Economist and
financial commentator Gareth Morgan thinks the Cullen Fund,
now suspended for 10 years, should be scrapped altogether. He
explains why.
With contributions from the Government now suspended, the
Cullen Fund is stalled midstream, worth $12.5 billion at
latest count, having received $14.6 billion in contributions.
Think about the purpose of this project - to pre-fund New
Zealand Superannuation to an estimated extent of about 14%.
In other words, when the hordes of baby-boomer retirees are
drawing their New Zealand Superannuation entitlement in 2040,
only 86% of that handout would be coming from the taxpayers
of the day; the rest would be provided by the Cullen Fund.
With the 10-year delay to contributions, the onus on the
taxpayers of the day will rise to at least 93%. Why bother?
The reality is that the dream is over. Economic
circumstances, including the credit crunch, have rendered the
Cullen Fund a white elephant. The other factors conspiring to
send the Cullen Fund to the funeral pyre include. -
• John Key's absent-minded utterance that 40% of it should be
ear-tagged for pet projects of politicians.
• The substandard performance of the fund managers.
• The suggestion that the fund managers, in a bid to make up
for terrible performance, would lift the risk profile and
enter the property development world.
No reliance whatever can be placed on politicians' promises
that there will be a contributions catch up.
In reality, the fund is now stuck at about $12 billion-$15
billion, which is enough to distort domestic markets, should
some silly politician decide that in the national interest
the fund should be invested domestically, but not large
enough to make any meaningful difference to the future tax
demands of New Zealand Superannuation.
At least the Government has acknowledged that to borrow and
fund it would be the epitome of financial illiteracy - but it
has only done half the job. It needs to garner the courage to
declare the Cullen Fund is the proverbial dead duck. Next,
what should be decided is what to do with the $12.5 billion.
The Cullen Fund should be shut down immediately, and the
$12.5 billion given back to the public in the form of
KiwiSaver contributions. This would in effect privatise the
property and get it out of the clutches of politicians.
After all, it was the tax cuts Mr Cullen denied Kiwis that
funded this monster, so by rights it is the public's money.
By this route, KiwiSaver would in effect be made compulsory
overnight, as all Kiwi taxpayers would get some of it ($3000
each if it were done crudely) in their accounts, which would
form the base of their retirement fund. Remember in Australia
compulsory superannuation contributions are 9% of salaries
(over $3000 per annum).
Next, the Government needs to join similar economies overseas
and declare that the age of entitlement to New Zealand
Superannuation is going to be stepped up from 65 to 70 or
thereabouts.
