5. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
How does he plan to cover the projected cost of New Zealand superannuation over the next 30 years?
Hon BILL ENGLISH (Minister of Finance) Link to this
We plan to cover it the same way the previous Government planned to cover it: from now until 2030 it will be covered out of general tax revenue. After 2030 the New Zealand Superannuation Fund will make some contribution to the Government’s finances, to assist with supporting New Zealand superannuation beyond that point. As the member will know if he listened to the previous Minister of Finance, Dr Cullen, there is no link between the fund and the pensions; the sole source of security for future retirees is that Government finances remain sound and the economy healthy.
Hon David Cunliffe Link to this
Can the Minister confirm, therefore, that his decision to suspend contributions to the Superannuation Fund for nearly 11 years means the fund will be around $37 billion smaller, with interest, than it otherwise would have been; and that the fund’s ability to smooth the growing cost of superannuation will be seriously compromised? Does he therefore agree that this hole makes no sense, when, according to Treasury, the projected return on that investment is a full 2 percent higher than the Government’s cost of capital, therefore having a positive effect on the Crown’s balance sheet?
I can confirm that New Zealand superannuation will be funded from general tax revenue from now until 2030. That is a matter of fact, not opinion. From now until 2030, nothing has changed: New Zealand superannuation will be funded from general tax revenue. I take the member up on his nonsense about the $37 billion shortfall. That calculation leaves out the large amount of borrowing that would have to be done in order to fund the contributions.
Peseta Sam Lotu-Iiga Link to this
If the Government were to make no contributions to the fund for another 11 years, how would the future cost of pensions compare with that expected when the fund was established?
Whether there are contributions to the fund, and for how many years they are made, has no effect on the future cost of pensions compared with what was expected. When the fund was established back in 2000, the Government did projections that showed that by 2021 the total cost of New Zealand superannuation plus contributions would be 6.75 percent of GDP. Today’s projections available on Treasury’s website show that the total cost is now 5.43 percent of GDP in 2021. Maintaining New Zealand superannuation has actually become more sustainable because of changes in assumptions relating to demographics and rates of return.
Hon David Cunliffe Link to this
Can the Minister confirm that he has just given 37 billion reasons to young New Zealanders faced with a higher tax bill to leave, because, as Brian Gaynor has said, there is no free lunch here? Does he, therefore, agree that a decision to stop contributing to a major fund and then to say to people that they will get their full entitlements at 65 means that John Key has joined a long line of National leaders adept at breaking promises to maintain superannuation entitlements?
Well, that member is joining a line of Labour MPs who have forgotten the legislation they voted for just a few years ago. That legislation allowed Governments to suspend contributions. At the time Dr Cullen basically said that it was there in case the Government did not have surpluses. Now that we have $10 billion of deficit, and a decade of deficits ahead of us, under what circumstances does the member believe he would suspend contributions, if not now?
Peseta Sam Lotu-Iiga Link to this
What were the Government’s intentions when it established the fund?
The Government’s intention at the time, as I understand it, was to set up a fund into which it would put surpluses, because that represented real money that New Zealanders might be able to save, and by 2030 the accumulation of those surpluses would pay for about 12 percent of New Zealand superannuation. That was an idea that the National Party supported. Dr Cullen said at the time that there is—
Hon Darren HughesThe member should listen to what Dr Cullen said. At the time he said that there was no direct link between the Superannuation Fund and New Zealand superannuation payments, and he also said that contributions should be made from surpluses. We now face 10 years of deficits. Opposition members need to tell us how much debt they would tolerate, and under what conditions they would suspend contributions.
Hon David Cunliffe Link to this
Can the Minister of Finance tell the difference between a short-term suspension with a plan to make up the difference, and a decade of deferrals with no plan to make up the difference? Will the Minister admit that part of the reason why the Government’s Budget has a hole is that he made a choice to give billions of dollars worth of tax relief to the top 3 percent of income earners?
That is a bit rich. We are giving out in tax cuts half of what the Labour Party promised—half of it. That member should tell us what he was going to do with his tax cut plan. In fact, the Budget incorporates the resumption of contributions when the Budget goes into surplus.
Amy AdamsSince the fund was set up, it has averaged an annual return of 3.65 percent, which is less than the return one could get over that time from putting the money in the bank.
A bunch of investment experts, including Opposition members, have suddenly decided that the smartest thing one can ever do is borrow money and invest it on world sharemarkets. I suggest they go along to the bank and try that. They should go along to the National Bank and tell it that they have a mortgage, an overdraft, a car on hire purchase, and that, by the way, they want to borrow $200,000 to invest on the US stock market because Phil Goff says it will do better than lending the money to the Government. It is ridiculous. In fact, the accumulated evidence is that over the next 10 or 15 years stock markets are likely to do much worse than in the last 15 years. In any case, it is a big risk to take with borrowed money.