A year after National canned contributions to the Cullen Fund, Vernon Small slams the decision:
it was a dumb, short-sighted decision that has cost the fund heaps in the long run. It will rate as National’s biggest economic gaffe
Of course, some of us knew that all along and were criticising it, even as Small, despite seeing the stupidity of cutting contributions, said it was the right thing to do. And I actually think allowing unemployment to get over 7% is a bigger economic ‘gaffe’ (do we really want to call bad choices worth billions ‘gaffes’?).
Small continues:
The sad truth, though, is that last year’s moratorium on Cullen fund contributions means the Government – we – missed the bottom of the economic meltdown, when potential investment returns were at their highest. At the time it looked illogical to effectively borrow to invest, when debt was already climbing steeply at the rate of $200 million a week.
No. Everyone, except those who mindlessly swallow the government’s spin or need to take off their socks to count past ten, knew that stopping investing when assets were at historically low prices was nuts. Unfortunately, too many of the people who should be holding those in power to account fall into one or both of these categories, judging from the lack of criticism the Nats received at the time.
Even a leak from Treasury showing that stopping contributions to the Cullen Fund would cost the country $8 billion over and above the cost of borrowing the money wasn’t enough to get serious questions asked at the time.
Using the Cullen Fund’s performance figures and putting in the payments that National has canceled, we can see the decision to halt contributions had resulted in $25 million in lost returns above the cost of borrowing by December. The Treasury forecasts see that grow exponentially – we are losing compounding returns.
The deficit is much smaller than expected. Restarting our investment in the Super Fund will see net government debt decrease. It’s time for the Government to reverse its “dumb, short-sighted decision”. And it’s time for them to get a roasting if they won’t because it will prove that the decision to stop contributions was always based on solely on ideology, not economic reality.
If we don’t make this investment now, our superannuation scheme will become unsustainable sometime after 2030. Perhaps that’s National’s intention.
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