Govt ponders reduction in super-fund payments

The Government is considering cutting back contributions to the New Zealand Superannuation Fund.

Prime Minister John Key said in Parliament yesterday that he had asked Finance Minister Bill English, as part of the Budget process, to get the Treasury to look at the possibility of temporarily contributing a lesser amount to the fund.

"There will be no change to superannuation payments to New Zealanders. They are not linked to this fund," he said.

"I have made it quite clear that if superannuation was to be cut - and I will make the same claim here in the House today - I will resign as Prime Minister and as a member of Parliament."

The Leader of the Opposition, Phil Goff, said that was an empty promise as the pressure to cut payments to superannuitants would come years down the track when Mr Key would no longer be Prime Minister.

The fund, set up by former finance minister Michael Cullen less than six years ago, is intended to set aside some tax revenue when the baby boomers are still in the workforce and invest it, in order to reduce the cost of their superannuation on future taxpayers.

Advocates of a contribution holiday argue that with the Government now running Budget deficits, it has to borrow the money going into the fund, which has lost billions as world sharemarkets plummet.

AXA Global Investors chief economist Bevan Graham said that given the low prices of shares, now might be a good time to borrow to buy them.

"However, in the midst of a global credit crisis the priority must be to reduce upward pressure on interest rates, and a lower level of debt will certainly do that."

Mr Key said if the Government continued to make contributions to the fund at the prescribed rate, it would be borrowing $50 million a week. He supported the prefunding of superannuation.

"But the Government also faces some very difficult challenges and that means that over the course of the next few years the Government will be borrowing tens of billions of dollars. The question for the Government is simply whether for a period of time it should pay less into the fund and take the pressure off the borrowing requirement."

The fund's legislation allows for a Government to pay in less than its future liabilities would require. But if it does so it has to state how it intends to make good the shortfall later.

Mr Goff said that would get harder and harder the longer the contribution holiday lasted.