National becomes more populist on super

National Party deputy leader Bill English took great pains yesterday to say he is not playing politics with superannuation.

The National Party’s deputy leader, and finance spokesman surprised no-one yesterday when he declared the party would not be supporting the pre-funding aspects of the government’s Superannuation Bill – the so called ‘Big Cullen Fund’.

National has spent several months studying the scheme and has come to the conclusion it does not solve the problem that the government says it is designed to solve.

The scheme has seven main flaws – it’s ‘seven deadly sins’ according to National’s public relations effort.

On the more populist end of the scale, it means the government has to pull money it should be spending on services such as health and education and putting it into the fund.

"The government just cut services to the frail elderly because earlier this month it had to put $600 million into a Treasury account," English says.

The second criticism is that it diverts money into a fund which should be returned to businesses in tax cuts so they can reinvest it in their firms, and thus grow the economy.

"This locks the New Zealand economy into a low growth path," English says.

"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."

Linked to this criticism is the fact that a prudent investment policy means most of the fund will be invested overseas – in the United States, Europe, Australia and Indonesia, he said – rather than in the New Zealand economy.

"This fund will grow to around $100 billion - or around half the size of the whole economy. And 80-90% of these funds will be invested in sharemarkets offshore."

He also reiterated National’s earlier criticism that the government was having to borrow in order to save. The government’s net debt is set to rise this year to 18% - but this is projected to fall again to the previous level of around 17% after that.

At the more technical level, National is still pushing its message that the fund does not provide the certainty that the government says it will, because it only covers up to 14% of the costs of superannuation.

Furthermore, the numbers in the Budget tables are not credible, Mr English said. The economy is already growing at a slower pace than expected earlier this year, he said, and this is going to have an impact on revenue.

"This raises serious doubts about the whole fiscal outlook. Our growth seems stuck at around 2% despite the best export conditions for a generation. That’s a real puzzle at the moment, and no-one’s really been able to answer it at the moment, but it does throw up some big questions about the state of the economy, and the government’s finances, over the next few years."

Finally, National believes that the scheme is highly politically driven. There had been little real attempt to consult with other parties once the Alliance and Winston Peters were signed up, he said.

"This scheme does not really have the support of a majority of the Parliament. Winston Peters is only supporting it because he believes he can turn it into something else – a scheme based on individualised accounts."

And, further to the politics of the issue, National believes the fund is a way of closing the door to future tax cuts and thus depriving New Zealand’s more politically conservative parties of room to move in future.

National appears highly sensitive to charges that it is itself playing politics with the issue. In outlining the policy, English delivered a long preamble on how long the party had examined the proposed scheme. He also emphasised the party had learned the lessons of the past 15 years and now would guarantee it would support current superannuation levels. The party has appointed a team to take the issue to the country – headed by English, it also features front benchers Lockwood Smith, Tony Ryall, and high flying first term MP Lynda Scott.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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