Peter Allan Williams
Writer and broadcaster for half a century. Now watching from the sidelines although verbalising thoughts on www.reality check.radio three days a week
peterallanwilliams.substack.com
On the surface the New Zealand Superannuation Fund, the so-called Cullen Fund, which is now 20 years old, has done pretty well. It’s this country’s sovereign wealth fund, a sort of slush fund to help pay the country’s bills in the next decade, particularly the old age pension.
It’s now worth 65 billion dollars. Since it started the government has put in just under 25 billion and with an annualized rate of return over 20 years of 9.76 per cent it’s now up to what it is.
But just imagine how much it would be worth if a couple of things had happened.
One – the government didn’t tax itself. It has put in 25 billion but it’s taken out 9.5 billion in tax. Why? Isn’t that just silly. As the government owns the fund, why does it need to take money off itself?
Everybody should save for the future. I don’t see a downside in the Cullen Fund. It’s important to have a nest egg from which you can draw off an income when you need it. That’s how retirement works.
The Cullen Fund needs as much in it as possible for when the biggest tide of baby boomers hits. That will be 65 years after the country’s number of live births hit an all-time high of 65,391 in 1961. Obviously that is from 2026 and beyond.
But the government has been pillaging the fund for the past 20 years by drawing off tax. Silly. Imagine what another 9.5 billion with an annualized rate of 9.7 per cent over 20 years would have provided.
Then, number two: this fund is as big as it is despite the John Key-Bill English regime not putting in any money during their entire time in government.
Big, big, mistake. English said we couldn’t afford it because of the GFC and all that and we weren’t going to borrow to invest because that was gambling. There is some truth in that, but, after a few years, around 2010-11 when the markets started running hot and our KiwiSaver accounts started exploding, returning 10-plus per cent a year, surely the government should have revised its thinking.
I reckoned at the time that was a wasted opportunity and there’s nothing like 20/20 hindsight. It’s difficult to put money in your savings accounts during hard times, but the long-term history of investing shows it is always worth it.
If the National government had put in just a billion a year during those nine years, and even with having to pay a bit of interest on the borrowing, the return would have outweighed the interest paid.
Muldoon killed the first attempt at a big sovereign wealth fund in 1975. That remains the biggest act of economic sabotage this country ever suffered.
What Key and English did wasn’t on that scale but it wasn’t helpful.
The Cullen Fund’s 65 billion would surely be upwards of 100 billion if those two initiatives had occurred.
As it is we have a relatively paltry 65 million in our fund after 20 years.
Meanwhile Norway, ah Norway, with the same population as us, has 1.5 trillion in their fund, which began in 1990.
Different circumstances, different resources, but a commitment to saving.
New Zealand has never been good at it. We have to learn to change our attitude.