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Superannuation and Government forecasts

Written By: - Date published: 9:31 am, May 25th, 2015 - 197 comments
Categories: benefits, bill english, budget 2015, Economy, john key, kiwisaver, national, national/act government, Politics, same old national, slippery, superannuation, tax - Tags:

The media recently became excited after Andrew Little talked about how there should be a discussion about the future of superannuation.  In my personal view the discussion is perfectly appropriate and is becoming urgent.  National is playing political games with the issue and is boxing New Zealand long term into less and less palatable choices.  Our government is going to have to grapple with this issue sooner or later.

These two charts show the extent of the problem.  The first is from this Statistics New Zealand Paper and shows how the number of kiwis aged over 65 is accelerating.
Elderly population chart

The second shows a graph of the spend from 2005 to 2015 on National Superannuation (click on it for a legible copy).  Note the regular and gradually accelerating spend on superannuation.  The current budget alone allows for an increase of $668 million above last year’s spend.  I have not attempted to summarise other increasing costs such as Health and the Gold card but the cost of Health alone will also increase by significant amounts as the needs of an ageing population grows.

National Superannuation spend 2005 - 2015

National’s response to superannuation policy continues to be disappointing.  Bill English was questioned in a gentle way on Q&A last weekend about the budget.  He showed surprising numerical illiteracy by confusing averages with medians.  He acknowledges that the $25 per week payable to beneficiary families will be abated.  He also claimed that under the forecasts the Government is running National Superannuation remains affordable.

I presume that by “the forecasts” English is referring to Treasury’s Budget Economic and Fiscal Update which runs forecasts out to 2019.  2020 would appear to be not within Bill’s contemplation.  Way to plan ahead Bill.

There needs to be a discussion about the future of Superannuation and the sooner this discussion occurs the better.  To ready itself for the baby boomer bulge Government can do three things, it can pay down crown debt to give it headroom to borrow more in the future, it can set up a dedicated superannuation fund to make the current scheme more affordable and it could set up a further scheme to persuade individuals to establish a nest egg to augment their retirement income.

Labour did all these things, paying off debt until we became a net creditor nation, establishing the Cullen Fund and setting up Kiwisaver.

What has National done?  Not only has it refused to even countenance any policy to make superannuation more affordable long term but it has run up significant debt, frozen grants to the Cullen Fund and made eight distinct cuts to Kiwisaver.

But we are in the strange situation where any discussion about changing superannuation attracts political opprobrium but refusal to do anything about the future is regarded as a political virtue.

It looks like the next Labour Government is going to have to do what past Labour Governments have always done, cleaned up the mess left by the outgoing National administration and plan for the future.

197 comments on “Superannuation and Government forecasts ”

  1. Gosman 1

    Does this mean you would be willing to support the proposal by Act party leader David Seymour to take the issue out of the realms of partisan politics and try and get change via taking it to the NZ people directly?

    • mickysavage 1.1

      I am at the stage where I think National should come up with a proposal. If they do not they should they should explain why. Seymour’s proposal is essentially a cop out. Politicians are elected to understand things and make hard decisions.

      • Gosman 1.1.1

        This issue is far too partisan and National has too much tied up with the topic at a personal level with Key for that. Both you and I might like National to front up on this subject but it is not politically advantageous for them to do so.

        • The Murphey

          All that is required is for [name the politician] to come out and succinctly explain the myths of ‘monetary scarcity’ and why there are in fact no funding ‘issues’ which can’t be easily solved

          Having done that they can outline the path to improved and free health care and educational facilities, free tertiary education, funding for sustainability R&D, social housing, food in schools as a starter for ten

          Enough of the lies

          No more political footballs

          • Draco T Bastard


          • Gosman

            Goodo. I look forward to some left wing politician doing that in the near future.

            Which left wing politicial party do you think this person will come from considering none of them that I am aware of seems to promote these ideas?

            • Colonial Rawshark

              We’re working on it. The NZ Govt can choose never to run out of the ones and zeroes which are entered by keyboard strokes, to fund important socioeconomic priorities.

              • Lanthanide

                Yes, they can choose that. And other international trading countries may make their own choices in response, like, dropping the value of our dollar to 25C US, so that importing everything (including petroleum) becomes prohibitively expensive and the economy crashes.


                • Yep. Short term thinking; bugger the future, let the grand kids pay for our excesses.

                  • Lanthanide


                    My point is that I don’t really know what would happen if we were to start printing money (although I can guess at some possible outcomes).

                    But just pretending that it is the solution to all of our problems and blindly assuming (and in some cases, asserting, as Draco does) that there won’t be any negative consequences (that could outweigh the benefits) is frankly naive.

                    • Colonial Rawshark

                      Lanth – we can afford to have our currency drop to US65c or so.

                      And look at the Reserve Bank series for M1 and M2 money supply. We ARE producing copious amounts of new NZD year by year.

                    • Lanthanide

                      “We ARE producing copious amounts of new NZD year by year.”

                      Yes, and we’re doing it in a way that is acceptable to our foreign trading partners.

                      I agree the NZ $ could stand to fall to 65c. Where is your evidence that printing money will achieve that outcome, but no further fall?

                    • Colonial Rawshark

                      Lanth – you simply produce new money incrementally as good productive investment projects in NZ come up.

                      And yes, we need to do this in a way which is acceptable to our trading partners. One where they get a share as well. NB the BoJ, BoE, Fed, PBC, ECB are all printing money. Have the values of their currencies crashed?

                    • Draco T Bastard

                      But just pretending that it is the solution to all of our problems and blindly assuming (and in some cases, asserting, as Draco does) that there won’t be any negative consequences (that could outweigh the benefits) is frankly naive.

                      [citation needed]

                    • Draco T Bastard

                      I didn’t say there that there wouldn’t be any negative consequences, only that the economy wouldn’t crash.

                  • Colonial Rawshark

                    Yep. Short term thinking; bugger the future, let the grand kids pay for our excesses.

                    How many more lines can you steal from the US Republicans, TRP? Goes to show how neoliberal orthodox establishment thinking is.

                    Keep 250,000 NZ kids hungry right now because of a pretend future book keeping/spreadsheet problem.

                    • Lanthanide

                      How is it a pretend problem if the dollar crashes overnight and we can no longer afford petroleum? Will the hungry children be better off then, or merely in the same boat as everyone else?

                    • It’s not a pretend problem, CV, and your ad homs can’t disguise that. If we cripple our economy now, then those kids will be the ones who have to pay for the mistake. Kinda like we are still paying for the mistakes of Muldoonism a generation later. I know economics is a hard area of study, but you really should read up this stuff. The big problem is not the size of the economy, or the day to day value of the money. It’s the equitable sharing of the real wealth we do have. All you seem to be suggesting is ignoring reality and loading up debt for future generations to pay. Put it on the credit card. That’s the kind of thinking that is making an enemy of all our futures.

                    • Colonial Rawshark

                      Lanth – please have a look at the RBNZ series for M1 and M2. Note how the money supply has been increasing rapidly for over ten years now. The economy has not collapsed. The NZ dollar has gone up, it hasn’t gone down. That is because the products NZ makes are in demand (as well as the NZD being in demand for financial speculation).

                      Please don’t fall for the fear mongering of TRP and the rest of the orthodox neolib establishment thinkers who are stuck in the debt-based money creation paradigm. The main question you should be asking yourself – is how NZ should be investing in productive capabilities, goods and services in order to make best investment use of an increased money supply.

                    • Ad homs can’t disguise your economic ignorance, CV. The weird part of your position is just how conservative it is. You want the economy briefly tilted to benefit a few, but you require the majority to pay for that shift for a generation or more. We’ve done that already in the seventies and it was pants then and its pants now.

                    • Colonial Rawshark

                      More people are figuring out the answers for themselves TRP. I have no problem if you can’t.

                    • Lanthanide

                      @ CV: I never denied we were printing money.

                      You can’t have it both ways: either what you are suggesting is a brand new thing that we are currently not doing, or what you are suggesting is exactly what we are already doing.

                      Clearly the latter doesn’t make sense, so you are suggesting the former.

                      So to say “we are already printing money and it hasn’t crashed the economy”, when you are advocating for a different ‘way’ of printing money, is disingenuous.

                      So I’ll say it even more plainly: you have not adequately explained how your ‘way’ of printing money is not going to cause negative impacts on the NZ economy in the short, medium or long term.

                    • infused

                      NZ dollar goes down, COG goes up. Since most of my services come in the form of USD, all my customers pay more. Since they pay more, you will pay more. You are good at this CV.

                    • Colonial Rawshark

                      So I’ll say it even more plainly: you have not adequately explained how your ‘way’ of printing money is not going to cause negative impacts on the NZ economy in the short, medium or long term.

                      Fine. I’ll counter in this way. Show me any evidence you have that one ‘way of printing’ money into the NZ economy has greater negative impacts than the other – whether it is $100M spent into the economy by Chinese house buyers, or $100M of consumer credit extended into the economy by the ANZ, or $100M of new money spent into social services by the Government, or $100M being moved from savings into expenditure by an aging retiree population.

                      My position is that on a macro level – each of these is fairly similar (though not identical) in effects re: negative impact on inflation and FX depression.

                    • Lanthanide

                      I’m not the one advocating change, I don’t have to prove anything.

                      And, even if I agree that there could be benefits in moving away from the current system, that doesn’t mean that your proposal is the system we should move to.

                • Draco T Bastard

                  And other international trading countries may make their own choices in response, like, dropping the value of our dollar to 25C US

                  That’s about where the NZ$ should be. Why do you oppose this correction of our over-valued dollar?

                  so that importing everything (including petroleum) becomes prohibitively expensive and the economy crashes.

                  It won’t crash at all. We’ll just have to look to produce stuff ourselves which would probably boost employment and other economic activity which would probably start to boost the value of the NZ$ on the forex.

            • Enough is Enough

              Draco should

              He should stand and put his brilliant ideas up for the population of New Zealand to decide what is the best way forward…

            • Bill

              Which left wing politicial party do you think this person will come from considering none of them that I am aware of seems to promote these ideas?

              Nicola Sturgeon & Scottish National Party.
              Natalie Bennett & English and Welsh Green Party
              Patrick Harvie & Scottish Green Party
              Leanne Wood & Plaid Cymru

              Add to that some Labour back-benchers, various (as yet) unelected parties. Look at it in the light of soaring membership numbers for all of those parties plus massive electoral success for some.

              Then reflect that NZ tends to be a fast follower of UK politics.

              • dukeofurl

                The SNP is the only party achieving ‘massive success’. But we are still talking around 5% of the votes. FPP may give you more seats but it also ignores you totally as even labour doesnt get much look in the Commons with their 30%.

                Its even more bizarre as the SNP wants to keep the pound currency, so no chance of any independent currency and the only feasible alternative is the euro.

                Which left wing party is going to promote these ideas ?
                Unless you are writing policy for SNP that they dont know about, they arent doing this either.

                • Bill

                  FPP is a pig of a system and one the SNP want changed even though they’d get fewer seats. They received 50% of the vote where people could vote for them btw. They may yet pick up Orkney and Shetland, taking their tally to 57 out of 59, when Carmichael resigns over the ‘Sturgeon wants Cameron’ leak.

                  Meanwhile – and the last points I’m willing to stray off-topic on – the pound is Scotlands pound as much as it’s Englands and a proportional voting system for the UK would have to take into account ‘weightings’ to reflect the fact that the UK is comprised of four nations with at least two of them in a Union suggestive of equality.

                  Back on point. The parties I listed satisfy the list put up by ‘The Murphy’ that ‘Gosman’ appeared to challenge as unrealistic.

                  Do you have anything to say on that front?

                  • Colonial Viper

                    Scotland should not try independance without becoming its own currency sovereign- that is, become the sovereign issuer of a currency, not just a user of it like a province or a county is.

                  • dukeofurl

                    Pig of a system, that they want changed /

                    Thats a funny one. The MMP system for Holyrood which gave SNP a majority with 69 seats even though the second vote for party was only 44%!!!!

                    ie they got 53% of the seats even though the list MPs was supposed to balance out and give proportionality. They got 12-13 MSP than proportionality would allow

                    Cant see SNP changing the non proportional system they have in Scotland that puts them in power.
                    The greens with 4.4% of the vote get 2 Mps out of 129. It should be at least 5 if it was a real proportional system

                    [Do you have anything at all to say that’s related to the topic of the post? Any more diversion trolling and your gone for a wee holiday.] – Bill

          • Gosman

            Why do you think a radical left wing party like Syriza in Greece isn’t promoting this as a solution to their problem given it seems such an obvious solution to trying to fund social spending when there is not enough revenue to cover expenditure and they were meant to represent a major break with the past?

            • Colonial Rawshark

              Greece is not a currency sovereign; none of the Eurozone countries are.

              • The lost sheep

                If just printing your own is such a straightforward solution, why hasn’t Greece already given the Euro the flick and started cranking out Drachma’s?

                • Colonial Rawshark

                  This topic and the limitations around Greece moving to a “New Drachma” has been well covered in the international financial press.

                  • Gosman

                    The issue seems to be that the Greeks want to have their cake (The Euro) and be able to eat it too (spend as much as they like).

                    • Colonial Viper

                      thats true and it isnt going to work…

                    • dukeofurl

                      The Greeks learnt from the Germans after WW1, if you kick up enough fuss no need for reparations. The Germans even tried deliberate hyper inflation to reduce the payments owed.

                      Financially they are in an impossible situation. Thats what bankruptcy is for.

                      Excluding interest payments the greek government runs a surplus.

                      the reality is most of the external debt has been onsold at a fraction of its value ( one of the reasons for Cyprus meltdown, they bought Greek debt cheaply from the original holders)

                      Happened when General Motors went bankrupt, those that held unsecured bonds lost most of their money ($27 bill) and ended up with 10% shares of the new GM.
                      Shareholders lost everything of course.

                • “If just printing your own is such a straightforward solution, why hasn’t Greece already given the Euro the flick and started cranking out Drachma’s?”

                  Because it’s madness, obviously. If it wasn’t, I’d pay my bills with photocopies of twenty dollar notes. What we really need is economic responsibility, balancing macro-economics with social gains. Sadly, we haven’t had anything near it since 2008.

                  • Colonial Rawshark

                    Yes, let’s hear more orthodox neo-classical economic thinking from establishment loyalists.

                    Or, we can have nations empower themselves by regaining the power of being currency sovereigns.

                    • Gosman

                      Seems very much like what Robert Mugabe and Zanu-PF used to spout off about just prior to them destroying their own currency and ending up being forced to rely on the USD and the South African Rand.

                    • Colonial Viper

                      its totally different: money which is created has to be done so on a limited basis and then carefully invested in people and in productive enterprise, just like any other monies.

                    • Gosman

                      Those are meaningless terms C.V. Every politician on the planet believes they could control the situation to only have positive outcomes. You have essentially stated the same thing.

                      Would you print money to pay benefits? If so when do you get the money back from them?

                    • And yet more moronic ad homs. Seriously, CV, try arguing the points.

                      Here’s one; is your economic idea around money not just another form of economic orthodoxy? It doesn’t change anything on a macro level, does it? It doesn’t sweep away capitalism, it seeks to adapt it. If I’m correct, then all you are suggesting is a bandaid on a broken leg, economically speaking.

                    • Colonial Viper

                      Gossie – taxes are used to pull money which is being spent in general circulation back into the treasury.

                    • Colonial Viper

                      TRP – yes, it uses and maintains capitalism, it also maintains some structural inequality in the economy. In that sense these proposals are compatible with Labour establishment thinking.

                    • Gosman

                      Ultimately then you have a similar situation as you have today if you rely on Taxation to reduce the extra money in circulation that comes in to being due to the printing of the money to fund the spending. The only real difference from your solution to the current situation then becomes how investment is funded. Under your situation investment flows from Central government rather than from the private sector. Personally I think this is a terrible idea but go ahead and push for it if you think it is worthwhile.

                    • Cheers, CV. That’s how I see it too. If the solutions don’t address the fundamental problem (capitalism) then they can only be temporary at best. That’s kinda the point I was making; short term alternatives (such as Muldoon’s Think Big and wage/price freeze) only put off the day of reckoning.

                      The globalisation of the world’s economy means that individual countries really don’t have much ability to find unorthodox solutions. That’ll get harder still if we sign the TPPA, obviously.

                    • Colonial Rawshark

                      Cheers Gossie. BTW I see an important and continuing role for private sector credit provision in the future as well.

                    • Colonial Rawshark

                      Well TRP, I think our next set of economic solutions have to be ones which can work within a capitalist framework because that is what we have to work with at the moment.

                  • Draco T Bastard

                    Because it’s madness, obviously.

                    No it’s not. Your faith in the status quo is.

                    For a nation to go to a full sovereign currency that doesn’t bring about hyperinflation a number of things need to happen:

                    1. Private banks need to be prevented from creating money. They only get to on loan reserve currency
                    2. The setting of tax rates needs to be removed from government and put to the central bank via some sort of mathematical formula. Note, I said tax rates, government would still set what’s taxed. Government can only create money to spend into the economy
                    3. Banning of offshore ownership
                    4. Capital controls. Specifically, nothing in NZ can be sold for anything other than NZ$

                    This way we’d end up with both a more stable economy and one that’s more dynamic and innovative.

                    • I have no faith in the status quo. Haven’t had since I was as kid. But I also have no faith in your isolationist model either. It’s not going to fly in the current world conditions, because we currently still need to trade and like it or not, that trade is done in cooperation with other nations and blocks, who must also have trust in the monetary representation of ur countries worth. That is, the money must have actual value. Your suggestion has worked in the past, and I suppose is more or less used in some countries currently, but it’s not a runner for an export led country.

                      However, you seemed to have missed my point anyway, Draco. Which is that printing money in the way that has been suggested by others in this and related threads (ie not pinned to value) is madness. Certainly the repeated references from one commenter to running out of digital zeroes and ones is charmingly naive at best.

                    • Colonial Rawshark

                      Which is that printing money in the way that has been suggested by others in this and related threads (ie not pinned to value) is madness.

                      Nah it’s you who have missed the point. It’s the current system of privatised credit creation and central bank money printing which is not pinned to economic and human value. You can see it in the financial bubbles being blown up large all across the world. You can see it in how an Auckland house makes more money in a week than a worker can in a month. You can see it in how the net worth of the 1% has been growing stupendously while the net worth of the bottom 50% has been collapsing.

                      The criticisms you wrongly aim at NZ acting like a true currency sovereign are in fact truer as criticisms of the current system of money creation.

                      I have no faith in the status quo.

                      You’re an establishment loyalist. The establishment system has treated you well so why not. It’s quite understandable. You don’t like radical ideas and you don’t like concepts which threaten the status quo. But the era of pretense is quietly ending and NZ needs to position itself for the coming resource and energy crunch.

                    • Draco T Bastard

                      That is, the money must have actual value.

                      Money has no value and never has had. It’s merely a tool to assist in getting the economy working and not very good one at that.

                      And as CV points out:

                      The criticisms you wrongly aim at NZ acting like a true currency sovereign are in fact truer as criticisms of the current system of money creation.

                      That’s been proven time and time again and yet you still persist in believing the tripe of the status quo.

                      Bryan Gould: Teaching the Facts

                      The money that banks lend has virtually nothing to do with the savings deposited with them. The volume of their lending, which goes on rising hugely year on year, is many times greater than the sums deposited with them, and is the result of a power that banks, alone amongst “financial intermediaries”, possess – the power to create new money out of nothing by making a bank entry that becomes a deposit (and therefore spendable money) in the account of the borrower.

                      This point has of course been well-established on many occasions in the past, and has recently been most authoritatively re=asserted, as noted above, by the Bank of England. It is of the utmost importance. It is the most significant single element in the consideration of monetary policy and its truth invalidates almost all of the macro-economic policy we currently apply.

                      What CV and I have suggested is nowhere near as radical as private banks creating money without limit or restriction. Under the prevailing conditions where does the value of money come from?

                      And, yes, I did note that you didn’t address anything I said.

                    • mikesh

                      [Money has no value and never has had. It’s merely a tool to assist in getting the economy working and not very good one at that. ]

                      In one of his books Michael Lewis tells us about some American who bought $20 million worth of nickels. Apparently the value of the metal in each coin was greater than its face value.

                  • Tracey

                    ” I’d pay my bills with photocopies of twenty dollar notes.”

                    Not quite. That would be a crime of forgery and counterfeit.

            • mikesh

              The Greeks will probably do so when they’ve defaulted, abandoned the euro, and returned to the drachma. Assuming of course they don’t adopt the ruble instead 🙂

          • Colonial Rawshark

            The Murphey: +1

            How on earth can the NZ Government, which issues NZ dollars out of thin air, ever run out of the ones and zeroes for doing so?

            If Labour cannot get its head around this and how there is going to be decreasing levels of paid employment in the future (and what paid employment there is, will be of decreasing quality) then of course it will pick reductions in benefits to “balance the books” every time, even though there is no need to do so.

            • The Murphey

              There will be a large number of sitting MP’s who understand the lies they are peddling and the reasons why they are lies

              If exposing the lies gets ‘you’ ‘suicided’ so be it you signed up for the job now stop being an accomplice and enabler to murder / war / poverty creation and human suffering…

              Own it

        • Tracey

          Yea, so you voted ACT knowing that one of their policies (which you support) could never get through, delaying one thing you think is crucial for New Zealand in the future?

          • Gosman

            You keep bringing this up as if Act’s very much junior role in government means I should not vote for them because they can’t get their policy platform adopted by the National Party. It seems very FPP type thinking. I’ve also asked you which political party should I vote for given my obvious political views and the parties that are out there in the NZ political landscape.

            • tracey

              Labour campaigned on raising superann age but you voted for a party that could never achieve that given its reliance on National to exist. It’s your choice, just a little wrong-headed is all.

      • KJT 1.1.2

        Politicians are elected to ‘represent’, us!

        It is called, Democracy!

    • Tracey 1.2

      Do you agree with Seymour that we need to raise the age of Superannuation entitlement?

      • Colonial Rawshark 1.2.1

        Labour is a representative of the monetary and fiscal orthodoxy which has been driving world economics for the last 30 years.

      • Gosman 1.2.2

        Yes I do. Are you now going to argue I shouldn’t be voting for Act because they can’t get National to agree to this?

        • tracey

          Are you going to say “who should I have voted for?” Cos I am going to say Labour campaigned on raising the super age., So, I guess it really isn’t all that important to you afterall.

          • Gosman

            Labour also campaigned on a bunch of policies that I disagreed with. So following your own logic I’d be in the same situation I am now in that I would have voted for a party that would be implementing policy I don’t like.

            • Tracey

              Yes. So, it’s about priorities. And clearly raising the super age is way down your list. Which is fine. We all make compromises.

  2. lefty 2

    There needs to be a discussion about UBI, not the superannuation.

    Starting with the symptoms of a broken system can only lead to even more problems and poverty.

    There needs to be a discussion about transformational economics, not the zombie economics that decree superannuation is going to be an unaffordable burden on future generations.

    • Colonial Rawshark 2.1

      Spot on. Labour is on a track to perpetuating the problems brought about by the thinking of the last 30 years.

      The NZ Government is the sole issuer of NZ dollars in the world. How is it that the NZ Government can ever run out of NZ dollars to fund important and productive socioeconomic priorities?

      Does the referee in a rugby game between Japan and the All Blacks ever run out of points to be put on the score board? Does the ref ever say – hey I have no more points in my pocket any more, no matter what you players do on the field I have run out of points to award you for your performance and hard work on the field, so just stop.

      It’s a fucking ludicrous – and dangerous – misconception that our political class is running with.

      • mickysavage 2.1.1

        What about hyper inflation?

        • Tracey

          Do you think someone born with a disability preventing them from working OR preventing them from working in higher wage jobs should be on subsistence until they get to 65 (if their condition allows them to live that long) to get a payrise to 65% average wage?

          • mickysavage

            I am veering towards a UBI. But to finance it will require some fairly fundamental changes.

            I initially supported increasing the age of retirement but have changed my mind. I am not sure that universality is affordable.

            I would like the major parties to debate the issue. Right now National is refusing to.

            • Tracey

              Mr Savage 😉 that was a politician’s answer. You didn’t mention the specific class of people I asked you about.

            • Colonial Rawshark

              Hi MS

              “What about hyper-inflation”

              Good question.

              Hyper-inflation occurs when you do not invest new money created into producing additional productive enterprises, technologies, knowledge and services, but instead greatly increase the money supply with no corresponding increase in supply of valued goods and services.

              The Auckland housing market is actually an example of asset near-hyper-inflation in action.

              The approach should be: when you create money you then invest that new money in developing new capacity, new productivity and new service provision – essentially building up levels of competition and capacity in your economy – hyperinflation will not occur because while money supply is on the up so is the supply of useful goods and services to the population and overseas.

              If we look at 2 recent examples of hyper inflation which are oft quoted by the Right – the Weimar Republic and Zimbabwe – we can see that those governments were in a situation where they printed large amounts of money while their productive economies and manufacturing were destroyed, and they did not invest that new money in creating more productive enterprises and developing real resources. Of course, in a situation like that, hyperinflation will result as large amounts of new money are chasing a very limited amount of worthwhile goods.

              Again quite like the Auckland housing market.

              I trust that we can do better than that because Kiwis actually want to build the nation up and create new capabilities and capacity within NZ.

              • John

                If printing money as you suggest worked, then it would be a simple successful solution that every country on the planet could use, and there would be no economic problems anywhere.

                Which is why it is globally thought of as something failed states do when their dictators are totally desperate to hold onto power.

                • vto

                  What planet are you on?

                  Pretty much all money is printed. Your failed states list would need to include the USA, the UK, the EU, Japan, the list goes on …..

                  wake up fulla

                  • John

                    Clearly you don’t understand the difference between Quantitative Easing and printing money.

                    Firstly, here is a few thousand explanations of why they are not the same –

                    And secondly, even with the most positive examples you can find , you’re still suggesting copying economic policies of countries whose economies are performing WORSE than ours.

                    • Colonial Rawshark

                      Clearly you don’t understand the difference between Quantitative Easing and printing money.

                      QE is a fancy name for pumping lots of new money into large financial institutions. No difference to new money creation.

                      And secondly, even with the most positive examples you can find , you’re still suggesting copying economic policies of countries whose economies are performing WORSE than ours.

                      That’s because I am not suggesting “QE”. I am not suggesting we do what these other countries have been doing. Please pay attention. I am suggesting that we can create money if it is required for investing in our people and our nation.

                    • John

                      Colonial Raweshark says

                      “Please pay attention. I am suggesting that we can create money if it is required for investing in our people and our nation.”

                      Colonial Rawshark says

                      “WTF are you on about? Who said anything about “banknotes”? ”

                      No point me joining the argument when you’re frantically selfdebating.

                      And why are you worried about increasing superannuation costs when you think the govt can just make some more money?

                    • Colonial Rawshark

                      Politicians (and yourself) need to start focussing on planning and delivering the physical, concrete socioeconomic priorities for the nation in the context of real energy and resource limits, and stop worrying about the self imposed and arbitrary limits of how many electronic ones and zeroes we keep on computer spreadsheets.

                • Colonial Rawshark

                  Please read my comment before you write. If you have a question to ask about my comment I will endeavour to answer it.

                  Also note that the Fed, the ECB, the BOJ, the BOE and the PBC have all been printing copious amounts of new money. Are you now calling all those states failed dictatorial states?

                  Snap VTO

                • Tracey


                  “Which is why it is globally thought of as something failed states do when their dictators are totally desperate to hold onto power.”

                  Like Mr Cameron and Mr Obama?

                  • John

                    As I said earlier, clearly you’re ignorant of the differences between quantitative easing and printing money.

                    Printing money often seems to be promoted by people who think getting something for doing nothing is a normal situation – and this is just a bigger version.

                    • Tracey

                      You’re ok with quantitative easing then? Just not printing money?

                    • Colonial Rawshark

                      John who is suggesting that this will be ‘money for nothing’? Really, only you and TRP are the ones suggesting that.

                      I am suggesting that the money is created by the Government where it can be invested in productive enterprises and activities which build up the nation. The capabilities and skills of our people can also be expanded in order to build up the value of human capital in NZ.

                      Why are you against that?

                    • Gosman

                      I suspect your definition of productive enterprises and activities which build up the nation is so broad as to be meaningless.

                      Are benefit payments an example of activities that build up the nation?

                      Is education an example of an activity that builds up the nation?

                      Is Health spending an example of an activity that builds up the nation?

                      If you think they are then you are basically stating that virtually the entire spend of the Government’s budget could be funded via printing money.

                    • John

                      Colonial Rawshark – you are totally confused.

                      If you want to build infrastructure, you can use money that has an actual value. It represents work done, products made, and tax paid.

                      If you use freshly made money, it represents nothing. If you print 100% more money, you haven’t suddenly got 100% more production. All you’ve done is make $20 billion represent exactly the same work, assets and products worth what $10 billion previously represented.

                      You’ve created 100% inflation, and effectively stolen 50% off everyone.

                      If it worked, every govt everywhere could just print money and use if for everything.

                      Even the extreme left Greens have realised it a dumb idea and dropped it.

                    • Gosman


                      It is pretty much exactly the policy that Zanu-PF followed in the early 2000’s to help fund their land reform programme. The Reserve Bank of Zimbabwe printed Zimbabwe dollars hand over fist and handed them out to the “Productive” sector as loans or just as grants.

                      Of course I suspect those advocating the policy here would argue that they were not doing it correctly hence why it led to massive hyperinflation. People promoting such ideas always blame the failure on something other than the policy itself..

                    • John


                      I had some friends living in Harare at the time. Any money earned had to be spent in a day or two as within a week it would only buy half as many goods.

                      I was there two years ago and have some souvenir one hundred trillion dollar notes ($100,000,000,000,000 – now worthless except as souvenirs).

                      When I worked there is the early 90s, the exchange rate was $6z to $1US

                    • Draco T Bastard

                      As I said earlier, clearly you’re ignorant of the differences between quantitative easing and printing money.

                      There is no difference you ignoramus.

                      If you want to build infrastructure, you can use money that has an actual value. It represents work done, products made, and tax paid.

                      All money in circulation is fiat.

                    • John

                      Draco T Bastard needs to go to thousands of investment experts and business schools around the world and tell them they are all wrong –
                      “There is no difference you ignoramus.”

                      Yet the Investopedia definition says “Quantitative easing is considered when short-term interest rates are at or approaching zero, and does NOT involve the printing of new banknotes.”


                    • Colonial Rawshark

                      “printing of new banknotes”

                      WTF are you on about? Who said anything about “banknotes”? Why are you trying to obfuscate what the real issues are?

                      To be more precise: all this new money, many trillions of dollars worth since the GFC, has been generated electronically by keystrokes.

                    • Colonial Rawshark

                      Colonial Rawshark – you are totally confused.

                      If you want to build infrastructure, you can use money that has an actual value. It represents work done, products made, and tax paid.

                      If you use freshly made money, it represents nothing. If you print 100% more money, you haven’t suddenly got 100% more production. All you’ve done is make $20 billion represent exactly the same work, assets and products worth what $10 billion previously represented.

                      You’ve created 100% inflation, and effectively stolen 50% off everyone.

                      What the hell are you talking about? Who is looking to print 100% more money? You’re an idiot. Consider the proposals seriously or fuck off.

                      The Crown need never run out of funds for important and productive economic and social investment. That is the bottom line.

                      Stop trying to obfuscate.

                    • Draco T Bastard

                      Wow, John, now you’re just lying. Quoting from your own link:

                      An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

                      And that was actually the beginning part of the paragraph you quoted. I take it you didn’t like the fact that it said that Quantitative Easing increased the money supply – exactly as I said it did the same way that the government creating money would.

                    • mikesh

                      If I have $100 I can either keep it in a demand deposit account at a bank, or I can carry it around in my wallet in the form of notes and coins. So the percentage of notes and coins in the money supply is determined by popular preference. It’s probably better therefore for the country if we use notes and coins as much as possible because the seigniorage on these goes to the government rather than to the privately owned banks.

                      No doubt this would be an argument against becoming a “cashless” society.

                    • Draco T Bastard

                      If I have $100 I can either keep it in a demand deposit account at a bank, or I can carry it around in my wallet in the form of notes and coins.

                      The same is true of digital currency as well. As an example I have an on call account which is the equivalent of cash and a savings account which is the equivalent of a term deposit.

                      No doubt this would be an argument against becoming a “cashless” society.

                      Nope. Seigniorage would still apply to government created money if it was digital and would cost less both in monetary and resource terms.

                      Ergo, no difference between cash and cashless.

                  • mikesh

                    [Nope. Seigniorage would still apply to government created money if it was digital and would cost less both in monetary and resource terms.

                    Ergo, no difference between cash and cashless.]

                    True. But governments don’t seem to create digital money these days.

                • KJT

                  It was also what the USA and NZ did, in the 1930’s, successfully I may add, to get out of the depression.

            • Enough is Enough

              “I initially supported increasing the age of retirement but have changed my mind. I am not sure that universality is affordable.”

              You were pre-election a strong advocate of increasing the eligibility age. What has changed? Do you change your mind with what current labour policy is?

            • KJT

              One of the wealthiest, in resources, per capita, countries in the world cannot afford to feed and house all it’s people.


  3. alwyn 3

    Can anyone explain why the Labour Party claim we have to put money into the Cullen Fund, to help pay for future superannuation but that we should convert ACC, which also has increasing future liabilities, into a pay-as-you-go system?
    Why, if we have to finance now the Super can we not do the same with ACC obligations? What is there about Andrew Little that lets him propose such divergent views?

    There is, in my opinion one very simple reason for scrapping the Cullen fund completely. Neither the New Zealand First, the Green Party nor the Labour Party appear able to keep their grubby little paws of the money. All of them are seeing the fund, not as a means of financing future Super obligations, but as a means of financing their stupid “investment” schemes in things they think are “socially desirable” but that no sane person would put their own money into.
    The Green Party, and even more stupidly New Zealand First, are probably worst in that they seem to think people’s KiwiSaver balances are theirs to throw around in the same way and that they can decide where investments will be made..

    • mickysavage 3.1

      The Cullen fund was to make superannuation more affordable in the future.

      Labour put into place full funding of ACC. Remember the claims of crisis cooked up by National when a change in accountancy standards and rates of return increased the cost of full funding?

      The Cullen fund is performing very well and the returns are good.

      Labour has always said the Cullen Fund should be for superannuation.

      And how responsible do you think English’s and Key’s stance on Superannuation is?

      • alwyn 3.1.1

        “Labour put into place full funding of ACC”.
        Why then does Andrew Little want to scrap any future funding at all? He doesn’t just want to scrap full funding of ACC. He wants to scrap any prior funding at all that would help to meet ACC’s future obligations. Why ACC and not Super?

        “Labour has always said the Cullen Fund should be for superannuation”
        Yes but the more money that is in the fund the more they swing toward wanting to bias its investment decisions to favour their desires. Look at Winston’s comments that he would order it to buy up all the power company’s shares or the Greens that it should provide the funds for public transport.

        ” how responsible do you think English’s and Key’s stance on Superannuation is”
        I think that it is quite supportable to provide universal payments, under the current system, to all New Zealanders from the age of 65. We can afford it and we don’t need anything like the Cullen Fund.
        You do realise, don’t you, that the only real way it could help meet its future obligations is by selling off all the assets and running the fund down to nothing at some time in the future? Do you want that?

        • mickysavage

          Don’t confuse the raising of issues with policy. Progressives tend to want to debate all options. Conservatives hate doing so.

          • Gosman

            A rather generalised statement devoid of a basis in reality I would suggest.

        • Lanthanide

          “Why ACC and not Super?”

          They’re different things?

          ACC pays for accidents, which happen at a fairly constant and predictable rate across a population.

          Superannuation pays for people retiring. The difference is that we know from the demographics that there is going to be a massive bulge in superannuation costs in the future. But the costs for ACC aren’t likely to raise like that at all (although we should expect an increase in accidents to go hand-in-hand with an aging population).

          The cost bulge being faced by superannuation is entirely different from the outlook for ACC.

          It would be silly to expect that a one-size-fits-all approach must be used to solve what are quite clearly different problems.

        • Tracey

          Why do you think ACT supports raising the age? Just part of their general notion that nothing should be subsidised?

          • KJT

            Just part of their general principle that any “economic unit” should not have a right to survive if it is not making money.

            They do not see the obvious conclusion. If they applied that logic to themselves. Non-contributing anti-social parasites like themselves would be the first to starve, in their ideal society.

    • Tracey 3.2

      Isn’t it cool we have heaps of money in both to have the argument about.

  4. Draco T Bastard 4

    There needs to be a discussion about the future of Superannuation and the sooner this discussion occurs the better.

    There needs to be a discussion but not specifically about Superannuation. We actually need to discuss our economic system and why it’s not providing the best possible outcomes for NZ despite the fact that we do have the resources available.

    Why are people going hungry?
    Why are people homeless?
    Why is it, when we have so much work to do to change our energy generation mix to decrease GHG emissions, that we have ~6% of the workforce unemployed?

    We can ‘afford’ the increasing number of people who may want to retire because we do have the resources but that requires putting in place the automation necessary to reduce the number of people in work that’s not needed so as to free them up to do work that is. In other words, real economics rather than the delusional stuff that we have now that only rewards the few.

  5. Corokia 5

    Superannuation, Climate Change, National don’t do long term thinking for the public good.

  6. Tracey 6

    “New Labour leader Andrew Little says the party should not go into the 2017 election with raising the superannuation age and introducing a capital gains tax on its slate….

    He told reporters Labour’s policies to raise the age for New Zealand Superannuation from 65 to 67 over time and introduce a capital gains tax were reasons people didn’t vote for the party at the last election and the one before that.

    “I’ve made a judgement that the superannuation policy and the capital gains tax policy have been problems for us and are two reasons why people haven’t voted for us, and therefore we need to review them,” he said.

    “We will have a review process, we will go through that. I will argue my case in the forums of the party, but my firm view is that we should not be going to the 2017 election with those policies on our slate.”


    Andrew Little November 2014

  7. Atiawa 7

    Of course we require a conversation on superannuation affordability, just as we need a conversation and a government prepared to do something about our low wage economy. The two are inseparable.

    • Tracey 7.1

      Such a conversation will only be useful if it is honest and factual. What are the chances of that? Let’s save money and not have a referendum.

  8. Ad 8

    Little has chosen precisely the wrong debate. Old people used to vote majority Labour, now they are simply the majority that vote. Any instability to these most subsidised of our welfare beneficiaries will lose elections for Little.

    Little should shut up about superannuation. Little should stick to fertile public anxieties about housing, dairy returns, and foreign investment.

    National has got the rest of the political ground. Little is on a massive loser here.

    • Tracey 8.1

      I’m not sure why they are engaging on a topic REALLY important to ACT…

    • mickysavage 8.2

      So how does the political system handle superannuation? It feels a bit like the climate change debate where we are hurtling towards disaster but politics is stopping us from doing anything.

      • Bill 8.2.1

        Economics rather than politics is stopping us from doing anything or, if you prefer, compelling us to do the wrong things.

        Politics survives robust action on AGW; our current economy doesn’t.
        The very narrow type of classical economics we favour makes older people a financial problem, not a political problem.

        • Colonial Rawshark

          It also frames children, people in general, and wages, as being a cost on the economy.

          We are sticking to this perverse model of economics where electronic ones and zeroes rule, and the harder we stick to this perverse model of economics, the more morally virtuous we pretend it makes us.

        • tracey

          comfort is what is stopping us from doing some of these things. CT frames things in a comfort challenging or assuaging way.

          will this make you feel uncomfortable – it’s ok we point out the problem but not before we have a solution – comfort restored

          we label anyone challenging us with labels evoking fear = loss of comfort

      • Colonial Rawshark 8.2.2

        It feels a bit like the climate change debate where we are hurtling towards disaster but politics is stopping us from doing anything.

        Again, how is it that the NZ Govt can run out of the ones and zeroes required to electronically deposit super payments into retirees bank accounts?

        We need to be worried about the capacity and capability of the real physical economy to produce the goods and services all these retired people will need. Accomodation. Health services. Social facilities. Not about balancing electronic ledgers.

        • dukeofurl

          Was your family involved in Social Credit, as you seem to have caught some hereditary disease.

          The only place in the world where this sort of principle was the major platform of the winning party was Alberta Canada, where Social Credit ruled on its own.
          They abandoned core social credit policies of course, but that didnt affect their popularity winning seven consecutive elections.

          AS they couldnt regulate nationwide banks , they created their own ‘non bank’ , Alberta Treasury Branches or ATB as its known now. Not any adding of zeros to electronic registers are done.

      • Ad 8.2.3

        My advice to Little would be “stay completely silent until after 2017, and act on it only once in government”.

        Andrew, stick the worms back in the can.

        As far as National and every retired person thinks, the joint agreement with both sides over both Kiwisaver and NZSuper has been preserved for generations to come. There is no need to relitigate it.

        In the reverse of where Little is headed, I think revisiting how Labour and National got together to forge and settle the NZSuper debate is a model for forming an intergenerational debate about climate change.

        Little should stop framing politics around entitlements (we’ve lost that one for now), and stay with the consistently fertile ground of “how me and mine get ahead”.

        That means shut down these half baked musings, and stick to housing and class mobility and foreign investment and farming. And conservation, if he wants some of the Green support.

  9. Bill 9

    If the argument is that older people are ‘a burden’, then…

    How much employment is created by older people? A lot. And that’s a good thing, yes? I mean, if they weren’t here, then unemployment would be through the roof.

    How much public money goes to private, profit making, rest home providers when an older persons personal and life long savings have run out? I’ve heard figures of $3000 – $4000 of public money per week being payed to them. So bring all care of older people under a state provider system. And pay the workers, at least, a living wage too. I’m guessing there’d still be money left over.

    Question. How the hell did a society clothe feed and shelter all these ‘burdens’ for the 16 -20 years before they worked in a time when women were excluded from the workforce (ie – the workforce was about 50% of what it is now?) If that society could do it (and it did) then this one can look out for them at the other end of their life.

    Do we want a society that uses its monies for the benefit of the people who comprise the society, or for the benefit of institutions that bleed society?

    Time for us, as a society, to re-appraise our priorities and for certain fuckers to hang their heads in abject shame, no?

    • mickysavage 9.1

      And I thought my post was being radical! Agreed that we should have a society where resources should be distributed in accordance with need.

      How does this principle reconcile with the multi millionaire receiving national super?

      • Bill 9.1.1

        I don’t really care about the multi-millionaire receiving super for now. It’s a result of the shit we indulge in economically.

        I do care about reappraising priorities. If we did that, I’m betting there’d be few to bugger all multi-millionaires and a hell of a lot more happy older people not getting ground into the dirt.

        Our choice. Like I pointed out above, there are electorally successful parties in a country not dissimilar to NZ already pushing that barrow or, in government, realising programmes off the back of such notions. (eg – state care for older people…holding the retirement age…raising pension payments and other welfare payments)

        NZ has no excuses.

        • Colonial Rawshark

          We aren’t willing to create enough quality jobs in our economy for young Kiwis. Yet we want to keep even more old people in the work force, for longer.

          What a perverse, insane thinking system we are using.

      • Ad 9.1.2

        That’s a nasty slippery slope Mickey.

        A Labour (dare I say Socialist) government should build UNIVERSAL good for all, without fear or favour.

        Everyone treated the same, redistributed the same.

        Don’t try and draw a line. Inevitably, you wall out more than you wall in.

        Don’t for God sake take away the one last socialist win New Zealand has.

        Instead, tax the bejeesus out of the rich. Tax more, then spend more.
        Don’t shrink the slice: increase the pie!

      • KJT 9.1.3

        If the millionaire is paying a fair share of tax, proportional to how much he has benefited from our socialist system, why shouldn’t He/She get the free health care, pension, etc.

        It is very noticeable that as soon as welfare becomes less than universal the rich try and get rid of it.

        Limiting super is just a step towards the right wing wish of letting everyone who is not ‘productive’ starve!

        It can never be a policy of a “Progressive” party.

        It is the main indication that Labour is still a bunch of Neo-liberal acolytes.

    • dukeofurl 9.2

      For once I’m with you on this one Bill

      I saw something that said 65+ paid billions in income tax. Then there is GST.

      If we were going to have the ‘burden’ arguement, shouldnt we be looking at the cost of school and tertiary education.

      Thats a ‘burden’ on NZ too. Lower the school leaving age as its too expensive ? Push students into paying 50% of their costs rather than the current 25%.

      No one is saying this would make sense because it doesnt

      • Ad 9.2.1

        I think we should give them NZSuper, and keep them working as long as possible.

        Nothing worse than wise and hard working people staring over their teacups, soaking up the mall air conditioning. If they want to work, help them!

        Maybe in their 70s they only want to do 3 days a week. Good on them.

        No abatement.

        • Atiawa

          So do we ” work to live, or live to work?”

          I think one of our growing problems is that the retired are having difficulty utilising their leisure time. They don’t know what to do with themselves.

          The provinces are in a population decline, towns are becoming smaller, small towns are becoming villages and villages are disappearing. The country is shrinking, the extremities are withering away.
          People don’t want to live where there is a scarcity of others. We want things to do and enough money to allow us to do them.

          • Ad

            It is not optimal that people over 75 get close to minimum wage as a supermarket checkout operator.

            And I would not advocate as you infer using NZSuper like the Unemployment benefit, in which it is not available to those in isolated communities.

            But it is surprising the roles that they can fill, without being simply volunteers.
            I have an inkling you already know that.

            • Atiawa

              I’m not inferring anything. I’m making comment based on personal observation.
              Work is great if you are happy doing a job you love and have the same passion for it now as you did 40 years ago.
              I just don’t think people know how to best use their leisure time.
              Adult learning classes hardly exist any longer. Our ports are closed off to the public so we can’t spend a leisurely day fishing on them. Drink driving laws keep us away from the boozer & socialising with others. The racing channel is free to view. You have the best seat in the house watching the rugby at home. Our neighbour is a stranger. And winter has arrived.
              Do you want work to become a social occasion for the elderly?

          • KJT

            It is very obvious in most volunteer and community organizations that the big pool of those born in the 40’s who retired with adequate pensions, plus super are being replaced by boomers who have little income.
            Little income and little savings since the savage “reforms” of the 80’s, failure of financialised super schemes and supporting children without jobs, cut their lifetime incomes.

            The contribution of pensioners to our overall wealth as childcarers, community supporters and teachers is often not acknowledged.

    • RedLogix 9.3

      Question. How the hell did a society clothe feed and shelter all these ‘burdens’ for the 16 -20 years before they worked in a time when women were excluded from the workforce (ie – the workforce was about 50% of what it is now?) If that society could do it (and it did) then this one can look out for them at the other end of their life.

      That was precisely the same question I was going to ask.

      This entire debate is a complete crock dreamed up by neoliberals for the express purpose of laying the ground to gut super.

      That is all.

      • Draco T Bastard 9.3.1


        • RedLogix

          Indeed given the immense labour productivity gains since the boomers where children – we should be able to look after them in their old age standing our our ears.

          The real question will be – do we want to?

          • Colonial Rawshark

            The boomers are making a terrible mis-calculation. With that asset rich leadership demographic heading into retirement and old age as we speak (those born in the late 1940’s are now approaching 70 years old) we have run down the nation’s people, its infrastructure and its facilities.

            They will retire with more paper wealth than any other generation in NZ – but in a country which will be increasingly unable (or unwilling) to look after them.

            A painfully self-defeating calculation on their part.

            • KJT

              This deserves another post on it’s own, but the meme that “boomers” caused our current predicament, is as false as the super one.

              It is, as always, those who want to steal their way to wealth against the rest of us.

              It is handy to blame Boomers, Jews, Beneficiaries, Chinese, or whoever to distract us from the real culprits. At the moment, NACT, a complicit Labour caucus, and their wealthy funders..

  10. hoom 10

    This needed to be done 10 years ago if anything was to be done.
    Baby Boomers are already several years into Superannuation so anything done now will just fuck over the younger generations in the future some more.

    • Colonial Rawshark 10.1

      And that’s how the generation in power seem to run things, eh.

      Just like Labour’s raise the retirement age policy last year. If you were in your 50’s already – minimal or no impact.

      If you were younger – you get full on screwed.

      Talk about upsizing inter-generational inequity.

  11. Barbara 11

    Because National Super is such a political hot potato for all parties, am I naive when I suggest the two major parties National and Labour grow some cajones, sit down and do some bipartisan agreeing and come to a solution which might be unpalatable to the electorate but have some realistic outcomes. At the moment it is unsustainable and most thinking people know this, why make future generations suffer for our selfishness. At the moment the two parties are acting like children – but as I said some people ( politicans certainly) never grow up and the solution is so simple – am I being naive??

    • KJT 11.1

      “At the moment it is unsustainable”.

      What evidence is there that it is unsustainable?

      However did we feed look after and educate that same demographic bulge in the 1950,s with a much smaller workforce.

      Think about it.

  12. Bill 12

    “At the moment it is unsustainable…” No it isn’t.
    ” and most thinking people know this…” They’re wrong.

    • Colonial Rawshark 12.1

      Real skills, real physical resources, real energy requirements, real goods and services, real creativity and talent…this is what economic thinking needs to be focussed on in an age of growing scarcity and depletion. Not undermining all those things for the sake of balancing electronic digits in spreadsheets.

    • Barbara 12.2

      With respect Bill you are entitled to your opinion – I think you are wrong though.

      • Colonial Rawshark 12.2.1

        Why do you think Bill is wrong? Are we about to run out of electronic ones and zeroes to pay people with?

      • Bill 12.2.2

        It’s a matter of priorities Barbara. NZ is a very wealthy country and society can choose to provide for its citizens. Thing is, it seems we don’t want to.

        Deposit guarantee schemes to re-float sunk banks? tick.
        Regressive tax system filtering money/wealth to a privileged tier of society? tick

        Giving a damn about poor, vulnerable, or aging people? nope

        Like I said above, those on super were clothed and fed and sheltered for the first 15 – 20 years of their life by a state collecting monies from a workforce that was proportionately half of what it is today (women being generally excluded from the workforce).

        • RedLogix

          And it can be argued that feeding, clothing, sheltering, doctoring and educating completely dependent children is an even large task than caring for them in their old age.

          After all many retirees will have significant savings and assets and typically only need intensive medical care in the last year of life.

          I completely agree with you Bill. That these simple facts never get mentioned in the public debate tells me that the entire thing is a rigged crock.

          • Colonial Rawshark

            Yep. NZ’ers buy and sell $3B to $4B worth of houses a month. Those figures don’t include commercial properties. Seems to be plenty of money flowing through the system, if you are in the right parts of it.

  13. PJM 13

    It is evident from reading the comments on this blog that there is widespread ignorance as to how the present banking and monetary system actually works.
    I’m a retired economics teacher and professional engineer. Here’s my new article giving a very brief and simplified explanation:

    A simplified and very brief explanation of money and banking

    25 May 2015 By PJM BE (Mech.), Dip. Teaching – retired economics teacher and professional engineer

    Most people know very little about how the present debt-based money and banking system really works. Worse, almost all of the people who should know – including at least one former governor of the Reserve Bank of New Zealand (RBNZ) – have a false idea as to how it works! Here’s my attempt at a simplified, brief explanation:

    New money is created ex nihilo (out of nothing), as spendable electronic IOUs, i.e. promises to pay, by banks every time they grant a loan.1 We the people choose to make these electronic IOUs money, because we all accept them as our most convenient medium of exchange. Banks are not financial intermediaries – they DO NOT lend out their deposits. “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”1 However, this truth is not well known, possibly because practically all secondary schools’ as well as universities’ economics students are erroneously taught that banks are financial intermediaries that take in money from savers, aggregate it, and on-lend it at a margin to borrowers! This is known by economists as the ‘loanable funds’ model of banking. 1

    Not all of the money (electronic IOUs) that any one bank creates each day ends up being deposited with the issuing bank, because depending partly on its market share, some proportion gets deposited with competing banks, so every night all the banks engage in a square-up, or settlement, process, and the amount each bank owes each other bank is decided when all their IOUs (claims on each other) are netted out. Banks settle these claims with each other in Reserve Bank of New Zealand (RBNZ) digital money, called reserves. The RBNZ creates reserves ex nihilo. The Official Cash Rate (OCR) is the interest rate that the RBNZ charges banks that have to borrow reserves from it. If a bank doesn’t have enough RBNZ reserves and cannot borrow them from another bank, that bank borrows RBNZ reserves from the RBNZ, which never refuses to lend reserves to a bank.

    The amount of reserves that any bank needs to borrow is only ever a very small proportion of the sum of the loans it has granted, so despite the claims to the contrary by the governor of the RBNZ and the mainstream media alike, the magnitude of the OCR does not necessarily have much effect on any bank’s lending decisions or profits. This is being proven right now as banks engage in a ‘lending war’ by lowering their mortgage interest rates despite there having been no recent cut in the OCR. To ‘lend’, banks first seek out willing and able borrowers, and then borrow reserves for settlement if they need to do so. So, the rate of money creation by banks depends not so much on the level of the OCR, but mostly on the confidence of potential borrowers and the banks’ assessment of their potential borrowers’ ability to pay the interest charges and make the scheduled principal repayments, plus their reliability in doing so.

    When the OCR is increased and banks follow by increasing their own interest rates, the mainstream media (MSM) often report that the banks are maintaining their “lending margins”, and in so doing the MSM journalists help to perpetuate the popular myth that banks lend the money that they borrow from the RBNZ at the OCR and add their “margins” to arrive at the rates they charge for mortgages. This explains why a proportion of the public believes, mistakenly, that all new money comes from the RBNZ and that banks are merely financial intermediaries in on-lending it. The banks are more than happy to go along with this notion, because they do not want the public to know that their loans are created ex nihilo. A bigger proportion of the public believes that the major source of money that banks lend is their deposits, also at a margin, reinforcing their mistaken belief that banks are merely financial intermediaries. This is the fallacious ‘loanable funds’ model taught in almost all secondary schools and universities.

    Naturally, as profit seeking companies, if banks can find sufficient willing and able borrowers, they tend to create new money at a faster rate than the economy is growing, thus causing inflation, if not in consumer prices as measured by the Consumers Price Index (CPI), then in real estate.

    Years ago, notes and coins, which are Sovereign Money, constituted well over half of the money in circulation. However, with the development of electronics and EFTPOS, etc., notes and coins now make up only about 2% (and falling) of the money in circulation. The rest is the digital bank IOUs in bank accounts that we all use as money.

    One does not need to be highly intelligent to see that this system of interest-bearing debt ‘money’ is naturally unstable, as nobody – not even the governor of the RBNZ – has effective control of the rate of money creation. This inevitably leads to periods of excess money creation, causing asset bubbles, which eventually burst. When a major asset bubble bursts, usually because people and businesses take on too much debt and then find that they cannot meet the interest payments, they start defaulting on their mortgages and loans, and banks get into financial trouble and start calling in their loans. Suddenly, panic selling sets in and asset prices plummet. Many people are bankrupted and businesses are liquidated at fire-sale rates. People and businesses pay back their loans as best they can, and are unwilling to take out so many new loans. Banks get very choosy about to whom they will grant new loans. All this results in the rate of repayment of old loans (the rate of destruction of money) exceeding the rate of banks’ granting of new loans (the rate of money creation) and voilà, the amount of money in circulation (the money supply) shrinks, causing a recession, or even worse, a depression. All this is not rocket science, but barely known!

    When I was a young man, almost all young people wanting to save to buy their first home belonged to a building society and saved their money into an account with their building society on the expectation that when they had enough for a deposit, they would be able to borrow from their building society the necessary amount of other people’s savings by way of mortgage. Building societies were true financial intermediaries, much as finance companies are today. However, in the 1980s, New Zealand’s building societies were demutualised and became trading companies. Even more importantly, their role was usurped by the banks, which rapidly discovered that creating new money out of nothing and ‘lending’ it, secured by mortgage over real estate, particularly houses, was easy and exceedingly profitable, while at the same time being very low-risk, as nobody wants to lose their house.

    In the present debt-based money system, banks are creating an ever-larger stream of new debt (money), regardless of the amount of money being saved, enabling people to bid against each other to drive up the price of real estate at a rate far in excess of the rate of increase of ordinary people’s incomes. Banks are thus taking an ever-larger percentage of people’s incomes in interest and principal repayments, to the point where more and more people are in effect becoming mere debt slaves, similar to the feudal serfs of the Middle Ages. Income spent on servicing debt is income that cannot be spent on consumer goods and productive investments, not only causing lower economic growth than would otherwise be possible, but also a wealth transfer from the middle class to the financial elite.

    One does not need to be highly intelligent to see that the present debt-based money system acts as a ‘fanginormous’ wealth pump that pumps wealth from the people who create it – the entrepreneurs, business owners, professionals, self-employed and all wage and salary workers – to the financial elite who own and control the banks and major corporations, so causing ever-growing inequality, which is already having dire consequences for society.

    However, there is an eminently viable alternative, known as a Sovereign Money system, an early advocate for which was Nobel Prize-winning chemist Frederick Soddy in the early 1930s. In such a system, a nation-state takes back from banks the power to create all new money. An independent statutory body, called the Money Creation Committee, which could be part of either the state-owned central bank, or the treasury, would monitor the growth of the economy and order the creation by the central bank of new digital money, debt-free and interest-free, at a rate to just match, in the medium and long term, the rate of economic growth. There would be only one kind of money, and no need for RBNZ reserves. All new money thus created would be gifted to the government for spending into permanent circulation according to its democratic mandate, with a corresponding reduction in total taxation. In New Zealand’s case, this reduction in total annual taxation would be around $10 billion. New Zealanders would thus have greater disposable incomes on average by around $2000 per man, woman and child and could make larger gifts to the charities or their choice and/or save more money and become investors accumulating personal capital. Also, businesses would be much more able to expand through their investment of retained earnings. Unemployment would be lower, and fewer people would need government welfare.

    There would be a massive power shift, away from banks and towards people and businesses, particularly small to medium enterprises (SMEs). With such “Peoples Capitalism” we could lead better, less financially stressful, and more productive lives. There would be no booms and busts, just steady economic growth, as we grow ever cleverer in our development of innovative technology to produce more and better goods and services while at the same time making less and less impact on our environment. Only well-off societies can afford to protect the environment. Maybe we could even once again become wealthy enough for a couple to need only one income to live well, buy a house and bring up their children, just as it was normal for ordinary New Zealanders to do in the 1950s and 1960s.

    At last, real estate prices could not be bid up beyond the reach of ordinary people, because only people’s savings could be lent or on-lent to buy real estate, whereas the present debt-based money system penalises the weaker people and the young, as we are seeing now, putting home ownership beyond the reach of a higher and higher proportion of the population, causing ever-growing inequality and the societal problems that inevitably follow.

    Those readers up for an intellectual challenge may wish to learn more about the Sovereign Money banking and currency system at http://www.sovereignmoney.eu and http://www.positivemoney.org and http://www.positivemoney.org.nz

    The first New Zealand Labour government (1935-1949) nationalised the RBNZ and then used sovereign money created out of nothing by the RBNZ to lift New Zealand out of the Great Depression. One of the first uses of such sovereign money was for the building of state houses. Other uses of sovereign money were for the planting of state forests and the building of schools, hospitals, roads, bridges and other infrastructure. It did not cause inflation, as it was getting formerly unemployed and underemployed people working full time creating wealth. It is more than likely that the state house that John Key grew up in was built with sovereign money. It’s a pity that now that he’s in a position of such political power and influence he’s not yet sufficiently enlightened to switch New Zealand to a Sovereign Money banking and currency system. But then, he was a banker before he became a politician!

    It is my firm belief that a switch to a Sovereign Money financial and banking system should be an integral part of Labour Party policy.

    1 “Money creation in the modern economy”, a paper in the Bank of England Quarterly Bulletin, Q1 2014: http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

    Comments are welcome. The author’s email address is pjm.forensic.eng at gmail.com

    • Atiawa 13.1

      Thanks PJM. Not sure if I comprehend everything you are saying and will need to read a couple of more times to allow it to sink in.
      Would be interested to hear the views of Oram or Hickey and other main stream economists before making further comment/judgement.

      • PJM 13.1.1

        Thanks, Atiawa. Before giving any credence to the views of Bernard Hickey and Rod Oram , bear in mind that they were most likely taught, if and when they studied economics at school and/or university, the fallacious nonsense of the ‘loanable funds’ model of banking. It is being taught at practically every school and university in New Zealand.

        What’s worse, when I asked it to, The University of Auckland flatly refused to stop teaching that BS and teach the truth instead. Its HOD of Economics, and its Vice Chancellor, said that they can teach whatever they like, because they have academic freedom. If you read the Education Act 1989, you will see that in s161 (3) and (4), our parliament put a severe constraint on universities in this regard:
        (3) In exercising their academic freedom and autonomy, institutions shall act in a manner that is consistent with—
        (a) the need for the maintenance by institutions of the highest ethical standards and the need to permit public scrutiny to ensure the maintenance of those standards;
        (b) the need for accountability by institutions and the proper use by institutions of resources allocated to them.
        (4) In the performance of their functions the Councils and chief executives of institutions, Ministers, and authorities and agencies of the Crown shall act in all respects so as to give effect to the intention of Parliament as expressed in this section.

        • Draco T Bastard

          By refusing to teach the truth I’d say that they’re in breach of the law. If they aren’t then the law needs changing.

    • RedLogix 13.2

      History shows that mere politicians who attempt to nationalise the money supply do not last very long.

      The top 100 or so hyper-wealthy people in the world do not tolerate that sort of thing.

    • Colonial Rawshark 13.3

      PJM – thank grod for your post.

      The first New Zealand Labour government (1935-1949) nationalised the RBNZ and then used sovereign money created out of nothing by the RBNZ to lift New Zealand out of the Great Depression.

      Echoing RL: that first Labour Govt was forced to account for its actions in front of the Bank of England. My understanding is that it stopped issuing sovereign money within a couple of years as NZ’s trade access to Britain was directly threatened.

      • PJM 13.3.1

        Colonial Rawshark, please provide the URLs for the documents that are conclusive evidence for your assertion that the RBNZ “stopped issuing sovereign money within a couple of years as NZ’s trade access to Britain was directly threatened.”

    • Colonial Rawshark 13.4

      Hi PJM

      Could you please make some comment on how the Core Funding Ratio works and how it encourages banks to seek deposits from savers.

      Thank you

    • Draco T Bastard 13.5

      Great explanation on how money is created but I’m going to have to say that I don’t like the Sovereign Money banking and currency system as it seems too rigid. Much prefer my idea of the Reserve bank simply creating money to meet the governments spending and raising taxes as necessary to constrain inflation (Strict rules regarding government spending of course).

      • PJM 13.5.1

        No, it’s not rigid. Rather, it’s flexible. The independent Money Creation Committee (MPC) would monitor economic growth and be empowered to order the Reserve Bank of New Zealand (RBNZ) to create just sufficient money to keep inflation at a medium-to-long-term average of zero.
        We the people by our actions would determine at rate the economy grew. The MPC’s job would be merely to keep monetary growth in line. Those making investments would have to do so by investing their own savings (capital) or other people’s savings. Only government would be given brand new money to be spent into the economy.
        Just think about this — since the RBNZ was nationalised in 1935, inflation as measured by increases in the CPI has been a total of about 6900%. That is, the CPI has increased by a factor of about 70. Yes, that’s right, what cost a shilling (10 cents) in 1935 now costs about $7. If milk was 4 pence a pint (600 mL) in 1935, it would now be about $3.85 a litre — which is about what it is. Land, unfortunately, has gone up by very much more that 70 times, but land — surprise, surprise — has a very, very small weighting in the calculation of the CPI.!

        • Draco T Bastard

          It’s rigid in that it constrains the governments options of what it can do as the government will be limited to how much new spending it has available. It also puts money creation out of democratic control and into the hands of a small, unelected, group which is one thing we’re trying to get away from with taking money creation away from banks.

          I suggest rules that control government spending so that they can’t just go round building vanity projects but still be able to build pricey infrastructure. Combine that with the Reserve bank’s ability to increase taxes so as to constrain inflation and we would have a much more flexible system. And, because it will be the government causing the creation of money means that they will be democratically accountable.

          • PJM

            Draco, government is always limited as to how much new spending it has available. At present, its only two sources are taxation and borrowing. In a Sovereign Money system, those two choices would still be available (but money borrowed from banks would actually be money that people had actually saved, not money created by banks ex nihilo as happens now), and in addition, sovereign money created by the RBNZ at the instruction of the MPC would also be available. It does not put money creation “out of democratic control”, because apart from a short period of time in the mid 1930s, money creation has never been under democratic control. The governor of the RBNZ thinks that he controls the rate of money creation, but the B of E paper shows that he is deluded.

            • Draco T Bastard

              At present, its only two sources are taxation and borrowing.

              This is incorrect. Government only has one source of money – itself. To increase spending it must create the money first and then tax it back out of the economy as needed.

              Government creates money to spend and then taxes it back out to destroy it.

              In a Sovereign Money system, those two choices would still be available (but money borrowed from banks would actually be money that people had actually saved, not money created by banks ex nihilo as happens now), and in addition, sovereign money created by the RBNZ at the instruction of the MPC would also be available.

              In my system borrowing wouldn’t be available to the government at all – it would be illegal as the government should never borrow money. The RBNZ would simply be required to create money to meet the governments spending as necessary and then to raise taxes if necessary.

              As an example say the economy grew by 3% of GDP but government spending required an increase of 5% of GDP over the year. The RBNZ would simply create the money as needed during the year and would raise taxes to recoup the extra 2% of GDP to keep inflation down. If growth was 3% but government spending dropped by 2% then the RBNZ would lower taxes to prevent deflation.

              Such a system is more flexible as it allows greater spending than growth prior to recouping it through taxes and thus could more easily cater to the business cycle.

              • Colonial Rawshark

                This is incorrect. Government only has one source of money – itself. To increase spending it must create the money first and then tax it back out of the economy as needed.

                Government creates money to spend and then taxes it back out to destroy it.

                This is not the current situation. You seemed to have not acknowledged PJM’s important qualifier “at present…”

    • Ad 13.6

      The most instructive thing about this comment is that the “massive power shift” ensures that the alternative banking and debt structure means that such change will never, ever occur, under any imaginable New Zealand or Australian government.

      So there’s no point commenting on such an idea again.

      • PJM 13.6.1

        We still live in a democracy, so yes, we can do it! But not if we’re all as weak-kneed as you.

        • Colonial Rawshark

          Well, we live in a heavily managed democracy which is not quite the same thing, especially when you consider which segment of society is the one which does the “managing.”

  14. Old Mickey 14

    Just as well this didnt get any coverage today…

    • RedLogix 14.1

      Personally I expect John Key’s National govt to eventually be polling in the 60-70% range sometime into their 5th or 6th term.

      Modern propaganda tools are remarkably effective.

      • Colonial Rawshark 14.1.1

        Can;t tell how serious you are being. I do think 4 terms are virtually guaranteed at this point.

        • RedLogix

          I can’t tell either.:-)

          But yes four terms at least – because personally I think the old “it’s time to give the other team a turn” model is broken.

          Which means a circuit breaker if we are ever to see a change of govt in my lifetime. Either that or a left-wing leader who breaks JC’s grip on the media. Little is good, but not the kind of great needed to cut through the matrix.

          Anything else is magical thinking.

          • Colonial Rawshark

            But yes four terms at least – because personally I think the old “it’s time to give the other team a turn” model is broken.

            In Labour Party parlance it’s “waiting for the tide to turn.” But the entire political ecosystem has changed now so that’s not working

  15. Ad 15

    Well, Little did his best to stuff the genie of Superannuation back into the bottle on Morning Report this morning.

    Could he now please STFU on this massive vote-loser, and open his gob about it again only once he has won an election.

    And get back to the remaining political anxieties that are out there, like housing, milk prices, regional economies, growing poverty, foreign investment, conservation, and the like.

    • Colonial Rawshark 15.1

      Could he now please STFU on this massive vote-loser, and open his gob about it again only once he has won an election.

      Indeed. Unfotunately he has revealed that the Labour caucus has still been talking about undermining NZ super.

      • KJT 15.1.1

        Helped along by Micky Savage, who is one of the people who should know better.

        • mickysavage

          Given current political realities I do not see Aotearoa reaching nirvana any time soon. Expecting the wealthy to contribute one way (abatement) rather than another way (increased taxation) is a discussion that we will need to have some stage.

          I do not speak for Little or the caucus.

          • Colonial Rawshark

            The Left will be cutting its own throat if it cannot handle the idea of universal rights any more.

            This also suggests that with Labour, the concept of a UBI is dead before it even starts.

          • KJT

            Abatement only effects those who declare and pay taxes on their full income. Not the wealthy.

            And I had this funny idea that the objective of having “progressives” in “power” was to improve the lives and well being of everyone. Not just National’s mates or a few Labour MP’s pay packets, while they wait for their “turn” in our rotating Dictatorship.

            • Colonial Rawshark

              “Fiscal discipline” seems to be something that the Left is even more proud of that the Right, nowadays.

            • mickysavage

              Really? You think we are going to hit socialist nirvana and everyone is going to pay their fair share of tax. Good luck with that. In the meantime the clock is ticking.

              The right want to the state to wither and then to drown it in a bath. Running up debt is the perfect way to allow them to do this.

              And speaking as a baby boomer who has been helped very well by the state it is more likely that this can continue if I collect a bit less super.

              • KJT

                And encouraging the cutting of universal welfare, and more borrowing instead of fair taxation is the perfect way to help the right on this.

                The SOP of neo-liberals all over the world is to use borrowing instead of taxes, on those who have made the most out of our society, and then claim they cannot afford to look after people.

                The notion that we “cannot afford it” is one of the recurring memes of the neo-liberal takeover.

                • mickysavage

                  With current policy settings we cannot afford super.

                  You will lose the political debate if your proposal is a drastic increase in taxes. Like it or not humans have become far too venal and greed is far too entrenched for this to ever work.

                  But hey lets get stuck into Labour rather than hold the blowtorch to National’s feet for refusing to do anything whatsoever.

                  • Colonial Rawshark

                    A net $10B per year is siphoned offshore by foreign firms.

                    Of course NZ can’t afford good things for itself as long as this continues, year after year after year. And as long as the NZ Govt refuses to acknowledge that it can make up this drain of NZD out of the economy by spending into the economy we are going to be stuck in a cycle of borrow more or cut more.

                    Labour appears to think it can conduct a future of work review and review NZ Super completely independently. This is a nonsense.

                    Our economy is currently incapable of creating sufficient full time jobs for young people, the international trends suggests that this situation will worsen not improve over the long term, but Labour is still proposing to keep older people in the work force for even longer, or alternatively to take away Super from those who have paid the most income taxes in their life.

                    All of this only makes sense within a theoretical thinking framework which is utterly past its use by date.

                    NZD are electronic balance sheet entries, input by keystrokes. The NZ Government is a currency sovereign and the sole public issuer of NZD in the world. It never ever needs to run out of the electronic ones and zeroes required to pay for NZ Super, or indeed, for anything else which is deemed to be a socioeconomic priority in this country.

                    Is Labour really unable to think of the NZ economy from a multi-faceted systems perspective? What vision is Labour expressing that those who have paid the most taxes are going to be those who are cut out of NZ Super?

                    How is it that a country which is far wealthier in GDP per capita now than in 1950, cannot “afford” NZ super?

    • Kiwiri 15.2

      this massive vote-loser, and open his gob about it again only once he has won an election

      Massive vote-loser indeed to want to reduce super!

      So, the Labour caucus continues every now and then to convey the impression of wanting to reform super. Are they so disconnected that they refuse to cease and desist from undermining it?

      Are you suggesting that the Labour caucus deceptively stay silent from now, but then give super the chop after the election?

      How would masssively generous amounts of “emotional connection” (a la Michael Cullen) bridge the credibility gap between slashing super and winning the voting public?

      Voters, collectively, are not that stupid and may well have sussed out the real measure of the current Labour caucus!

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