EXCLUSIVE: Government accounting fraud, NZ Super and austerity
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 directly criticised at least twice by the Auditor General in New Zealand. In 2013 it was politely labelled “debatable”. In 2016 they wrote: “We remain of the view that the New Zealand Superannuation Fund’s assets should be deducted in the calculation of net debt to GDP when used as the main financial sustainability indicator in the 2016 Statement.”
The government seems to always claim that having a net debt as a percentage of GDP is somehow wrong in principle and therefore it needs to be eliminated. Under the previous Labour government from 1999 to 2008, it was reduced to a net 5% of GDP by running a budget surplus every year they were in office. This was probably the lowest for any government in the world at teh time.
This government also started the Super Fund. Billions of dollars were put aside into the fund to be used when national superannuation spending increases some decades in the future. In my view, this is economically illiterate but I will leave that issue aside for this blog.
The 2008-17 National government initially ran large budget deficits in part as a response to the Christchurch earthquake and the 2008-9 world economic crash. This lifted net debt to 25% of GDP. This was still very low by world standards but National rediscovered their horror of deficit budgets and debt before the election last year. Unfortunately, the Labour and Green parties bought into the religious dogma and signed a “fiscal responsibility” pact with arbitrary limits on debt and government spending.
Without increased taxes on the rich, which it seems is also ruled out by the government, this imposes a permanent fiscal austerity regime on the country for no genuine economic purpose. It is simply a political weapon to use to deny genuine demands for more spending in critical areas like education, health and housing.
By normal accountancy rules, the Super Fund is an asset of the government. But once gross debt numbers are reduced sufficiently it becomes hard to claim there is a “net” debt problem when the super fund is included in the assets.
Banks who lend New Zealand money and international agencies that rank the credit also don’t mismeasure the actual net debt levels in their analysis so why should we.
Current net debt if $57.5 billion or 19.9% of GDP. Adding in the Super Fund of $40.1 billion reduces that to $17.4 billion or 6% of GDP.
If the fund was included NZ has extremely low net government debt. There is no need to keep running huge budget surpluses to reduce a net debt that barely exists.
The decision to exclude the Super Fund from the net debt number in 2009 was a purely political decision. Treasury argued that because the assets “are ring-fenced for long-term fiscal pressures and their time-varying and volatile nature can complicate communication of a net debt target”.
Despite the very real demands on spending by teachers, nurses and others the government keeps using a manipulated debt number to justify not meeting their legitimate needs.
The deceitful removal of the Super Fund from the net debt calculations was made in 2009. This was a political decision to keep justifying running bigger and bigger surpluses when this was no longer needed.
The Auditor-General was shocked enough by the decision to publicly question it in their reports in 2013 and 2016.
it should also be worth remembering for graduates of Economics 101 or Accountancy 101 that net financial debt numbers are also meaningless unless compared to the net asset position. Its the same as if I keep saying I am in debt because I owe a few grand to the bank while my house is mortgage free and valued at a million dollars. The net worth of the New Zealand government is plus $135.6 billion or the equivalent to 46% of GDP. Again this compares very favourable with Australia, UK, Canada and the US all have negative net worth.
By keeping the Super Fund off the government books for net financial debt calculation the government is simply lying to the people of New Zealand about the real economic and fiscal situation.
There is also another $36 billion in assets held by ACC. This fund could also be taken and used for other purposes. It was created by overtaxing us all for many years to set ACC up for future privatisation which was stopped by Labour in 2008 but they didn’t reverse the pre-funding model was created originally deliberately not on the private insurance model because those systems promoted a culture of denial. Originally it was a pay as you go system that only taxed enough each year for current expenditure. Imposing this new model on us has reintroduced the culture of denial of entitlements by ACC that is associated with for-profit private companies.
The simple truth is there is enough money to radically improve many areas of government spending without any new taxes. When the government claims it doesn’t have enough – that is a lie.
Good stuff thanks Mike
I wonder whether our Minster of Finance understands these things and chooses to focus on the ‘political realities’ for fear of upsetting the financial world or whether he’s as economically inept as everyone else?
And before any neoliberal critics accuse Mike of making all this up, let me reassure readers that I have it on the word of the architect of the ACC – Sir Owen Woodhouse himself – given to me back in 2012, that if a NZ government wants to get its hands on close to $40 billion, then all it has to do is pass legislation restoring ACC’s original pay-as-you-go funding formula. Labour is well aware of this. Mike is, therefore, quite correct when he accuses the Coalition Government of misleading the electorate about the unavailability of funds for health, education, housing, etc.
Then again the $40B is available as an emergency reserve or even to top up the Cullen Fund.
The constraint – government spending within 30% of the GDP would remain as would reassuring the public with budget surpluses.
Want to get back on your feet, miss a couple of car payments.
At this time of year fund managers are just protecting there bonuses.
So arguing for a sell off, reducing exposure to government bonds will be seen as a sign of over sold growth and a loss in confedience in the coalition governments agenda.
I mean why couldn’t the ACC fund managers be given a mandate to run long/short portfolios as well bond portfolios. I mean where is the loss of trust here?
It’s not wrong – it is set aside from the current official position because it is allocated for a future purpose.
It is not necessaryu for ACC to have reserves. It worked fine as a PAYGO funded setup.
The outgoings are reasonably consistant year to year, unlike disaster insurance.
The 40 billion was burgled from underpaid claimants.
It is for the Cullen Fund, and my comment referred to that.
The real problem is the 30% of GDP government spending cap.
And $2Bpa of this is in Fund contributions
But there is a solution to this.
Fund the $2bpa not from tax revenues but from dedicated contribution – 1% employee 1% employer (if this system had applied we would have put in $18B during the National years rather than nothing and our fund would now be double what it is).
2.
My real problem with the
The real problem is the 30% of GDP government spending cap.
And $2Bpa of this is in Fund contributions
But there is a solution to this.
Fund the $2bpa not from tax revenues but from dedicated contribution – 1% employee 1% employer (if this system had applied we would have put in $18B during the National years rather than nothing and our fund would now be double what it is).
Clear analysis of the government’s determination to go for ‘balancing the books’ instead of the necessary spending on health, education & state housing. You make a good case Mike, but why not expand your argument to include Peter Fraser’s solution to social spending – printing money?
The problem is that Labour and Greens promised that “their” government would not spend more than 30% of GDP (and this includes taking out $2B pa to put into the NZSF).