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Nats ignored Treasury’s warnings on cancelling Cullen Fund payments

Written By: - Date published: 2:27 pm, June 27th, 2009 - 17 comments
Categories: budget 2009, national, superannuation - Tags:

In the newly released Budget papers Treasury acknowledges that cancelling the Cullen Fund contributions would only reduce debt by 5% (more than offset by increase in assets) and it will put our ability to pay for superannuation at risk in the long-term:

While the contributions holiday component of the package helps to reduce gross debt, it also reduces Super Fund assets, so it makes little difference to the net debt position [the model clearly shows that the net debt position would be ‘slightly’, $8 billion, better without the ‘holiday’]….a protracted contributions holiday from the NZ Super Fund, which may send negative signals about the government’s willingness to address longer-term fiscal pressures [ie. we wouldn’t be prepared for the future costs of super].

A couple of weeks ago, Bill English was presented with leaked Treasury papers on Q+A that showed the country would be $8 billion worse off by 2023 if the contributions were cancelled. He denied it. Now, we know that Treasury had given him the same warning. Treasury comments further on the negative effect of binning the contributions, including the foolishness of stopping contributions now, when assets can be bought at expectationally low prices:

the impact of the Super Fund contribution holiday on the Fund itself. We understand that [deleted privacy] has met with you recently to discuss these points, so we do not cover them in any depth here. Briefly, they relate to precommitments that have liquidity implications in future years; vintage diversification; reputation with investors; attractiveness of the Guardians as an employer; and the investment opportunities that may be presented by the current crisis.

Unfortunately, we know that not only did National and ACT decide to cancel the contributions to the Fund, overriding even the right-wing Treasury’s concerns, they went further, cancelling contributions for 10 years. Treasury has outlined the costs to the country of doing that. We will feel them in the decades to come.
– Marty G

17 comments on “Nats ignored Treasury’s warnings on cancelling Cullen Fund payments”

  1. gingercrush 1

    8 billion dollars will represent less than 1% of GDP by 2023. If you believe that makes a vast difference to the ability to pay Superannuation costs then you’re naive.

    If National are naive to think they can cover superannuation at the current level of the average wage and at 65. That is clearly a naive position. But it is no more naive than those who blindly believe the Cullen Fund will off-set Superannuation payments to the extent that there will be no increase in the age of Superannuation; and the level of super.

    Of course in both cases. The truth lies in economic growth. If we can grow our economy significantly we will be able to keep Superannuation levels where they currently are. Hence why the Greens also didn’t see value in the Cullen Fund. http://www.greens.org.nz/node/15898 – Scroll half way down.

    • Daveski 1.1

      Best let not let facts and genuine analysis get in the way of criticism of the Nats.

      Some good points raised regarding the affordability of super long term and lets not kid ourselves that the Cullen fund solved that problem.

      Likewise, wouldn’t it make sense for the two partners to come to a sensible decision regarding capital gains tax rather than playing short term politics?

  2. Rob Salmond 2

    Oh dear. This is a large oops moment for the Nats.

    Yo add insult to injury, here is David Farrar saying that anyone making the Treasury’s $8 billion modeling projection is “pretending to be stupid.” So I guess he is saying the Treasury was pretending to be stupid in its official budget advice?! Egg, meet face.

    [Captcha: Candidate deism. Heh.]

  3. Ari 3

    8 billion dollars will represent less than 1% of GDP by 2023. If you believe that makes a vast difference to the ability to pay Superannuation costs then you’re naive.

    Compound your interest and try again?

    If National are naive to think they can cover superannuation at the current level of the average wage and at 65. That is clearly a naive position. But it is no more naive than those who blindly believe the Cullen Fund will off-set Superannuation payments to the extent that there will be no increase in the age of Superannuation; and the level of super.

    Oh, I doubt they actually think that, they just don’t want to admit that even before they robbed the piggy bank we needed another eight or so of them in order to cover our current super commitments.

    Of course in both cases. The truth lies in economic growth. If we can grow our economy significantly we will be able to keep Superannuation levels where they currently are. Hence why the Greens also didn’t see value in the Cullen Fund. http://www.greens.org.nz/node/15898 Scroll half way down.

    Yeah, I’m sure when our economy explodes to be nine times its current size we’ll all be really thankful for your wisdom on this matter. 😉

  4. Rob Salmond 4

    GC – First, the hole is actually $23 billion once you take the tax effects into account – see Keith Ng’s excellent math job on this. And second, the question isn’t really whether the now-missing money would have been a silver bullet that magically solves all superannuation affordability problems. Nobody is arguing that. But the left are arguing that the $23 billion would have helped quite a bit. Are you suggesting it would **not** have helped? Surely $23 billion buys a lot of cardigans.

  5. gobsmacked 5

    More Treasury advice ignored by National:

    http://www.radionz.co.nz/news/stories/2009/06/27/1245b6b22e76

    I’m starting to like those socialists on the Terrace … 😉

    • Ari 5.1

      I have a family member who works at Treasury. Voted Labour all his life, lol 😉 Was just talking with him about how they opposed the 1990 cuts too.

  6. burt 6

    So if National said Treasury had an ideological burp and it was right to ignore them would everyone support National’s actions?

    • Anita 6.1

      National is busy telling the public to ignore a wide variety of public servants, why would I believe them in this case given their track record?

  7. Rob Salmond 7

    Hey check it out, it is one note burt. Burt doesn’t like talking about substance – he prefers trotting out old quotes to prove how cool he is. Good for him.

    To answer your question burt, no I would not support National doing as you suggest. That is because I disagree with the substance of the decision National has made, for reasons given above.

  8. Nick 8

    Classic. Treasury publishes advice that Labour despises and so Treasury is just a right wing think tank. But when it publishes advice Labour agrees with it’s all of a sudden a paragon of virtue.

    In short, Treasury is wrong when we disagree but right when we agree.

    Do you realise how duplicitous this looks?

    • r0b 8.1

      Do you realise how duplicitous this looks?

      Don’t be daft.

      What you’re suggesting is a purely ideological approach – “Always believe Treasury” or “Always disbelieve them!”. No brain necessary for that.

      Treasury, like any person or entity, can give good advice and bad advice, and it is perfectly valid to try and work out and argue a case for which is which.

    • Zetetic 8.2

      Try reading the post genius. “overriding even the right-wing Treasury’s concerns”. Treasury is still a right-wing think tank. Even they got it right this time.

      Trying to run a line that doesn’t stack up to a simple reading of the post. Do you realise how dumb that looks?

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