By Bernard Hickey
Finance Minister Bill English has criticised the New Zealand Super Fund over its comments about a likely shortfall in the fund because of the Government's suspension of contributions in 2009.
Under questioning by Labour Finance Spokesman Grant Robertson, English said the fund would eventually make substantial losses and was likely to see its average returns reduce to market levels.
His solution to a likely shortfall by 2030 was for the Government to restrict spending and top up the fund with surpluses closer to the time.
"The fact that it has made 10 percent—that is above the market rate, on average—for the first 15 years or so means it is highly likely it will make negative returns for an extended period some time, because no managed fund beats the market by much over any length of time. So we just did not want to take the risk of borrowing more—for which Labour criticises us—in order to invest in overseas shares," English said.
English said the Guardians of the NZ Super Fund were wrong in saying (as detailed here on the NZ Super Fund's site) that the decision not to contribute had reduced the fund's potential size by NZ$18.2 billion.
"The management of the superannuation fund would of course love to have billions of dollars," English said.
'Would they borrow NZ$5 bln personally?'
"The question I would say to the management of the superannuation fund is whether they would go and borrow NZ$5 billion in order to invest on overseas equities markets that have been deliberately inflated in value by central banks around the world," he said.
"No one knows what will happen to those share funds when central banks stop printing money. One of the preoccupations of world financial markets right now is the risk of the very investments that the superannuation fund has made."
English said the fund's out-performance was no indication of the risks ahead of it.
"A future Minister of Finance may well be in this House defending persistent negative returns on that fund—in fact, I believe that is certain," he said.
Robertson then asked who would fund NZ Super if, as Treasury forecast, the Fund would be NZ$36 billion smaller than it should be by 2030.
English said Governments would have sufficiently large surpluses to top up the fund if they controlled spending for the next 10-15 years.
'Foolish and short-sighted'
Robertson later criticised English as being foolish for not borrowing to invest.
“His refusal to do that is not only short-sighted, it’s foolish financial management. Future generations will be paying the cost of this short term thinking," Robertson said.
“Mr English can’t have it both ways. He has previously basked in the success of the award-winning Super Fund, calling it ‘one of the best-structured sovereign wealth funds in the world’. But today he dismissed the analysis of the Fund as ‘wrong’ and ‘hypothetical’," he said.
"Having kneecapped the Fund, Bill English's only solution to covering the future cost of Superannuation is to cut public services like healthcare and education. That's not something Kiwis will stand for."