Budget 09: Two sides of the story

KEY'S CASE

Mr Key says it simply didn't make sense to keep paying into the fund once the Government's accounts swung from surplus into deficit. It would have meant borrowing to invest.

"Committing the Government to an even bigger debt-raising programme, in a world where the United States, the United Kingdom and other governments will be hoovering up available funds in their own debt programmes, does put the New Zealand economy at some risk," he said at Manukau.

"That is like a household borrowing money to invest in the share market, on top of having a big mortgage, a car loan and a whopping credit card bill.

"Or, perhaps more relevantly, it is like saving for your retirement using your credit card."

Although in theory the Government could borrow cheaply and make higher returns by investing in world sharemarkets, in practice the Super Fund's returns were currently less than the interest rate the Government paid on its borrowing.

Even when returns improved, the Government had to make a judgment about how much it could borrow at reasonable interest rates. Otherwise, he said, "If that was the argument the Government would borrow $50 billion and put it into the sharemarket."

GOFF'S CASE

But Mr Goff said there was no guarantee that the money would have been invested productively if it hadn't gone into the Super Fund.

He said the fund was a way to make today's taxpayers help pay for their own retirement.

"In equity terms, it makes sense for us in the baby-boom generation to pre-fund some of our own super because of the burden that will place on a smaller number of people at a time when one in five of us will be retired," he said.

It made no sense to stop saving at the time when world sharemarkets were at a low point. "The very best time to invest is when the cycle is close to its bottom when you are going to have a big improvement in value if you hold on over time," he said.

He said cancelling the Super Fund contributions did not help the country's net debt position because the reduced borrowing would be more than offset over time by the growing value of the fund's assets.