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.”
Ends