Eco-Economy: There Is A Better Way

The decision of the government to pre-fund future pension liabilities from the Budget surplus is further indication of Labour’s commitment to the corporate rather than the welfare state. In effect, the taxpayer is being called upon to pay twice to the extent of anticipated loss from the New Zealand Super Fund.

Most believe that retirement income can and should be simply funded once only through taxation. Such is implied when in the 1997 referendum over 90 per cent of voters rejected the suggestion of a Compulsory Retirement Savings Scheme.

Common sense dictates that that at any given time there is only one national cake to be sliced up. Equitably struck taxation can provide an adequate income to those in retirement in a fair and uncomplicated way. Looking to investment income as the source can be extremely inequitable and involves unnecessary risk.

In the last two years the taxpayer has contributed $3.679 billion to the NZ Super Fund with some loss of capital already accepted.

The system of accrual accounting now adopted by the New Zealand government also requires the taxpayer to cover the cost of possibly lower interest rates in the future. Of course, there is a commensurate gain if interest rates rise. As a result, the government has a vested interest in maintaining high interest rates – a policy with dire consequences on families having to service exploding household debt.

The financial system of today is no longer what might be called the traditional industrial. The major source of investment income is no longer legitimately won profit but, instead, the return on unwarranted money lending and dangerously unstable speculation. Neither latter forms of investment increase production or result in the creation of a real asset.

To the extent that tax money is fed into the NZ Super Fund and invested in household debt – there is a commensurate transfer of household discretionary income into the fund as interest is paid. The same goes for investment in Local Authority stock floated to build an infrastructure. The interest costs must be paid via rates whether by households or those in business. The entire approach is inequitable and finally unsustainable. There is a better way.

- Les Hunter is a member of the Committee of Monetary and Economic Reform. He is author of the book Courage to Change – A case for monetary reform. http://www.monetaryreform.co.nz

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