Bill English MP
National Party Finance Spokesman

13 March 2008

Labour must lay out fund numbers

National Party Finance spokesman Bill English says in the interests of transparency, Labour should lay out the precise funding mechanisms for the so-called Fast Forward Fund.

"Simple calculations, based on the scant detail provided, show that what has been promised does not appear to marry up with reality.

"The fund will run out after eight years if the Government pays out the $100 million it claimed yesterday. To make the fund last 15 years, the Government payout would have to be almost halved to $56 million.

"Labour has raised huge expectations about a large permanent fund and now they need to explain."

According to the Cabinet Paper released after the launch, the fund will be established with $700 million, will last 10 to 15 years, and will pay out $85 to $100 million each year.

"Because of the relatively short life of the fund, and the need for consistency in payouts, it will need to invest largely in low-risk New Zealand investments. As the losses on the Superannuation Fund have demonstrated, shares are too volatile and it's unlikely to expose itself to exchange rates risks by investing overseas.

"That almost certainly means the 'Fast Forward' Fund will be invested in government stock. At current forecast rates of return, less tax, the fund would make a return of around 4.4% each year.

"The fund will also have overhead costs for contract management and fund management.

"Our calculations show that if it paid out $100 million a year, it would completely run out of money after seven-and-a-half years.

"Even if the fund paid out the promised minimum of $85 million a year, it would run out of money at the end of year nine.

"On the face of it, the only way to stretch payments out over 15 years, would be to make a maximum payout each year of $56 million, or about half of what Helen Clark claims.

"Labour should explain."

ENDS

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