The important point to grasp about the Fund is that it is not an attempt to fully fund the future cost of New Zealand Superannuation. It is primarily an exercise in long term management of fiscal pressures. The performance of the Fund will have no direct impact upon the level of payment to retired New Zealanders in the future. What it will impact upon is the capacity of future governments to fund a basic universal retirement income without experiencing destabilising fiscal pressures. The Fund will smooth the fiscal cost of a basic public superannuation scheme, to avoid a situation where future governments face impossible choices either to increase taxes, increase debt or tamper with the elderly's entitlements and conditions.
By 2040, for example, the Fund will be in a position to offset the current cost of superannuation by about a third. If that cost were to be borne by taxpayers of the day it would be a very significant impost, severely constraining the options available to the government of the day.
The Fund is a logical extension of the move away from short-term-ism in public finances (epitomised by the frequent mini-Budgets of the Muldoon era) towards more prudent long term fiscal planning which started with the Public Finance Act in 1989, and continued with the Fiscal Responsibility Act 1994, and the Public Finance (State Sector Management) Bill which is currently before Parliament.
For too long in this country we engaged in spending commitments or tax cuts in which the implicit assumption was that future generations would pay.
What the Superannuation Fund does is to start to rein in this tendency by making explicit both the nature of the commitment and the distribution of its costs. Those who oppose the Fund and advocate that it be wound up and its assets used for current consumption now have to be equally explicit about what they would put in its place, what level of tax increase they are happy to impose upon future taxpayers, or what degree of cuts to superannuation entitlements they are willing to contemplate.
As the Fund grows more substantial, I believe the political barriers to this kind of short term-ism around superannuation policy will grow higher.
This is an extract from a speech given by Finance Minister Michael Cullen to the Canterbury Manufacturers Association
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