Mood of the Boardroom: No shortcuts — we’re not Venezuela

The next Government could conceivably liquidate the $65.4 billion New Zealand Super Fund and renege on making offshore payments on climate change commitments to pay down costly Government debt.

But such stratagems don’t fly with New Zealand’s senior corporate community.

In the Herald’s 2023 Mood of the Boardroom CEOs survey, business leaders were emphatic; over 87 per cent sent a strong message that liquidating the fund was not on. Just 3 per cent said it should be used to restore the country’s balance sheet. A further 9 per cent said they were “unsure”.

A high-profile chairperson suggested that — given the poor fiscal management seen in recent years — rating agencies would respond very negatively in such a case. “The New Zealand Super Fund and investment expertise can instead be used far more effectively to support infrastructure build.”

But New Zealand Initiative chairman Roger Partridge is in favour of “ideally winding the fund up” and paying down debt.

The fund is designed to help pay for the rising cost of providing National Superannuation payments for New Zealanders. Both Labour and National have flagged they will continue making contributions.

National’s finance spokesperson Nicola Willis said her party is committed to continuing contributions.

“I do think it’s prudent and responsible to always be looking at ... is that the best place to be putting our dollars now? But my intention is that we would continue contributions,” she told TVNZ’s Q+A earlier this year.

Labour has also committed to continue payments.

In its alternative budget, Act has proposed halting contributions to the Super Fund while government debt is outstanding. It suggests, “if taxpayers wish to invest in the stock market, they are allowed to do so.

“The Government should not force them to do so via proxy.”

It applies the same rationale to the government’s venture capital fund.

In 2009, the former National-led government halted contributions in response to the Global Financial Crisis. They were restarted by the Labour-led government in 2017.

Simplicity founder and CEO, Sam Stubbs, said liquidating the fund would eliminate a world-leading investment team that has provided returns to taxpayers well in excess of any debt required to fund it.

“Ultimately our increasing public debt has to be paid back,” adds Precinct Properties chair Craig Stobo. “If the public does not want to cut entitlements or increase taxes we have to sell assets. There are state assets that should be sold well before the NZ Super Fund is liquidated.”

A former banker draws a historic parallel: “Not a good idea. It would be similar to doing away with the Superannuation fund by Muldoon.”

Jarden’s managing director and co-head of investment banking, Silvana Schenone, acknowledges the complexity of superannuation. “I believe compulsory superannuation in New Zealand would assist with financial literacy and many other issues the country is facing,” she said.

Paying the Piper

A Government report has forecast we could be up for a $24 billion bill leading up to 2030 in order to meet its international climate change targets.

This projection is predicated on maintaining our current greenhouse gas emissions trajectory without significant reductions, against a high international carbon price to offset emissions above the country’s target.

Under the Paris Agreement, New Zealand has committed to reduce net greenhouse gas emissions in 2030 by 50 per cent below gross emission levels in 2005; part of global efforts to limit warming to below 1.5C.

Business leaders were asked if the country should renege on these commitments and focus on investing in green technology and other direct emission-reducing measures.

A clear majority of respondents, 62 per cent, answered a resounding “no”. They emphasised the importance of such commitments as a vital aspect of global co-operation in combating climate change, and the severe implications walking back commitments could have on New Zealand’s trade relationships.

Conversely, a notable 18 per cent of respondents aligned with the idea of prioritising investments in green technology and direct emission reduction measures over strict adherence to international commitments. The remaining 20 per cent of respondents are “uncertain”.

Professional director Dame Therese Walsh says, “the credibility of New Zealand in relation to climate change globally will be significantly impacted if we do not meet our international commitments.” She notes our absence would undermine the level of pressure on other countries to do the same.

Another director makes the point that if we renege on the climate commitments our relative cost of capital will increase.

“The economy gets hit both ways on this. The only answer is to have a co-ordinated plan to deliver to the targets that the Government does not undermine with policy decisions, like providing fuel subsidies.”

“It is not an either/or question,” says Freightways chair Mark Cairns. “We need to be doing both.”

But conversely, a notable 18 per cent of respondents aligned with the option of prioritising investments in green technology and direct emission reduction measures over strict adherence to international commitments. The remaining 20 per cent of respondents were uncertain. Precinct Properties chair Craig Stobo is sceptical of the feasibility of achieving the 2030 Paris targets, “both in terms of likely success and ballooning taxpayer costs.”

“Only 25 per cent of the globe is subject to carbon taxes or prices. We should work with other food exporters to opt-out under Article 2.1 of the Agreement citing food security.”

Going further, serial social entrepreneur Anne Gaze strongly criticised the decision to sign the Paris Agreement.

“Phenomenal incompetence to have even thought of signing this! What a puffed-up Minister’s ego to have done so.”

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