by Rob Hosking
The official estimate for the cost of the scheme, announced in November, is $19 million in the first year and $32 million the year after that. That estimate covers the amount in extra spending the taxpayer will have to stump up for the scheme.
Maybe. The Treasury has warned that the figures are vague and that the amount may be as much as five times the figure allocated.
“There is a great deal of unavoidable uncertainty around these costings, and it is difficult to be precise about the likely effects, expect that, in general there is likely to be upward pressure on the cost estimates presented here,” Treasury officials advised Finance Minister Michael Cullen last October.
Even if the uptake is 30% of the public sector workforce – a figure the estimates are based on – those taking part are likely to have above average incomes, and the figures are based on the average figure.
Other likely variables are that public sector salaries may rise faster than expected.
One other difficulty with the new scheme is that at present it is closed to those who currently have savings with the Government Superannuation Fund.
Ways are being worked out to extend coverage to those who are in the GSF.
If those factors came into play the costs would rise to about $127 million a year.
“This is by no means an extreme scenario but it illustrates the fiscal risk underlying this policy.”
If the Treasury is sceptical, its officials seem to have confined themselves to issues of how the policy may be implemented, and its risks.
The Department of Labour has criticised the entire scheme, saying it will cause lower overall national savings.
The logic of this argument flows from the issues raised by the Treasury. Most government departments are unable to fund their contribution to the scheme out of their existing budgets: instead they will have to come up with extra money. That money comes from taxes, two Department of Labour officials, Geoff Bascand and William Dillingham, argued.
While the scheme may help boost employment in the public sector, the officials argued. “These same assumptions mean that it would do so at the expense of private sector incomes and employment and overall growth.”
“It is possible, although unlikely, that the scheme will encourage greater savings by public sector employees , while it will most certainly reduce private sector savings and probably overall national savings.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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