KEY POINTS:
Last year, the Peterson Institute for International Economics deemed the New Zealand Superannuation Fund the very model of a modern sovereign wealth fund. The non-partisan, Washington-based think tank placed it at the top of 32 such funds, ahead of the likes of oil-rich Norway and the Emirates, because it ticked almost all of 25 criteria boxes. Not the least of these was being able to make investment decisions free of government interference.
The fund has been well served by 2001 legislation, which dictates only an expected rate of return and the avoidance of damage to this country's international standing. Now, however, the National Party plans to undermine the very basis of such a resounding accolade.
John Key would order the NZ Super Fund to invest at least 40 per cent of its assets in New Zealand investments. At the moment, it has only 23 per cent invested locally. This pressing of the populist button may seem smart politics but it also displays disturbing short-term thinking. The fund's guardians were asked to chase the best return from around the globe for a very good reason - the funding of superannuation when the baby-boomer bubble begins to bite. Government meddling would compromise this and superannuation affordability.
National suggests investment opportunities here could encompass long-term infrastructure bonds. Projects to be embraced might include public-private roading partnerships and the roll-out of high-speed internet. On no account, however, must the fund be used for initiatives that do not garner a rate of return which stacks up internationally. If such were the case, the fund would, indeed, have become the finance minister's plaything.
Mr Key said that, aside from making more investment money available for local projects and businesses in the short term, his intervention would stimulate long-term economic growth. This, of course, is also the ambition of the KiwiSaver scheme, which National plans to make much less attractive in order to finance its tax cut programme. The Superannuation Fund intervention seems, in some ill-judged manner, to act as compensation for KiwiSaver's dwindling potential.
National has also placed no time frame on its instruction. The fund is forecast to grow to about $25 billion by 2012, rising to $110 billion in 2025. The impact on investment pricing of the flood of funding would all too soon render the 40 per cent rule nonsensical. Even now, there is the potential for significant distortion. In reality, given the small size of the local market and the available opportunities, a 23 per cent allotment seems about right.
The Minister of Finance has also talked of the possibility of the Superannuation Fund and KiwiSaver providers investing more locally, and the prospect of them taking up infrastructure bonds. Such is the temptation of a nest-egg that has grown to almost $15 billion in a very short time - even after a big loss last year. But Michael Cullen had the good sense to say those funds would not be asked to drop their focus on achieving the best returns. Indeed, if he had suggested what is now promoted by Mr Key, many National supporters would have ridiculed him.
Global financial upheaval has spurred a wide array of government interventions. Nonetheless, it remains odd to see a party that champions market freedom proposing such ill-considered meddling. The Superannuation Fund's investment strengths are its liquidity and diversification. National's proposal would diminish that considerably, and encourage further political interference. The fund should be left to pursue its original superannuation goals as best it can.
