Accounts show flaw in suspending Super payments - Labour

Today's improved crown accounts including a better performance by the New Zealand Super Fund showed National's decision to suspend payments was short-sighted, Labour says.

However, the Government said the fund isn't doing all that well -- and that is not the point anyway as payments were suspended because of deficits, not the fund's returns.

In the May budget the Government announced it would pay a reduced amount into the fund this year, and make no further contributions for the next 10 years.

The operating balance for the 11 months to May 31 was a deficit of $7.16 billion, or 14 percent better than the forecast made in May's budget of a deficit of $8.33 billion, Treasury reported today.

It said the improved deficit was largely because of net gains of around $1 billion from the fund and ACC.

Despite the improved returns the prolonged recession saw the accounts remain deeply in deficit.

Labour finance spokesman David Cunliffe said the fund had made $1.2 billion more than forecast in April and May this year.

"Today's figures show the (fund) is on the road to recovery and making sizeable gains on its assets," he said.

"The decision by National to cut contributions to the fund was short-sighted and puts the Super of future generations at real risk."

He accused the Government of a lack of commitment to universal superannuation.

A spokesman for Finance Minister Bill English said Mr Cunliffe was overstating the fund's performance.

"Its investment loss for the year to date is 22 percent. It has made some profits in the last month or two which is good, but the year to date loss is quite substantial."

But he said that was irrelevant to the decision to suspend payments.

"The main consideration ... is the fact there are no available surpluses to invest."

The spokesman said existing entitlements would not change and the fund was only ever going to be used to pay about 11 percent of super fund costs.

"Based on 10 years of deferrals, if that's what it takes, its down to about 8 percent of the costs will be met by the super fund."

If surpluses returned sooner the Government would be able to resume payments sooner.

In an earlier statement, Mr English warned against reading too much into the better than forecast position of the accounts.

New Zealand was facing a "large structural deficit" and it was "entirely appropriate" for the Government to borrow to help the country through the recession.

But it was important to get back into surplus in less that 10 years, Mr English said.

The borrowing would preserve welfare entitlements, invest in productive infrastructure and prepare the economy for recovery, he said.

"There will need to be ongoing restraint on government spending increases to ensure that future taxpayers are not burdened with higher debt."

In the accounts released today overall tax revenue was on forecast, but the company tax take was down around $400 million because of the recession.

The operating balance excluding gains and losses (obegal), which strips out unrealised investment gains or losses, was a deficit of $1.21 billion, $432 million lower than forecast because of lower than expected government spending.

Net government debt stood at $15.69 billion, which was $547 million higher than forecast, equating to 8.7 percent of gross domestic product, against a forecast 8.4 percent.

The Government's net cash position, the difference between all income and spending -- operational and capital -- was a deficit of $7.13 billion compared with a forecast deficit of $8.18 billion.

The Treasury forecast in the 2009/10 budget an overall operating deficit of $9.3 billion for the fiscal year to June 30, with an obegal deficit of $2.92 billion, and net cash shortfall of $8.46 billion.

It also forecast large budget deficits for much of the next 10 years and increased borrowing to cover the shortfalls. The Government's net debt was forecast to peak at around 40 percent of gross domestic product in 2016/17.

However, ratings agency Standard and Poor's, which had previously warned of a downgrade on the deteriorating outlook, said the budget strategy of heading back to surpluses and maintaining low debt justified an upgrade of the outlook to stable from negative.