Dialogue: Government super fund no pain-free saving plan

The Government plans to cut health spending while borrowing billions for its superannuation scheme. So why, asks BILL ENGLISH, is there no outcry?

Dr Michael Cullen, in a Dialogue column, appeared to be irritated by issues I raised about his superannuation fund. Personal abuse and bullying are becoming a trademark of the Government.

Here are some facts about the fund. The Government proposes to borrow billions of dollars to put into it. Along with surplus taxes, the borrowed money will be invested mainly in overseas sharemarkets. The Treasury says this investment will return 9 per cent for decades on end.

The fund will not pay for the whole pension. On average it will pay for only 10 per cent of superannuation past 2030. The other 90 per cent will still come from taxpayers at the time. The fund does not do anything for most people now older than 65 because it won't pay out a dollar until today's 65-year-old turns 90.

How come the Government is going to borrow the money? The Budget shows that over the next five years the Government's gross debt will go up $5 billion. That's because it doesn't have enough cash to pay for health and education, invest in student loans, state houses and prisons and save money for the super fund.

Whatever clever explanation the Government gives, it would not need to borrow if it didn't have to put money in the super fund.

The idea has been sold as a free lunch - saving that won't hurt you. People say that at least it's something. It is something, but it is not a free lunch. This year the Government has had to find $600 million, and it has been hard work. It has cut hospital budgets and tried to blackmail universities over funding. Students and sick people are paying for it.

The Government thought budget surpluses would be big enough to do it all, but it is spending more than it planned, and the economy is growing more slowly than it planned. It's going to get harder to find the money for the fund, and that means more borrowing to make up the shortfall.

It is my guess that economists will soon be reducing forecasts of growth and fiscal surpluses and increasing their Government debt forecasts.

It is a credit to the Greens that they have stood up to Labour's bullying on this issue. They have figured out that if we have the fund, it will rule out most of the choices this democracy might make for the next 30 years.

It locks in spending levels - such as benefit levels, health and education spending - taxes and government investment as they are now. Dr Cullen and Helen Clark are trying to pre-empt all the bigger choices future governments might make over the next 50 years.

What is really surprising is how little debate there has been in the community about a fund that sucks all the surpluses and mortgages of the future. There has been silence from the churches, the unions and community groups that campaigned so vigorously through the 1990s against restrained government spending.

In the old days they wanted more government spending, more redistribution and less poverty. These groups have been totally and reprehensibly silent over the issue of how billions of dollars of taxpayers' money will be used for decades to come.

Why should they have something to say? Public spending is the pre-eminent tool of left-wing governments and the favoured fix-it of the churches, unions and community groups. The Government's super fund legislation is the public spending decision of all time because it commits $50 billion to a 100-year plan.

We can safely bet that if a National government proposed to cut health and borrow to invest the money in overseas sharemarkets, we would be drowned in a tsunami of tears about the march of the new right and the end of the welfare state.

But that sort of talk now would upset the Prime Minister. Apart from income-related rent, the welfare state looks a lot like it did after National apparently destroyed it. So much for the prophetic role of the churches and the fearless advocates of the poor.

Where are the dripping clerics, the outraged do-gooders and the hikoi marchers of the 1990s? The bishops in their blood-red cassocks stood on the back of a truck outside the Beehive in 1999 ushering a new era of social democracy. Perhaps Helen Clark has told them to wait for better things - suffer now for heaven later.

The bad news is there's nothing better coming. What spare cash was left over from the Government's vote-buying spree will be gobbled up by the super fund, as will some that will have to be borrowed from our children. It won't get better and there are hundreds of pages of Budget documents telling us it won't get better.

If Labour were the best shot for a new world, the best shot has been fired - the cash is gone. This is social democrat nirvana a la Clark - higher taxes, fewer services, a huge savings scheme, a slowing economy and no choices.

Some 250,000 beneficiaries remain exactly where they were under National, and more working families are finding themselves at the food bank.

I welcome a debate about whether it's better to choose to support children in low-income families, or raise benefit levels, or invest in infrastructure, or reduce taxes. I welcome a debate about whether borrowing to save and then investing in overseas economies will strengthen our economy.

A super fund could make a contribution to superannuation costs. The issue is whether this one will, and whether the benefit of it is worth the costs.

According to the Government, there is no debate to be had, and now it is doing a deal behind closed doors with Winston Peters. It's hardly the recipe for political support for a 100-year plan.

* Bill English is the National finance spokesman.