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Govt. Making Super Promises It Can't Keep

Sunday 26 November 2000

"The Government appears to be making promises about its superannuation fund that it can't keep," National Finance spokesperson Bill English said today.

"Treasury papers released today are concerning. They contradict the Government's position that its pre-funded superannuation scheme will rule out the likelihood of future tax increases.

"The Government says that any party that does not agree with the pre-funded scheme will have to increase taxes or cut pension payments.

"However, Treasury has told Government that even with pre-funding, taxes will have to increase or government spending will have to be cut," Mr English said.

"It is not clear which version of the fund these comments apply to because Dr Cullen changed the policy last week over how to deal with taxation of the fund."

In a discussion on how to avoid increasing debt by borrowing to make contributions for the fund, Treasury said: "Hence for the period after 2027 the conclusion to draw is that, regardless of pre-funding, some policy settings will have to change: taxes may need to be higher; spending may need to be re-prioritised."

"This reiterates the point that needs to be emphasised, that the pre-funding policy is by no means a complete solution to future increases in retirement income costs, or to potential changes in Crown finances more generally. It helps smooth the cost increase over time, but it cannot avoid the fact that, under current entitlements and with our best projections about future demographics, the long-term costs will be at a higher level than now."



"The fund starts paying out around 2025. So just as the fund is beginning to deliver its subsidy to pensions, the government of the day will have to be looking at increasing taxes or cutting spending.

"The Government has sold the fund as a way to guarantee future pensions at current levels without tax increases or spending cuts. That position was clearly not based on calculations or advice from Treasury. The Government appears to be making promises it can't keep," Mr English said.


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