What’s Bill planning?

Written By: - Date published: 9:20 am, February 26th, 2009 - 10 comments
Categories: bill english, economy, welfare - Tags:

Yesterday, Finance Minister Bill English made a big deal over the loss the New Zealand Superannuation Fund incurred last year.

When you don’t need the money for twenty years, the current value of your asset is irrelevant. When there’s a boom on the paper value of what you have will skyrocket, when there’s a bust your asset value will plunge. It doesn’t matter. What matters is that over the long-term you are getting a good return on your investment and that the money will be there when you need it.

  • The NZSF has beaten the markets every year since it was set up. So we’re getting a good return – not every year is good but the long-term trend is.
  • Unless we are at the start of the collapse of capitalism, the markets will recover and current losses will be made up in the future. The money to fund future superannuation payments will be there if we keep on putting money in the Fund. If we stop, there won’t be enough money to fund Super in the future.

As I noted on Tuesday, during a recession people are willing to sell you things cheaply. If you don’t need the money for decades, that’s the time to buy. Remember, the old saying is ‘buy low/sell high’, not ‘buy high/panic low’.

Also, the NZSF legislation allows the Government to cut or suspend contributions temporarily but requires it to make up those contributions and the return on them in the future. Unless the legislation is changed, the money has to be spent anyway at some point.

Bill English knows all these things. So what’s his real motive for laying the groundwork to cancel the government’s investment in the Fund?

10 comments on “What’s Bill planning? ”

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  1. Mike 1
    26 February 2009 at 9:57 am

    Generational theft?

  2. Gareth 2
    26 February 2009 at 10:00 am

    Apparently their investment strategy is buy high/sell low. Genius.

    I’m sympathetic to the “this pushes our debt levels up so we’re borrowing to fund it” (although borrowing for counter-cyclical longterm investment ain’t necessarily a terrible thing) but are the Govt going to actively state that if they don’t put that $2b into the fund that they are absolutely going to cut borrowing by $2b a year over the term of non-investment? And not start to creep the debt level back up again after 2-3 years to fund little pet projects and election bribes like all Govts seem to do?

  3. infused 3
    26 February 2009 at 10:31 am

    There is no reason to borrow now. What Goff said was retarded. Leave the fund doing it’s thing, but god sakes, don’t borrow to fund it.

  4. BLiP 4
    26 February 2009 at 10:55 am

    English is just playing on the general ignorance of the population in relation to his portfolio – even he has to know that the numbers add up in favour of borrowing in the short term for the long term result – more likely this whole Cullen Fund schtick is a diversion away from something more sinister – the affair does seem to indicate a rift between JK and his Treasurer, that’s the more interesting aspect I would suggest.

  5. Steve Pierson 5
    26 February 2009 at 11:19 am

    infused – you can’t leave the fund alone and stop funding it.

    In my previous post, someone asked whether I was borrowing to play the stockmarket at the moment. Well, I am putting money into Kiwisaver. I’m not borrowing but, then, I can’t borrow at sovereign rates, I don’t have a expert investment team to help me beat the market (and its not just the stockmarket that the NZSF invest in) and I am not a perpetual state responsible for funding superannuation into the future and with a huge asset base such that a little extra borrowing when needed is nothing too worry about.

  6. tsmithfield 6
    26 February 2009 at 11:29 am

    There was an experiment done a few years ago where the results from children choosing randomly in the sharemarket and the results from expert financial planners. The children did just as well as the experts.

    Picking winners and losers in the current market is even more difficult. There are a lot of things on the horizon (e.g. peak oil etc) that could push down share prices a lot further yet. So, I think borrowing to fund investing in the international market is stupid especially in the current conditions.

    However, diverting the money to set up a fund that strategically invests in NZ businesses to keep NZ jobs is an idea I would not be adverse to. This provides a lot of the upsides of buying low and selling high and establishing an asset for future superannuation. Also, it would be largely self funding if it means less people end up on the dole queue.

  7. Gareth 7
    26 February 2009 at 11:38 am

    Surely this decision has to be based on the advice from the Guardians of the Fund? If they come out and say that any new funds provided will be invested largely in cash-holdings for the next few years (given market uncertainty) then it seems more tenable for SOME of the funds to be diverted elsewhere rather than sitting in a fund earning less than the Govt is paying to have it there. Note I say some because entirely stopping the pre-funding of our future Super liability is way too far along the slippery slope for my liking.

    But if their view is that additional funds will be invested across a range of asset classes, with a currently expected 5yr return of xx% then we really should stick to it.

  8. BeShakey 8
    26 February 2009 at 3:51 pm

    tsmithfield – While the performance (or lack of it) from fund managers is fairly notorious, that doesn’t have any relevance to this discussion. The real question is do we want to stop investing in the fund at at time where we are likley to be able to buy extremely low and cash in at a much higher price, or divert that money to other more immediate concerns. Obviously my preference is to keep investing because this is an opportunity to ensure very large returns. Whether index funds, random choice, or fund managers are the best way of choosing the investments isn’t really relevant.

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