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The Seven Deadly Sins of Dr Cullen's scheme

National Finance Spokesman Bill English takes a look at the background to todays decision.

Tuesday, July 17th 2001, 6:06PM
1. It will degrade health and other essential social services
Dr Cullen says partially prefunding superannuation is the best use of over $2 billion dollars a year for each of the next 25 years. In the meantime, he cut health and education spending in this year's Budget because the Government was cash-strapped - despite favourable conditions for exporters. Over the next 25 years the $100 billion earmarked for the fund will take money away from areas such as health and education. That means people, including the current elderly population, will get worse health services. We say that's wrong.
2. It will lock New Zealand onto a low growth path
The superfund locks New Zealand into a low growth path. Even Treasury has predicted average annual growth of just 2.2% between 2006 and 2011. That is a dismally low growth rate, when many experts are picking we should be achieving between 5 and 7 percent growth if we wish to avoid falling further behind other countries. It will mean our living standards will fall compared to the rest of the world. This problem will be exacerbated by the fact future government's will have their hands tied by their financial commitment to the fund, so they will not be able to use tools such as investment in tertiary education or tax cuts to stimulate the economy. Labour knew there were other options for $2 billion per year, but never asked for advice on this from Treasury or anyone else. We say New Zealanders need to weigh up the options and decide for themselves.
3. It is not sensible to borrow in order to save
Treasury has confirmed that most of the money put into the super fund over the next five years will be borrowed. Treasury has also confirmed that borrowing to save is not a sensible practise. Our national debt is projected to rise over the next five years - after having decreased every year for nearly a decade. And all to put money into a savings account.
Common sense tells you it's just as silly for the Government to borrow to save as it is for a household. We say borrowing to save makes no sense.
4. It exports New Zealand's capital to the world
This fund will grow to around $100 billion - or around half the size of the whole economy. 80-90% of these funds will be invested in sharemarkets offshore, not in New Zealand. New Zealand will be exporting its investment capital to the rest of the world, rather than investing in New Zealand. We say that will do nothing to encourage jobs, wealth or growth within New Zealand.
5. It provides just a fraction of the money required.
Most people understand that the fund will only partially meet the future costs of universal superannuation. However, few understand just how partial 'partial' actually is! At its peak level, the fund will contribute 14% of the costs of superannuation. Over the life of the fund, it will contribute an average of just 10% of the costs in any year. That means on average 90% of the future costs of superannuation will come from taxes collected on the day.
6. The numbers Dr Cullen bases his scheme on are not credible
This year's Budget highlighted the continued tightening of the fiscal position. Despite the supposedly strong economy, the Government had to wipe $1.8 billion worth of surpluses out of its forecasts over the next three years - mostly from lower tax revenue. The Government's low growth path is already impacting on the fiscal outlook - and this will only get worse from here. This raises serious doubts about the whole fiscal outlook.
National is becoming increasingly concerned about the state of the nation's finances we will inherit when next in Government.
7. The scheme is politically driven
Dr Cullen will stamp his feet and posture endlessly over our decision not to back his scheme. But this is a complex issue and it is our sincere belief that the proposed scheme is a simplistic attempt - designed to create the impression that he has 'solved' a 'problem'. His approach, as the above points demonstrate, is not durable, not realistic and exacts too high a price on the next two generations for too little reward. The scheme he cobbled together courtesy of a backroom deal with New Zealand First, isn't about the elderly in the mid-21st Century. It is about Labour's political needs now. National will present a sensible, realistic and durable alternative.
« National will cut super: AndertonAMP & Good Returns launch superannuation website »

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