Super Fund: some debt good, other debt bad

If the government opts to cut contributions to the Superannuation Fund, it will be effectively telling New Zealanders 'don't bother to save' and further exposing its zealous love of tax cuts above all else

When governments make major changes to social and economic policy such as, say, reducing contributions to a fund to pay for superannuation, they are warned to be alive to the signals such changes send and any unintended consequences.

The argument as reported is between those who think it makes no sense to borrow to save and those who think it's vital to save no matter what and, indeed, a buggered market is the perfect time to be buying shares.

Beyond this most obvious critique of National's decision to "consider" cutting back its $2 billion annual contribution to the Cullen Fund (yet another failure to give a definitive answer), lie a bunch of other issues that haven't featured in the debate so far.

1) Politicians often compare the government's books to household finances as a way of explaining their decisions. Well, the 'do as I do' message this decision sends to households is "dont save, don't buy shares". Watching the news last night, Pat of Pakuranga would have turned to her husband and said, "heck, if the government isn't saving and investing, I guess we shouldn't either". Given the stampede away from the New Zealand sharemarket in recent months, I wonder what Key's mate Mark Weldon is thinking.

2) National made a splash during the election campaign saying that the Super Fund would increase its investment in New Zealand assets from 23% to "at least 40%".  As John Key said:

In the short term, in a world where money for investment is going to be more tightly held and more closely guarded, it will help ensure New Zealand has the the investment capital we need to get out of recession and into a period of solid and sustainable growth.

Yet by cutting the contribution to the fund the government is cutting the amount of capital available to New Zealand businesses, somewhat in contradiction of the above quote. Put simply, 40% of, say, $1b is less than 40% of the planned $2b. Surely less capital is a consequence the government is desperate to avoid.

3) The Prime Minister told the Wall St Journal at the weekend that he didn't like large fiscal stimulus packages because:

"You've saddled future generations with an enormous amount of debt that then they have to repay"...

However, the whole point of investing into the Super Fund is to, er, save future generations from an enormous amount of debt. Which raises the question, which debt is worse? The debt incurred now to save for super or the debt future generations will have to incur to pay for super? Is it best to cut borrowing now when all it means is that our kids will have to borrow more later (perhaps when interest rates are higher)?

4) The final point is another curious signal that the government is sending. Borrowing to save = bad. Borrowing to stimulate the economy = bad. Borrowing to cut taxes = good. Would you care to explain why, Mr Key?

As with anything to do with superannuation, the simple arguments are only the beginning of the debate. So we wait to see what Treasury will recommend, whether Labour has the chops to take this fight to the government, and whether the government will be able to find some consistency in what is increasingly looking like a very nonstrategic and off-the-cuff response to the economic crisis.