Give Cullen Fund to the taxpayers

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.