I’ve had a dig into Treasury’s numbers and worked out that they expect the Superannuation Fund will make a 13% return next year, falling to 11% a year by 2012. Those figures seem pretty good, not too optimistic. It’s what the Fund made in ordinary years before the crunch and bear in mind the Fund made 8% last month.
Now I asked, what if we put in the payments we were meant to ($1.25 billion more in 2009 than the $250 million National is putting in and $2.2 billion a year thereafter), getting the money by borrowing more?
Government bonds are selling at about 6% return a year (I’m pretty sure that’s non-compounding unlike the returns the Superannuation Fund makes, doesn’t make a huge difference).
So, what would we make if we borrowed $7.85 billion in the next four years at 6% and made the 13-11% returns that Treasury projects for the Superannuation Fund?
About $1 billion by my count.
So, not only National has effectively sounded the death knell of superannuation as we know it in the future, they’ve cost us money right now. $1 billion in just four years. The loss will be much, much more by 2020 when payments to the Superannuation Fund resume (yeah, right – not if National has a say).
Our net debt would be 0.5% of GDP lower in 2012 if we kept on making contributions to the Fund. Far from being unaffordable and risking our credit rating, the contributions would have seen our national books in better shape.
John Key and Bill English are both former bankers. They can do the maths. They know that borrowing to buy an asset with abetter long-run rate of return makes sense. The gamble, as always, is that none of the media can. Do you think the gamble has paid off?