By VERNON SMALL deputy political editor
The Coalition has agreed on the design of a scheme to partially pre-fund the cost of baby-boomers' pensions and will begin putting it through the cabinet-approval process next week.
The Alliance leader, Deputy Prime Minister Jim Anderton, has confirmed some details hammered out after lengthy talks with Labour.
He told an Auckland business breakfast meeting yesterday that agreement was "very close."
But Beehive sources said a deal had been struck and officials were preparing a detailed proposal that was virtually certain to get cabinet approval in a few weeks.
Mr Anderton said the scheme would differ from the one in Labour's election policy. Labour had envisaged using a percentage of the tax take to partially pre-fund the rising cost of pensions as the baby-boom generation retired - estimated to peak at 9 per cent of gross domestic product from 4 per cent now.
But to attract the support of the Alliance and the Greens, Labour has agreed instead to divert an amount from Budget surpluses equal to a set percentage of the economy.
The scheme still requires Green Party or New Zealand First backing to win a majority in Parliament.
Finance Minister Michael Cullen has said he would welcome other parties signing up once the legislation was in place.
Mr Anderton said it was probably better to call the agreed plan a "pay-as-you-go, tax-smoothing scheme."
Labour has called it a partial pre-funding scheme, but the difference seems semantic.
Mr Anderton said it was designed to pre-empt tax increases in 20 to 30 years and to allay people's fears about them.
"In other words, we are putting aside as much money as is necessary to avoid changing the tax rate in future years on account of demographic changes."
He said the Government had every intention of maintaining the current "pay-as-you-go" scheme funded from general revenue.
The fund, which could reach $50 billion in 20 to 30 years, would be drawn on to top that up as the costs mounted.
He said cash put into the fund would come from the Government's projected cash surpluses.
The Alliance had wanted a narrow definition of the cash surplus and was concerned about the treatment of student loans, which appear in the Crown accounts as an asset.
But it appears the junior Coalition partner has accepted Labour's view of what constitutes "cash" in the surplus.
Mr Anderton said funds would be invested prudently to ensure a rate of return at least as high as the rate of return achieved by repaying debt.
Part of the agreement with Labour would involve mechanisms to prevent future governments from raiding any funds.
That could be either an entrenched clause in the law, requiring more than a simple majority of Parliament to repeal, or a referendum. Prime Minister Helen Clark has said she is against a referendum.
Protection for the fund is a key issue for NZ First, which sees individualised funds as the best way of averting political meddling.
But Mr Anderton said individual super accounts would not be part of the scheme. They would be harsh on the unemployed, sick, disabled, women and low-income earners. The business community would also suffer a decline in sales, while compliance costs would massively increase.
The Greens have reservations about the scheme, although co-leader Rod Donald has said they may back it as the only way to protect a universal, publicly funded pension.
Mr Donald said details were still incomplete, such as how much would be invested overseas and the make-up of the board that would control the fund.
Coalition strikes deal on baby-boomers' pensions
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