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