ a heck of a lot more. When that happens there will be even fewer Nat governments ever in power.

    • Vicky32 7.2

      Er, Fisiani, I believe you’ve got that bass akwawrds! Labour had surpuses, NACT doesn’t…

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