Don Brash
National Party Candidate

18 July 2002

Cullen Fund Makes No Sense -- Brash

“The Labour/Alliance Government‘s promotion of the fundamentally-flawed Cullen Fund as its answer to New Zealanders’ future retirement needs is a serious mistake,” says National Party candidate Don Brash.

Dr Brash told the annual convention of the Financial Planners and Investment Advisers Association today that the Cullen Fund made little sense.

“It is not clear to me why it makes sense for the Government to be investing in overseas shares and bonds, while at the same time increasing its borrowing in New Zealand.

“No fund manager worth their salt would advise a private individual to invest in overseas shares before the individual’s home mortgage has been repaid. No investment in overseas shares can give a risk-adjusted after tax rate of return equivalent to the return gained from retiring debt.

“Why then does it make sense for Government to invest overseas before retiring its debt – indeed while still increasing its debt?”

Dr Brash says because the Cullen Fund will absorb large amounts of cash for a number of years, at a time when the Government is also undertaking a substantial investment programme, it will have to borrow substantially more than would otherwise be the case.

“The Government has marketed the Cullen Fund as in some way providing a high degree of certainty for funding future superannuation. But it will only make a small contribution – providing around 10 per cent of the cost of NZ Superannuation over the years the fund will be drawn down.

“However, by creating the illusion of certainty the Cullen Fund may well have a quite perverse effect on private sector saving behaviour. Treasury warned the Government of this risk when the scheme was first being discussed and there are signs it may already be having this effect.

Dr Brash says the fundamental ability to pay for New Zealand Superannuation in 20 or 30 years’ time depends on the size of the economy at the time.

“If it was really such a good idea to fund future Government spending by investing in overseas sharemarkets, somebody would surely have thought of it long ago. The Cullen Fund looks like a serious mistake to me.”

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