Scoop Election 08: edited by Gordon Campbell

Is Key’s Super Fund Idea So Super?

October 16th, 2008

Gordon Campbell on the National Party’s sudden transformation into New Zealand First, and today’s McCain/Obama debate.

Intervention used to be such a dirty word on the centre right. Now, the National Party aims to legislate to make the guardians of the Super Fund invest 40% of their funds within New Zealand.

There’s a pattern emerging here : raid the Kiwisaver savings scheme, intervene in the Super Fund earmarked for the needs of our ageing population, scrap the Fast Forward science fund, abolish the tax credit for research and development, dump the home insulation fund meant to offset the energy costs of dealing with climate change….

What do all these moves have in common ? They all involve a drive for short term advantage, and denial about the need to plan for longer run challenges facing the country. Savings, research, demographic change. All are being jettisoned in the name of instant gratification. If I can steal a line from the conservative columnist David Brooks, John Key shows every sign of having the policy libido of a 15 year old boy.

The reason why the Super Fund has most of its investment stake overseas is that – in the longer term – the existing balance of offshore/onshore placements stands to make the most money for its prime purpose. Which is : helping us to prepare for the costs of caring for our ageing population. The Fund guardians, so long as they operate within their ethical investment guidelines ( and, as the Greens have shown, they have not always done so ) are free to make the call on where that money is best invested for the Fund’s prime purpose.

Key now wants to intervene in those market decisions and force the Fund – our money – into a New Zealand stock market where it will be likely, for an unknown period of time, to earn less of a return. How much will be lost in the process ? What will be the opportunity cost ? We, and John Key, don’t have the foggiest. idea. Because this policy has been launched without any information ( much less research) on the likely costs of making it mandatory to allocate a fixed share of the Fund’s portfolio inside New Zealand. Maybe that’s how they used to do in Merrill Lynch. Shoot from the hip, ride your instincts and trust you’ll be somewhere else if and when things go sour.

Before the Greens cheered this proposal, they might have considered whether – once you open this door – just what the cost may be, and where the 40 % is likely to go. The Fund guardians will – allegedly – be left free to decide where in New Zealand they put the money. The NZSX is small, and the Fund guardians are highly unlikely to become creative venture capitalists of fledgling enterprises overnight. Arguably, nor should they be. Moreover, the Fund moneys would quite conceivably be going into the kind of local investments that the Greens would abhor.

Key for instance, has already signalled his interest in PPPs for prison construction and roading, and in the provision of faster broadband. In that respect, Key’s proposal enhances the prospect of more Waterview Connection style projects being built. The intervention is also be likely to be used to shore up Telecom’s market dominance, just when it looked as if the company was finally going to be required to respond to market forces. In essence, Key has just demonstrated why he doesn’t need Winston Peters in his government – because Key is adopting the same kind of ditzy populism over the Super Fund that you’d expect to see emanating from New Zealand First. We live in strange times.

McCain vs Obama. Round Three

The final presidential debate today is in the “ chat’ format, with both candidates out from behind the lectern and seated at the same table, with moderator Bob Schieffer.

Obama is ahead. Anyone hoping for an Obama landslide on November 4 should however keep in mind that Obama’s current poll numbers are probably as good as it may get. Bill Clinton’s trouncing of Bob Dole in 1996 and Bush Senior’s rout of Michael Dukakis in 1988 were by only about 8 point margins. Obama is at that point ( or beyond ) in most national polls already.

Stupidly, McCain has already signaled he will raise in the debate the issue of Obama’s connection to Weatherman Bill Ayers. Or, as Sarah Palin put it, the issue of Obama’s ‘ palling around with terrorists’ Christopher Orr in the New Republic, explains here why that may not work out so well for McCain :

McCain will raise Ayers in that awkward, semi-comic manner of his, as if he’s not really sure it’s something he wants to be bringing up…. The real-time viewer response needles will nosedive, as they have almost every time McCain has attacked in the debates so far.
Obama will very reasonably respond that it’s a distant association, that he was 8 years old when Ayers committed his crimes, that he deplores said crimes, etc., etc. Then he’ll turn it around on McCain, pointing out that it is all very old news, and the McCain campaign didn’t think it was worth discussing until it found itself in a deep electoral hole. He’ll accuse McCain of trying to “change the subject” and will cite the top McCain strategist who idiotically told the Daily News, “If we keep talking about the economic crisis we’ll lose.” Anyone who thinks such an exchange is a win for McCain should contact me immediately, as I have a lucrative opportunity in the housing market I’d like to discuss with you.

The surge in Iraq is also likely to be brought up. McCain, as part of his alleged greater foreign policy expertise, will claim that he supported the US military surge in Iraq, while Obama didn’t – and so Obama should now confess to being wrong. In McCain’s world, the US has won victory in Iraq, and should now press on with the same methods to victory in Afghanistan as well. By puncturing the premises of that fantasy, Obama risks looking unpatriotic, and unsupportive of the US troops in the field.
First, some background. McCain tends to combine the results of the surge that began in February 2007 with the success of the Awakening Councils – these were local Sunni chieftains recruited by the US, initially to fight against al-Qaeda, and especially in Anbar province. In fact, the Anbar process had begun six months beforehand. Though assisted by the surge, the Awakening Councils predated it.

Yes, US deaths are down from the highs of 2006 and 2007 – and to lesser extent, Iraqi deaths are also down this year. Especially when compared to the explosion of sectarian warfare that followed the bombing of the sacred Askariya shrine in February 2006. The relative decline in violence from those levels is partly explained by the fact that the sectarian war in Baghdad has been won – by the Shia militias, who have ethnically cleansed Sunni neighbourhoods and either killed or sent their former neighbours into exile, thus creating major problems for the future.

As for the Awakening Councils – one of the badges of success for the surge – the jury is still out on whether they will be successfully absorbed into Iraqi society, or will simply rejoin the insurgency. So far the Shia Maliki government has been slow to obstructive in integrating the Awakening Councils back into the new society – they’re Sunni forces after all. As a result, the peace is fragile and vulnerable, as even McCain’s hero, General David Petraeus has conceded. In signs of sectarian fragmentation, Christians are currently being persecuted and ethnically cleansed from Mosul. The format for the Iraqi provincial elections – already postponed from October to late December – is also still in flux.

So victory in the sense of any lasting military or political stability – is still highly uncertain within Iraq. It is hardly in a shape robust enough to export to Afghanistan. Obama’s best reply on this point in the debate , then ? He probably has to be to concede that the surge has been far more successful than anyone anticipated, but that those gains on the ground remain highly vulnerable – and can only be consolidated by the sort of regional and international co-operation that the Bush administration ( and McCain) have shunned, and thought it could do without.

Most importantly, Obama can and should argue that those gains made in blood can only be consolidated if the US, in consultation with the Iraqi government, sets a firm timetable for a complete US withdrawal from Iraq. Because that is the only decision the White House can make that will put the necessary pressure on Iraqi politicians to reach out across the sectarian divides.

Currently, McCain wants to declare victory in Iraq – and make Obama sign up to his delusion. In fact, the US has only succeeded in creating a shaky regime that is dominated firstly by Shia politicians and fighters that are dependent on Iran – and secondly by a Kurdish faction that has all but seceded from Iraq. So long as the US stays in Iraq, these political factions will continue to use the spectre of the US occupation to keep the country divided against itself. Currently, the only candidate talking about a US withdrawal in the near future is Barack Obama – and even he, unfortunately, is still talking about trying to retain a US garrison presence. Its Catch 22, really – the only real way to declare victory is to leave now, totally.

ENDS

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    1. 42 Responses to “Is Key’s Super Fund Idea So Super?”

    2. By Dave Brown on Oct 16, 2008 | Reply

      Not that strange Gordon.
      Its consistent with the sovereign bailouts happening all around the world. They are justified to put credit into the so-called ‘real economy’ to save the system. But note how onee they got the bailouts how determined the bankers are to get rid of state equity and to return to the ‘free market’. What they have in mind is that the market gets public bailouts for “free”. Key is the same. This Cullen Fund proposal came from Wheldon and Skilling and includes the idea of a giant PPP holding company for the SOEs. Prisons and Broadband are small bikkies compared to such a giant PPP with an opening for blue chip private investment to complete the creeping privatisation of NZs resources.

    3. By Hannah on Oct 16, 2008 | Reply

      No his idea is not soooooooooooooooooooooooooo

      Super!!!!!

    4. By Hannah on Oct 16, 2008 | Reply

      who would pay the taxes you had promised??????

      well so weird this plan ain’t that goodies thing i have ever heard!!!!!

    5. By Ian MacKay on Oct 16, 2008 | Reply

      Thanks Gordon. I have pinched your para 2-3 for processing somehow for a wider audience. The Labour-lite program for months has obscured the silent creep of the underlying intent so that if elected, Key can show but I told you about Kiwisaver, Superfund,Fastforward,R&D etc before the election and therefore we have a mandate. Simple. Another cunning plan Baldrick!

    6. By James on Oct 16, 2008 | Reply

      Yes it’s interesting how even blatantly pro-National rags such as the New Zealand Herald have come out and said National’s policies are likely to be disingenuous and expedient, announced only to gain popularity.

      As if to confirm that, Bill English has been quoted in an evestdropped conversation that they will do anything to win or some such… So it does sound as if “ditzy populist policy” is what you can expect from National before the election. Anything they can to win, then when they have a “mandate”, they do what they want.

    7. By Keith on Oct 16, 2008 | Reply

      Thank god someone’s talking about the aging population again. I think the recent economic sobriety has got people looking beyond the next day… and now they’re managing to see about as far as the next six months. At least being short-sighted in a crisis is more excusable, I guess.

      But a few serious points, Gordon:

      1) If having more productive capital in NZ was so important, why he is cutting $3b of incentives out of Kiwisaver (the final impact will be much greater than $3b, since it’ll change saving behaviour, too)?

      2) Large funds – especially pension funds – diversify across a large range of countries and industries because keeping all your nest eggs in one basket is a really bad idea. It means that if the NZ economy takes a hit, our savings (the thing that we draw on when we need cash) take a hit, too.

      3) Bringing NZ money from overseas doesn’t make money cheaper. Foreign capital flows freely in and out of NZ, so it’s *not* a simple “more supply = lower price” scenario. Where it matters is that the profits aren’t going overseas, so it’s helping stem our current account deficit. However, the same thing is achieved by investing overseas, and having that profit return to NZ.

    8. By Louis Paulussen on Oct 16, 2008 | Reply

      Dr Gareth Morgan in a recent article wrote that the current crisis was the result of an ” orgy of debt”. For this to happen we had to have an orgy of savings. Obviously not in New Zealand, but many countries have massive savings from pension funds and life insurances (Norway a country comparable with NZ, 0.5 trillion dollars). There is no way that these funds in the future will be able to live up to their promises.
      As New Zealand is heavily indebted, 2nd highest debt levels per person in the OECD after Iceland and see what happened there. In my view all the money in the NZ super funds and Kiwisaver should stay in NZ based on the argument that your best investment is to pay of your mortgage. The argument of competing with other funds in NZ is ridiculous considering the huge borrowing NZ has from overseas.
      Also there are worries about decreasing property values or more accurate land prices. Considering that our own land value in 18 years has gone from 25k to 175k, no wonder it has to drop. The sad part is that New Zealanders have been borrowing money from overseas to pay for their own land.

      Some more facts:

      It took the US share market 25 years to get back to the same value as just before the 1929 crash.

      Property values in Japan have been falling for 18 consecutive years even with extreme low interest rates.

      In short we need some people with fresh ideas and insights, in politics and in government departments as I find it unbelievable that they didn’t see this disaster coming.

      Unfortunately there may be only a handful of politicians that might qualify.

    9. By dan on Oct 17, 2008 | Reply

      I never understood how someone could trust a merchant banker or what ever key was at meryll lynch. He worked amongst some of the most corrupt people on the planet.

      Last week he was shouting for interet rate cuts which would have kept NZ in line with some of the major global powers. He showed his real loyalty – not to NZ but to the globalists.

      John Key can NOT be trusted. Trickle-down economics is a fraud but most kiwis still think it works. I urge all right-wingers to take a look at America’s 5 trillion dollar mess right now & tell me trickle-down economics is a good idea.

    10. By Clark The Clear Winner on Oct 17, 2008 | Reply

      Yes, Dan. Trickle-down has become melt-down. Key will use the global crisis as a rationalisation to privatise our remaining public assets via public-private partnerships. Water, rail, roading, kiwibank and kiwisaver are the assets which immediately spring to mind. “There is no other way” will become standard mantra for these idolatrous worshippers at the temple of the almighty dollar. Ordinary NZers will pay and pay and pay. Life is pretty unpleasant for the working classes under any National Government but will be unbearable under a Key -lead National government.

    11. By Ian MacKay on Oct 17, 2008 | Reply

      Dan: Thanks for the prompt. I have been wondering exactly what a Money-trader does. Is John Key the bloke who did nothing except buy money low and sell high? Must have a good “nose” to do that and enough money to invest, but is that the same as trading in the Sharemarket, or investing in an idea or business. I have a relative who invested in a piece of software, helped develop it then sold the product for heaps. Did John Key do that or did he just trade money?

    12. By Oligarchy anyone? on Oct 17, 2008 | Reply

      I must confess I find Key hard to fathom. Just when he seemed to be clawing back a little credibility courtesy of a poorly moderated debate, he announces his Kiwisaver “investment in PPP” policy. As Gordon has pointed out, they are a failed model. More importantly, PPPs are a notorious vehicle for crony capitalism and directorships for retiring politicians.
      Perhaps Key has learned from the collapse of the business model he formerly espoused and now prefers the Russian, post Soviet model.

    13. By Robert C on Oct 17, 2008 | Reply

      Gordon has tried to apply the theme “short term advantage” to National using a few hand-picked policies. (He’s deftly left out tax cuts though. Including them would mean that Labour too are another “instant gratification” party – then we wouldn’t have a chance to escape!!!).

      Can someone explain what is short-term about investing in projects such as communications, transport and prisons? Or potentially power generation, or PPPs protecting and developing our natural resources?

      Using his horse blinkers and seer-like predictive abilities, without giving any numbers, he suggests that the fund will go into the NZ stock market and earn less. Furthermore, that the local investments would be abhorred by the Greens. Whatever that means, as I’m entirely confused at this point. Please, if you’re going to make these statements, can they have a clear point?

      It’s such a shame that the tinted glasses he’s wearing are affecting his rational thought. There will be returns required by fund investments, otherwise the Guardians won’t invest; there will likely be bidding on large projects. Branches of Telecom might compete for some of this. And with greater transparency and accountability, it’s not as though will be handed to them on a silver platter as they have abused their monopolistic privileges for what, 7 years of Labour rule?

      Ask yourself this – when you start receiving your portion of the super fund (in whatever way, shape or form), would you rather be receiving it via dated, decaying public infrastructure and inefficient services, or in a modern, safe and prosperous society with efficient reliable services that work?

      Taking Gordons argument further, anything invested in NZ via the Super fund is bad. Perhaps what would make him happier would be if that 40% was changed to 0%.

    14. By Ian MacKay on Oct 17, 2008 | Reply

      Robert C: I understood that by making 40% compulsory the Fund would be forced into investing in projects in NZ when there were more profitable investments elsewhere.
      The beauty of the Fund set-up, was in its independence from politicians. (Remember the Super Fund trashed by Muldoon in 1975?) By changing the rules after set-up it is vulnerable to whims justified on variety of grounds. Remember Bill was /is strongly against its existence.
      At the moment the Fund is able to invest in NZ as long as the Trustees decide that it will be an advantage to the Fund. Take that away and we are stuffed.

    15. By Robert C on Oct 17, 2008 | Reply

      Ian: I understand the change to the fund guidelines is a shift, but I disagree that we’d be stuffed.

      Look at the Norwegian funds for example, widely perceived as successful. There is a lot more political interference in their funds (the ethical guidelines are arguably political interference). And the non-oil backed portion of their fund is instructed to invest in Norwegian assets (shares, bonds, bank deposits, etc.). They’re much more politically constrained than ours, but free to act as they wish within these guidelines and apparently succeeding.

      Remember that the fund Guardians have a spread of assets and aren’t always going after “top dollar” as they have to balance risk and behave responsibly. I imagine infrastructure backed bonds fall naturally into their portfolio spread.

    16. By Ian MacKay on Oct 17, 2008 | Reply

      Robert C: Thanks for the info. Do the Norwegians get instructed to invest say 40% in their own country? Or do the Guardians choose the best course? In NZ the Guardians have invested about 23% in “us” according to value earned.

    17. By Robert C on Oct 17, 2008 | Reply

      Ian: There are two components of the Norwegian fund. These are called the “Government Pension Fund – Global” and “Government Pension Fund – Norway”. The combined value is over $500 Billion NZD, quite an incredible figure for a country with roughly our population!

      A) Government Pension Fund – Global (currently NZD $483 billion)
      Founded 1990. Funded through oil revenue surpluses. Not allowed to invest in Norwegian firms.

      Fixed Income to Equity proportion can range between 30% and 70%. Proportion of fixed income investments can fall within the following ranges:
      - Europe 50 – 70%
      - The Americas and Africa 25 – 45%
      - Asia and Oceania 0 – 15% (Note – New Zealand has 0.05% of this fund invested in it, Australia 0.5%)
      (Equity investment proportions are similar)

      B) Government Pension Fund – Norway (Currently NZD $30 Billion)
      Founded 1967. Funded through budget contributions. Invests 80-90% in Norway (mandated). Remaining 10-20% must be invested in Denmark, Finland, and Sweden.

      Once again, this fund must be invested in both Equity investments and Interest Bearing investments:
      - Equity instruments 50-70 pct.
      - Interest-bearing instruments 30-50 pct.

      It’s apparent that their formulae are more imposing than ours. This is as far as the guidelines go, and their Guardians make all investment decisions beyond this.

      I see the main difference in the design of the New Zealand and Norwegian funds being Norway’s huge petroleum profits and the fluctuating nature of these. There is no guideline on % value entering ‘Local’ vs ‘Global’ funds; they seem to be each running their course based on their respective funding sources.

      I don’t know the investment history of the ‘Local’ fund, but given it’s age and the different shape of Europe and the world economy back in the late 60s and 70s, it wouldn’t surprise me if it’s never had much international exposure.

      Going from memory here (there are so many facts out there on the net) but I believe their Local fund has been returning around 7.5% over the last decade and the Global one a bit less.

      Whether it’s wise for NZ to consider advising our fund Guardians on an equity/interest-bearing split is another matter to consider too. (I would guess they are currently sitting around 50:50 equity:interest-bearing as the NZ fund Equity balance sheet comes to around 7 Billion, whereas the fund value is 14 Billion).

      It’s a bit of a field day for statisticians isn’t it? On the one hard Norway has 16 times more invested off-shore than internally. However on the other hand, roughly $30 Billion is invested within Norway. In NZ (using the 23% figure), we have invested roughly $3.3 Billion locally.

      There’s no denying we as a country would benefit (perhaps selfishly as you say, at the expense of future returns) from more investment in local infrastructure. I don’t think upping the local percentage is such a bad thing. However anything over 50% would be irresponsible and start turning back the clock towards nationalist style policies (such as what NZ First is calling for with 100%). Ethically however, I do support some discretion of investment.

      Hope you find these numbers useful, I’ve found this little research tangent very interesting.

    18. By Ian MacKay on Oct 17, 2008 | Reply

      Robert C: Very impressive piece of Research. Given the huge amount over $500bil, it overshadows us but I guess that if nothing else it shows that our Super Fund while very yound, is worth having. I understand that Bill English has vigourously opposed its existence and it would not take much to collapse it. I have copied your work for my own file while I try and understand it all. Thanks for your efforts.

    19. By Louis Paulussen on Oct 17, 2008 | Reply

      Robert and Ian,

      As mentioned I don’t believe that the levels of savings like Norway and the Netherlands and others are responsible in a global sense. If the balance between savings and debt gets distorted between countries either by borrowing too much or saving too much for too long it will hurt both, One because they go broke (Iceland) and others get hurt England the Netherlands and probably others.
      For Norway to have to invest in other markets is an easy decision as they don’t have any debt.
      NZ has a massive debt per head of the population and as a result should put all the money into NZ. One could argue by making the money available that the there is a double advantage, The interest stays in the country and we don’t have to borrow this money from overseas to pay the interest as this is what roughly happens if the debt increases by 7-8% per year.
      I am also interested to see how far the fund will be down by the end of this economic meltdown.

    20. By Louis Paulussen on Oct 17, 2008 | Reply

      Robert and Ian,

      As mentioned I don’t believe that the levels of savings like Norway and the Netherlands and others are responsible in a global sense. If the balance between savings and debt gets distorted between countries, either by borrowing too much or saving too much for too long it will hurt both, one because they go broke (Iceland) and others get hurt England the Netherlands and probably others.
      For Norway to have to invest in other markets is an easy decision as they don’t have any debt.
      NZ has a massive debt per head of the population and as a result should put all the money they can back into NZ.
      One could argue by making the money available to NZ’s that there is a double advantage. The interest stays in the country and we don’t have to borrow this money from overseas to pay the interest as this is what roughly happens if the debt increases by 7-8% per year.
      I am also interested to see how far the fund will be down by the end of this economic meltdown.

    21. By Ian MacKay on Oct 17, 2008 | Reply

      OK Louis. Thanks for your post. It is a very complex subject and I have to defer to the experts. I only know such a little gleaned sometimes from politicians and they have images to uphold! Thanks

    22. By Dave Brown on Oct 17, 2008 | Reply

      NZ official government debt is not high around 18% of 10% of GDP as a June 08.
      It is the private debt that is huge 208 billion or 116% of GDP.
      As taxpayers we have no liability for the private debt,but we can be made to pay for it, and that is precisely John Key’s plan.
      Using the Superfund allows the private sector to get access to capital at lower interest rates then borrowing overseas, especially with a global finance meltdown.
      It is using public taxes, increasingly those of workers given Key’s policy of reducing taxes on the rich, that will used to fund PPPs in toll roads, private prisons, private hospitals, schools etc. creating a profit stream for decades that would not otherwise be funded.
      This is rogernomics mark 2 or privatisation by trickleup.
      The investment of the Super fund in NZ should be for public not for profit prejects and not as a cashcow for the private sector.

    23. By Skye on Oct 18, 2008 | Reply

      Wow, alot of extensive reasearch has gone into this discussion, for me personally it is rather simple. National party has always looked after its more wealthy parts of society with John Key himself fitting perfectly into that catagory. Most National policies whether private or secret will quickly or eventually benefit thoose with a higher income and I don’t see why this time it should be any different. Governtment should bring long-term stability to a country and this policy is exactly the opposite. The bottom line is I don’t trust Key. His party seem to be pretending to sit centre-right on the scale for the election but I have no doubt that if elected into government they will drift swiftly back to the right.
      Thanks for the information above by the way, it was very interesting.

    24. By Ian MacKay on Oct 18, 2008 | Reply

      Dave: Another part to my file! Not sure what this means “NZ official government debt is not high around 18% of 10% of GDP as a June 08.” but get the picture that it is relatively low.
      By private debt this means borrowing as in people and credit cards or wider to business borrowing for what? Development projects, new equipment, R&D etc??
      But does this also mean that increasingly under compulsion, say private contractors building a new factory could access the money in the form of a lower interest rate? If that firm falls down does that mean that the Fund looses too?
      Crikey! If bad times hit NZ 40% of investment could seriously endanger the Fund!! In this respect the difference from the Norwegian Super fund is in the backing from oil fields, and the relative safety of their long time Age Super fund. And Rogernomics by stealth! After the election National can say they have a mandate because we told you what we were going to do. Help!!

    25. By Dave Brown on Oct 18, 2008 | Reply

      Ian, Sorry that should be $18 billion or 10% of GDP.
      What annoys me is that immediately Key says this the Greens, NZ First and MP jump on this bandwagon without seeing that theyre being taken for a ride.
      What Key has in mind is that the Fund would put up the public spending to get projects insfrastructure projects off the ground. These historically have been funded by the state as private sector cannot be sure of a profit. The Super fund PPP model provides that state funding and permanent guarantee of profits flows.
      This is the rippoff. Rogernomics 1 picked the ripe cherries, Rogernomics 1 is tapping into the roots.

    26. By Ian MacKay on Oct 19, 2008 | Reply

      Thanks again all those above. I am attempting to distil all of the above into an explanation that is credible and understandable for ordinary people like me. Maybe Letters to editor or somewhere. As always a complex problem understood by the experts has the jargon that glazes the eyes of the average bloke or blokesses. That $18b or 10% of GNP is important but hasn’t been in my plain view. How does 10% compare with other countries?

    27. By Dave Brown on Oct 19, 2008 | Reply

      NZs public debt is pretty low and falling, its private debt is huge, second to Iceland (!?!) and rising.
      That is NZ banks and corporates own huge amounts offshore. Key wants to use NZs public credit rating to fund cheap loans for the overextended private sector. Watch as the pressure goes on to get the government to guarantee inter-bank loans. That’s an insurance policy that you and I will be giving to foreign banks to cover their loans to NZ banks.
      Good basic overview but outdated
      http://en.wikipedia.org/wiki/Economy_of_New_Zealand

    28. By Observer on Oct 19, 2008 | Reply

      Here we go again! Raid the coffers that have taken pain to build, be voted out within 6 years and here we go again, more pain, little gain and lose, lose, lose whilst a labour Govt rebuilds your irresponsible losses.
      Keep yer greedy unearned hands off it John!

    29. By Robert C on Oct 19, 2008 | Reply

      Dave Brown: You commented that the Cullen Fund proposal came from Weldon and Skilling and includes the idea of a giant PPP holding company for the SOEs.
      1 – The proposal has 9 distinct ideas. Just because a party likes one idea it doesn’t mean they necessarily like any others.
      2 – On today’s (19th Oct) RadioNZ debate this was asked by Kim Hill to the party representatives. Bill English stated that National has no interest in a giant umbrella company such as this, and likened it to shifting things around but accomplishing nothing. Furthermore, he was echoed on this by Cullen. So you can rest easy at night (if you trust anything they say – if you don’t trust anything, then there’s no point listening to them really)

      You also mention that our private debt is 208 billion or 116% of GDP. From New Zealand Statistics I find that our net overseas debt was NZD $140.6 billion at 31 March 2008. This is private + public, so the private component is less than this. Where did you get your figure from – perhaps your figure is Gross Debt, excluding the assets held by NZ from overseas sources?

      I don’t see how John Key has a plan to make us pay for private debt. You can’t make people pay for it, it’s not maintained as individual liabilities. Generally having international debt is not considered bad form unless the nature of the debt is risky and get’s stupidly large as a percentage of debt servicing ability.

      The major components of NZ’s debt are “finance and insurance” (around 60%), and dairy, tourism, petroleum. What will happen by directing some Super Fund investment into NZ is that our private debt will actually worsen, as it’s kept lower by us investing abroad (Super fund investments abroad count as foreign assets and offset our liabilities).

      Note our private debt has worsened dramatically since 2003, from NZD $80 Billion to NZD $140 Billion. The sector responsible for almost all this increase in private debt has been “finance and insurance”. Now, I always thought it was a bad idea to offload all our banks to offshore interests, let alone in one place (Australia) – a riskier position and one which for constantly drains money out of the country. If you want to do your part to bring down our debt, switch your mortgage from any offshore owned bank to an NZ institution. (Or.. invent the type of export which is going to earn millions!)

    30. By Robert C on Oct 19, 2008 | Reply

      Louis Poulussen : You also mention that we have 2nd highest Debt levels per person after Iceland. What type of debt is that, and could you let me know where that statistic comes from? Is that household savings, or public debt, net public debt, private debt, net private debt, or all debt… or other…

      Note that the writing on the wall about the Icelandic crash has been there a long time, authors were writing about it years before it happened. I understand it’s mostly due to Icelandic banks holding very high proportions of Debt “instruments”, and we don’t have this same problem in New Zealand.

    31. By Robert C on Oct 19, 2008 | Reply

      Louis : I also recommend you ask your sources why they claim Norway doesn’t have debt, it looks like they’re wrong – Norway has USD $469 Billion of external debt (18th highest amount in world) New Zealand has USD $51 Billion (46th) – although this fluctuates depending on NZD:USD exchange rate. (Note these stats are year-end 2007 for comparison).

      Looking at External Debt as % of GDP – Norway 190%, New Zealand 45.7%.

      Neither of New Zealand’s figures is a huge worry.

    32. By Robert C on Oct 19, 2008 | Reply

      Ian: You mention that English is opposed to the Super Fund. Could you source that please, as I haven’t heard it anywhere else. Was it one of those tapes?

      In fact today (19th Oct) during the RadioNZ debate I was surprised to appear Mr. English compliment Dr. Cullen for having created the fund and also for having separated out the Guardians actions from Politician’s direct involvement.

      You asked about a stat too, I find a great source of up-to-date statistics ordered by country is the CIA World Factbook. It can be a little out of date, but it saves sifting through each nation’s Treasury (or equivalent) documents.

      For example – Public Debt as % of GDP – https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html
      (To go to any of these comparison pages, pull up a country then click on the bar graph icon next to the statistic).

      I find you have to be extremely careful with stats. 80 Billion one day can become 100 or 70 Billion a week later depending on which currency assets/liabilities are denominated in and currency hedging which complicates things further.

      Cheers

    33. By Ian MacKay on Oct 20, 2008 | Reply

      Robert C: Thanks for your input. I have been to get my mind around the huge question of the situation, particularly for mortal folk so that I can explain to other mortals. I therefore have found out the meaning of some terms like leverage, public or govt debt, private debt, balance of payment, fiscal drag, and so on. Flummoxed on the types of debt.But it needs an expert to sum it up without the jargon. (I cannot point to a source for Bill’s opposition but on reflection I think it was Kiwi saver. Sorry. Overload.)
      The Govt Debt is relatively low.
      We owe far too much in private debt.
      Must clear credit cards, mortgages etc
      Unemployment will rise as discretionary spending falls.
      Building industry will falter- flow on.
      House values will drop heavily esp 2009
      Be very hard to get a mortgage. – maybe 50% deposit.
      Discretionary borrowing must stop.
      End leveraging beyond 1:10 or stop it.
      NZ in reasonable state; Maybe 2010 start recovery.

    34. By Dave Brown on Oct 20, 2008 | Reply

      Robert C

      Figures for current public private debt are here
      http://www.rbnz.govt.nz/statistics/extfin/e3/data.html

      I said specifically that taxpayers are not liable for overseas debt, but that we will end up paying for it by the proposal to use the Cullen fund to bankroll PPPs.

      Heavily indebted private banks, now with their depositors guaranteed, and soon their inter-bank loans guaranteed by government, will have their risks removed.

      They will then be offered blue chip investments in PPPs and guaranteed profit flows from these joint ventures.

      From the profits flowing from these PPPs (a mega PPP is probably not politically on as it will facilitate socialisation later) private debt that hasnt been written off, and guaranteed by government, will then be paid off.

      Hence taxpayers, while not directly liable for private debt, will end up paying for part of it.

      Correct me if I’m wrong.

    35. By stuart munro on Oct 20, 2008 | Reply

      Sorry mate, but for once in his trivial life Key has actually done something right. The reason a local superannuation fund should be invested locally is to stimulate and maintain an economic base in the region and in the currency that it will need to pay out.
      The NZ copy of the British super scheme was fatally flawed by the determination to invest offshore, because NZ tends to suffer from capital flight anyway, which is why our reserve bank keeps interest rates so absurdly high. Taking that much capital out of the country on a regular basis has basically turned the government into an offshore tax farmer. The funds themselves have performed dismally, as they were predominantly invested in the US.
      But this is standard NZ public fiscal management; waste or lose enormous quantities of public money, and then claim to be frightfully clever, because many other stupid people are also losing their money.

    36. By Ian MacKay on Oct 20, 2008 | Reply

      Stuart: I think that it is not that the Super scheme should/shouldn’t be invested in NZ. It is whether an arbitary 40% figure be enforced by politicians. At the moment the investment in NZ is about 23% but the Guardians would invest more if viable opportunities arose.
      I understood that over the few years of operation the fund had done well overseas, even someone said 22% up in one year, but of course it is a long term plan.

    37. By Dave Brown on Oct 20, 2008 | Reply

      I wrote above that taxpayers are not liable for ‘overseas’ debt. Should be ‘private’ debt.

      Stuart: maybe more of the Super fund should be invested in NZ but not for Keys pet PPPs on infrastructure which only his mates need (like the Waterview tunnel to carry freight from the Northshore to the airport) prisons, hospitals etc.

      There is no vision here, if public transport was properly funded the existing motorway would be adequate for future needs for a long time. The same with the public/private split in health and education. We need less private provision not more.

      If the Super fund is going to be invested here, lets have a wide open public discussion about what are the best public investments, not for profit, but for need.

    38. By Robert C on Oct 20, 2008 | Reply

      Ian: I don’t think you’ll get a summed-up version of these issues without huge bias. Best of luck trying to create one.

      I question your statement “We owe far too much in private debt”. No-one in this post has given any evidence that the country New Zealand owes too much. In fact there’s been some irresponsible FUD (Louise) claiming we are 2nd only to Iceland. The figure given by Dale about our private debt being 208 Billion or 116% GDP is gross debt, not net debt. Also, this figure is not recognized internationally as being problematic. When we look at Net private debt, ours is USD $51.44 Billion (Factbook) and this is only 46% of GDP. Australia has a figure of 106%. Switzerland has 441%, and Ireland 960%. We are way down that list in the world rankings and I suspect you wouldn’t be able to show that being further down this list is positively correlated with improved OECD standings.

      Generally your assessment is very, very pessimistic.  I can’t see house prices falling by 50% – the market will prevent this. If prices fell by even 30% I’d be out buying, and there’d be people doing this much earlier than me (so that would stop me getting anything as low as I wish).

      One thing which could cause a significant drop in prices (but one I don’t see happening as both governments are spineless on this) is changing the rules which favour investment properties. Historically this has been is one of those tiny decisions with a HUGE fallout – NZ investment has been skewed away from productive investment into speculative investment. Our property bubble is nothing like the Japanese one but it’s still a drag on the economy and consequently, everyone’s lives.

    39. By Ian MacKay on Oct 21, 2008 | Reply

      Robert: You are right. I am finding it very difficult to sum up the problem in simple terms. I listen and on the radio each expert says things that contradict the others. Anyway when the politicians talk about NZ disasterous deficit (?) what does that mean and what does it mean in relation to other countries?

    40. By Brian Marshall on Oct 21, 2008 | Reply

      Thank you Robert C for you posts. It pleasant to see intelligent and well based opinions rather than politically driven drival that sometimes gets posted.

      my own two cents worth is that it’s a good idea. 40% isn’t too much at this stage but would not like to see that figure set in stone. Later on it may influence the stock exchange too much if the fund drives up the price of shares to artificial highs. The NZ stock exchange isn’t a very big exchange and that’s where most investment is likely to end up. Maybe it could be used to purchase Lion Nathan and bring back the head office back to NZ??? That way I could feel good about having a nice cold beer over summer.

    41. By Dave Brown on Oct 21, 2008 | Reply

      Robert C

      I agree with your point about speculative investment.

      Here’s the quote about Iceland and also Cullen making a point about his fiscal management.

      “At 31 March 2008, New Zealand’s national debt, as measured by a negative net international investment position, stood equivalent to 86 percent of gross domestic product.

      Among rich, developed nations, only Iceland has a higher level of national debt on such a measure.

      …It was only in financial year ended June 2006 that the Crown moved, for the first time in this country’s history, into a net positive financial asset position.

      The Crown’s net financial asset position, inclusive of the financial assets of the New Zealand Superannuation Fund established by this government early in its administration, stood at a net positive 1.2 per cent of GDP at 30 June 2006.

      In its May economic and fiscal report, the Treasury forecast the Crown’s positive net financial asset position would remain stable and positive at just over a six per cent of GDP in each of the next four financial years…”

      From Michael Cullen ‘Tackling NZ’s National Debt’
      http://www.scoop.co.nz/stories/PA0808/S00457.htm

    42. By Ryan Thompson on Oct 30, 2008 | Reply

      Whilst sobering to the thought of an even worsened fiscal crisis brought on by current collapse in the value of superannuation compounded by the fact of NZ’s ageing population, I was very interested in something Winton Peters and NZ First quietly tested the waters on in a speech reported last Sunday – a National Seniors Equity Access Scheme – but one that’s not based upon those toxic reverse mortgages that double your debt every 9 years and cost you your entire housing equity after 15 years. He floated the idea of seniors accessing their equity in a different way that doesn’t deplete their housing equity. Given that within less than 2 decades NZ will have less than 2 taxpayers to support each retiree (down from the current 4) this needs to be looked at seriously and the sooner the better.

    43. By RUDY on Nov 18, 2008 | Reply

      New goverment now and why still have KIWI SAVER in NEW ZEALAND?

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