The Economic commentator Bernard Hickey made an important point about the proposed infrastructure investment. It is way too small to make much impact on the years of neglect.
“This $6.8 billion package is nowhere near enough to solve an infrastructure crisis created by 30 years of under-investment and record-high (and unplanned-for) population growth over the last five years.
“The Government should use the power of a barely-geared balance sheet (19 per cent of GDP) and record-low interest rates (1.38 per cent yesterday for 10 year Government bonds).
“The Government would use its balance sheet to re-engineer Auckland, Tauranga, Hamilton, Wellington, Queenstown and Christchurch for affordable, warm, dry and productive housing and rapid transit systems that enable carbon zero by 2050.
“A proper number would be at least $100 billion of infrastructure, house, road, rail and public transport subsidies over the next decade.
“That would still leave New Zealand’s net debt well below the 40-60 per cent levels of our AA rated peers and lift our overall productivity in a way that would easily pay for it through our broad-base-low-rate tax system”
It is even possible to find $100 billion sitting around in various government accounts right now that is not being used productively or even usefully.
There is actually close to $100 billion in the ACC fund and Super Find combined which could be used.
ACC existed most of its life without a fund for future liabilities as it was established as a pay-as-you-go system to avoid ACC acting like a for-profit insurance company. ACC can do that because it is a state-owned entity backed by the power of a government to tax. All current liabilities are paid from current income. Having a huge fund to cover future liabilities for the next 100 years is only needed if ACC is being prepared for sale which the 1990-2008 National government was planning to do. Labour stopped the sale but didn’t go back to pay-as-you-go.
We were forced to pay levies way above what was needed to build up this fund. It’s our money lets have it back for something useful. The insurance model being used means that this year ACC had an “accounting deficit” of $8.7 billion because lower interest rates increase its liabilities.
For more on ACC see my previous blog.
The Super Fund is also based on a political decision, not an economic one. It is simply economically illiterate to believe using pre-funding for and particular future government expenditure is necessary. If that were true all government’s in the world would do it. What is needed is for an economy to be more productive over time. That happens with appropriate expenditure on people and infrastructure to make us more productive.
Cullen created the “Cullen Fund” to hold onto part of the government surpluses by holding it in a fund so he did not have the pressure to spend the massive surpluses he was creating. It was never true that National Super was unaffordable. A recent study by the Retirement Commissioner has confirmed that fact for at the next 30 years. Most countries like NZ have superannuation costs similar to what New Zealand will have in the future already. The 1999-2008 Labour-led government was partly responsible for the infrastructure deficit we have now. The surpluses could have been used for infrastructure then (or cutting taxes on workers) and if he had wanted to reduce debt that could have been done by bringing in some taxes on wealth which are non-existent in NZ.
I have also previously written about how the government “commits a form of accounting fraud when it refuses to include the $41 billion in the NZ Super Fund as part of the government’s assets.” This has been criticised by the Auditor General but continues anyway.
The money is there to do what needs to be done. What is lacking is simply the political will.