Bill’s Budget

The only thing in Bill’s budget that seems to be raising any excitement anywhere is the suspension of Cullen fund contributions until the Government is in surplus again. As this looks to be a decade away, this is making Phil Goff very excited indeed. I presume this is because he can stir up masses of disinformation by pretending that:

a) Labour would borrow huge amounts of money to put into an investment fund (highly unlikely – even they aren’t that stupid)

b) Abandoning the Cullen fund will have anything more than a marginal impact on pensions.

When the Government is in surplus (read: taking more tax than it needs), the Cullen fund is just a sneaky way of getting us to save for our pensions. Unlike a compulsory savings scheme (you know, the thing that Kiwis said they didn’t want), the Cullen fund does not provide you with any extra pension, it just makes it easier for the government to pay you the current pension (whatever that may be). Personally, I think that trying to implement the Cullen Fund and Kiwisaver is overkill and it comes as no surprise to me that National is obliged to gut both of them, at least temporarily. Running both at the same time is like eating caviar when you can barely afford tuna – not very sustainable.

Funding either of them while needing to borrow is economic madness. While the Cullen fund may be making us pay for our pensions up front when we are in surplus, when in deficit, the Cullen fund is making our children pay for our pensions (which they would have to anyway) but in the most inefficient way possible (through a government investment fund). Even if the Cullen fund was not losing money, any positive difference between interest earned and interest on borrowings would be easily swallowed up by “churn”. As the entire purpose of the Cullen fund is to make things easier on the future taxpayer, deficit funding is utterly pointless and possibly detrimental (should the fund make less money than the government’s interest payments).

Kiwisaver exhibits the same properties. A government borrowing to fund Kiwisaver is essentially getting our children to fund our pension savings plan. No wonder Bill stopped the mortgage repayment scheme. That has the obscene effect of getting our children and grandchildren to pay our current mortgages. Last time I looked, intergenerational wealth transfer was supposed to go from parents to children, not the other way around.

I would have been considerably nastier than Bill. I would have scrapped both Kiwisaver and the Cullen fund and redistributed the billions in the fund into more infrastructure projects. The savings from Kiwisaver would have funded a further round of tax cuts. I’m hoping Bill is just warming up to this – maybe next budget.

But I’m not holding my breath.

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