Wellington, May 31 NZPA - A Treasury official has described the Government's decision to postpone payments to the New Zealand Superannuation Fund as a fraud which would cost $8 billion.
Finance Minister Bill English announced the decision as part of Thursday's budget designed to face the ongoing recession.
TVNZ show Q&A reported this morning that a concerned Treasury official had leaked it documents and said suspending payments was a costly route.
The argument was based on government borrowing at 4.4 percent now, increasing to 6 percent by 2013 and stabilising there. The after tax return on the fund was 6.57 percent so that would see the fund $3.3 billion better off by 2023.
The official also said the fund was one of the largest taxpayers in New Zealand, and would have paid $4.5b in tax over that period.
Added together the decision to suspend would cost $8b.
Mr English did not agree with the argument.
He said the fund was designed to be funded through surpluses. Payment would have been at the expense of public services or entitlements or by borrowing.
"And that would be like a household that had a big mortgage, an overdraft, the car and the fridge on hire purchase -- going off to the bank and saying we want to borrow money to invest in the share market," Mr English told the programme.
"...As I've said New Zealand is already one of the most indebted countries in the developed world, and going out to borrow all of the contributions to invest in what you would have to say are unpredictable world equity markets, is something that has got a lot of risk in it."
Mr English said it was unknown what returns would be.
"As recently as a couple of years ago the Super Fund was making 14 percent return, in the last couple of years it has lost billions of dollars."
He said the legislation was designed to allow for suspensions in these types of economic situations.
"We've made that decision and when surpluses return we will resume contributions."
On Friday Labour leader Phil Goff said the decision meant the fund would be $35b short when withdrawals start in 2031.
He said there would be a $19.5b loss in contributions plus a loss of earnings and interest of $15b.
"This decision has effectively killed the fund which many New Zealanders are relying on for their retirement," he said.
Today Q&A asked Mr English about the "hole" in the fund.
Mr English said the argument was ridiculous and that payments would have to be made up later.
Mr English said the Government would not change the age of retirement, 65, or the size of payments -- 66 percent of the average wage.
Meanwhile reaction to the budget continued to stream in today; Labour MPs said the 1.9 percent CPI adjustment for tertiary institutions was effectively a funding cut with inflation at 3 percent.
Labour said tertiary institutions would have to turn away people seeking to upskill after being made redundant. They also said cuts to adult education funding would make it harder for people to get back into learning.
Labour MP Grant Robertson said that National would cut public services. He said reductions for the Department of Conservation, Ministry of Economic Development, Ministry of Social Development and Inland Revenue were just the start.
"The wholesale cutting of services and staff is short-sighted. In a recession the government needs to invest in people and jobs."
In a statement Mr English said under Labour massive borrowing would have been needed and that would have meant a credit rating downgrade which would see interest rise.
"Labour has an appetite for borrowing and it seems to be insatiable. Labour simply has not adjusted to the reality that times have changed -- there are not billions of dollars of surpluses splashing around to be spent anymore."
New Zealand Law Society president, John Marshall QC said remuneration rates for legal aid lawyers were reduced by $1.3m to $9.9m in the budget which meant it would be hard for people to get representation.
In his budget day statement Justice Minister Simon Power said the funding was to enable the agency retain legal aid providers and was an interim measure pending the outcome of a review of legal aid announced by the Government in April.