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We were talking about the business environment and the matters that he was raising with his farming clients.
He recommended a TED talk by Margaret Heffernan called "The human skills we need in an unpredictable world" which she gave in August 2019.
She questioned the "just-in-time" management mantra that advocates an intense focus on efficiency in our supply chains and business thinking.
She made the observation that "just-in-time thinking" may help economic efficiency, but comes with great vulnerability.
Ms Heffernan was advocating a more nuanced approach where businesses integrate some "just-in-case" thinking to their business models. This may result in the loss of some business efficiency but with a significant increase in business resilience.
I thought that the topic was interesting at the time, but the truth is I only made time to watch the talk last month when many of the themes she referenced were playing out in the world around us.
The realisation for me was that being forewarned of trends or events is only helpful if we have the strength of character and the capacity to take action.
In other words, it takes leadership and that leadership starts with our own thinking.
Regardless of one’s political affiliation, it is hard not to be impressed by the leadership shown by our Prime Minister and Cabinet during the current Covid-19 crisis.
There has been much comment on how Covid-19 may reshape our world and force us to confront issues that we have been blithely ignoring.
The list is extensive; sea level rise, increasing automation, income inequality, the cost of housing, our tax system, and the implementation of a Universal Basic Income, to name just a few.
The current lockdown may have provided the time and impetus to reflect on these issues. But, with Level 3 ending, the temptation to resume our old habits will return and these important issues could once again be consigned to the "too hard" basket. Let’s hope not.
I am heartened by the fact that our political system is less tribal than in many other Western democracies. In the past, we have shown the ability to tackle hard questions and there have been times when the foresight and conviction of one person has made a significant difference.
When I first started as a financial adviser in the late 1980s, the legislative framework for retirement savings was effectively broken.
Over the course of several decades up to that point, successive New Zealand governing parties decided that individuals who were able to directly manage investments in property or the shares of listed or unlisted companies should pay no capital gains tax.
Meanwhile, those individuals who relied on others to manage their money were forced to pay full corporate tax rates of about 33%, irrespective of which personal tax bracket they were in.
This contributed to the 1980s property and sharemarket booms, and subsequent busts, and the gradual decline of the superannuation industry.
No-one was interested in offering professionally managed retirement funds because of the 33% tax rate. Those with property or share management skills became wealthy; while regular savers were penalised.
At the same time, the age of eligibility for NZ Super rose to 65 and the payment fell to 33% below a no-frills lifestyle. In the 2000s, Dr Michael Cullen (now Sir Michael) changed all of this with three farsighted initiatives:
- The creation of the Portfolio Investment Entity (PIE) tax regime. This restored equality of capital gains tax between investing individuals and professionally managed portfolios.
- The creation of the New Zealand Superannuation Fund. Sir Michael recognised the risk associated with our current system where universal retirement superannuation benefits are funded by the current working population.
He foresaw that, with an ageing population, exacerbated by the baby-boomer bubble, the system would not cope. In response, he oversaw the creation of a new Super Fund (sometimes referred to as the Cullen Fund) which will relieve the pressure on the tax base when retirement funding pressure peaks around 2035.
The fund has developed into a well-respected and well-performing sovereign wealth fund which has set a high standard in socially responsible investing.
- The creation of KiwiSaver. As the architect of KiwiSaver, Sir Michael recognised that a widespread employment-based savings scheme was the best way to help Kiwis save for their own retirement. It incorporated the latest behavioural finance thinking in its design. It provides incentives but avoids compulsion.
It offers personal ownership and control but with limited access. It has been a huge success and, as a result, more than 3 million New Zealanders have already amassed $57 billion in their KiwiSaver accounts. It has provided many New Zealanders the opportunity to build a diversified investment base and take responsibility for their own retirement.
It would be difficult to overstate the importance of these three pillars on the financial security of every New Zealander. Every now and then someone comes along who, in their lifetime, puts in place changes which touch not only everyone in their generation, but generations to come. Sir Michael Cullen is one such person.
- Peter Ashworth is a principal of New Zealand Funds Management Ltd and is an authorised financial adviser.