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Super projections

Written By: - Date published: 9:27 am, June 3rd, 2009 - 19 comments
Categories: superannuation - Tags:

I’ve had a crack at working out how much we lose by cancelling the Cullen Fund contributions according to the Treasury’s figures in the Budget. I come out with a loss of $7.5 billion by 2023.

profit

That’s a little lower than the figures Guyon Espiner was leaked, which were presumably based on more detailed modelling. The loss will just keep getting bigger after 2023 but that’s where Treasury’s debt projections end.

Hard to argue with Treasury’s numbers (although no doubt the thread will be full of righties doing just that). It really leaves the Right only one response: ‘But, but we couldn’t borrow that extra, we would get a credit downgrade.

No we wouldn’t have. Only one credit agency was even suggesting we might get a downgrade. Moody’s rated us one of the most secure AAA rated countries out there.

All we needed to do to avoid a downgrade was show a commitment to getting back into surplus over time and some fiscal responsiblity. Dropping the tax cuts was enough. Dropping investments in a fund that will generate huge returns over the long-run wasn’t going to impress them. Even if we borrow for the contributions,  the increase to our debt to GDP ratio isn’t large given it’s for a good investment in our future. Even with the added borrowing, our gross debt will start to track down within ten years.

debt-to-gdp-Marty G

19 comments on “Super projections ”

  1. insider 1

    Richard Worth has resigned….

    captcha was lordly

  2. tsmithfield 2

    Yawn. Marty, this is getting boring.

    I will say it again. The Treasury projections are just that. Projections. They are not realised gains. You can model all you like. Doesn’t mean it will turn out that way. A lot can happen in the next 14 years you are projecting ahead.

    The only certainty in borrowing for tax cuts is that the borrowed principle and accrued interest must be repaid.

    Again, as Morgan says: “it is financial illiteracy of the worst kind to borrow for savings.”

    As I said on your other post with respect to tax cuts, Phil Goff suggests that tax cuts are likely to be saved rather than spent. If this is the case it is likely that much of the tax cut money is going towards retirement savings, or paying off mortgages, increasing long-term equity. So, much of the tax cuts may well be going towards individual retirement plans at arguably better rates reducing the longterm burden on the state.

    • Maynard J 2.1

      Yawn, tsmithfield, this is getting boring.

      Projections are what we work with. We used them when the fund was set up, we’ll use them in the future for damn near everything. Pretending that they are meaningless is a pointless exercise. We are ‘projected’ to be in debt for the next ten years. Shall we splurge a few bil on a frigate or two and some tax cuts because they are only projections? Spend every cent we have right now and not plan for any future income or expenditure, because we do not know for sure what will happen?

      Morgan says a lot of things, none of which are gospel. if you take that comment as Holy Writ, National are extraordinarily incompetent and we should liquidate the ACC fund and the Earthquake fund, along with the Cullen fund. He has already called for the latter, illustrating an apathy for society not common. So he has no fortitude, and wants to give up on super at the drop of a hat – why do I doubt this is less his ‘economic’ idea coming through than a representation of his neo-lib politics and a general antipathy towards state-super?

      The top 3% got most of those tax cuts did they not? So they may be better set for retirement, maybe they are saving for a boat or a holiday. You seem to be advocating for the end of universal super.

      • tsmithfield 2.1.1

        At least Morgan is a lot more informed on the issues than most of us.

        • Maynard J 2.1.1.1

          You mean he has a lot more at stake, a far greater personal interest, and a whole lot more ideological baggage than most of us.

          • cocamc 2.1.1.1.1

            Maynard J, but the difference between the Super Fund and ACC/EQC is that ACC and EQC is funded from premiums from tax payers and they are not going out to borrow vast amounts of money for ACC and EQC. That is completely different to Super Fund which this site thinks should be funded via debt

          • Maynard J 2.1.1.1.2

            That is a valid difference, but Morgan’s basis, and that of the right is so broad that the distinction is not made. The cry is ‘no saving through debt’. The government has savings, however they were made. The government now has increasing debt – which should be liquidated.

            Remember Morgan wants the whole super fund to be paid out. Such short-term thinking would also call for pay-out of all government assets such as teh ACC and EQC funds, with all the foolish results that would ensue. Morgan’s comments are political, not economic.

    • felix 2.2

      Yawn, tsmithfield, I don’t think I can believe anything you say after you were caught out in those absurd lies on this subject the other day which you never retracted or apologised for.

      • tsmithfield 2.2.1

        I don’t see any lies there, felix. Everything I said is explained and validated by the Super fund website I linked to.

        My first statement was that the fund had lost billions. I made no claim that it had lost money from the capital amount invested. It clearly has lost billions from its peak level. So my initial statement was quite accurate.

        • felix 2.2.1.1

          Weasel words, tsmithfield.

          You said the fund had “lost billions” when you know perfectly well that that was not the case.

          Perhaps you’d care to address my claim that the fund has “lost billions” in pubes?

          You see if the principle had been invested in pubes then we’d now have billions of pubes. As we didn’t, by your reasoning we can be said to have “lost billions” in pubes.

          Either my claim is valid or yours is not. You choose.

          • tsmithfield 2.2.1.1.1

            No. You are incorrect. Merely pointing at the original amount invested does not take into account the NFV of the money at the time invested. If you take the capital value alone, then it would be worth less now on the basis of inflation alone. So your analysis is incorrect.

            If the fund had been cashed up immediately prior to the crash, it would have been worth 14 billion in cash. So, it had lost billions from where it otherwise would have been. Can’t see your problem with this analysis.

            Also, the Fund website showed it had lost money against what could have been achieved on a risk-free basis.

          • felix 2.2.1.1.2

            The problem is that your words were:

            “…in an investment fund that has currently lost billions. ”

            when in reality, currently the fund is in profit.

            Stop weaseling, tsmithfeild.

    • aj 2.3

      tsmithfield

      “The only certainty in borrowing for tax cuts is that the borrowed principle and accrued interest must be repaid”

      Finally mate you see the bloody light.

    • SPC 2.4

      But unfortunately Gareth Morgan has yet to note that Bill English is borrowing to finance the $1000 paid into each Kiwi Saver account each year – if its foolish to borrow to finance savings, is it not more foolish to borrow to finance the savings of others when you are not saving for ones own tax paid Super committment?

      But I guess some people have an interest in the matter …

  3. tsmithfield 3

    felix: “when in reality, currently the fund is in profit.”

    You really think so? Think about the average rate of inflation for the period at say conservatively 2% per annum. The fund has made 3.26% percent for the five years it has been going, or 0.652% per annum. So the fund has been losing money against inflation without even taking into account any of the other comparisons I have made.

    In your analysis, if you had kept your money under your mattress for five years, you would say it was still worth as much as it was five years ago. You need to get your head around the concept of NPV and NFV.

    • felix 3.1

      “without even taking into account any of the other comparisons I have made.”

      The other comparisons you’ve made are no more relevant than my pubes comparison. Stop trying to back away from what you said.

  4. tsmithfield 4

    I demonstrated that the fund hasn’t kept up with inflation. Therefore, in real terms the fund is smaller than the capital invested. Hence the fund has lost money in real terms whatever way you look at it.

    Can you show any way in which the fund has increased in value in real terms? If you can, then I will concede to you.

    • SPC 4.1

      Taking a snap shot of the worth of a savings plan after such a fall in market values is so devious and underhand it is worthy of the term voodoo economics.

    • felix 4.2

      Ah no, tsmithfeild, it was you who made the claim that the fund has “lost billions” so you’re going to have to show that. So far you’ve failed miserably.

      “Billions”, tsmithfeild. “Lost billions”.

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