'Suspend super fund contributions' - English

Bill English

Finance Minister Bill English has continued to lay out a grim scenario for his May 28 budget, putting forward an argument to suspend or reduce payments into the New Zealand Superannuation Fund.

English last week outlined his concerns about the economic storm hitting New Zealand and putting forward a case to scrap planned tax cuts.

Now he has told a Christchurch business audience his budget would set out a way to preserve entitlements at current levels - such as super payments - and stop debt levels blowing out to 45 per cent of GDP by 2013.

"Because of the difficult economic and fiscal circumstances we face over the next few years, we've signalled that we are considering the future of income tax cuts planned for 2010 and 2011, as well as the Government's contributions to the New Zealand Superannuation Fund," English said.

The fund had been set up when the Government's accounts were expected to stay in surplus for the foreseeable future and it had been a way to help meet rising superannuation costs.

"The Government will have to borrow quite a lot of money to make its full super fund contributions. Next year we would have to borrow around $2 billion, or around $40 million a week to put into the fund, to be invested in what are currently uncertain global financial markets."

The law allowed for contributions to be varied to reflect conditions and households faced similar decisions when dealing with tough economic times, Mr English said.

In his speech notes, he did not address another aspect of the law, which required the Government in the future to put in more money when the fund performed badly or it took a payment holiday.

The contributions are calculated on a complicated formula which takes into account how much money will be needed when the fund starts subsidising super payments and how much money it has.

English did not believe that reducing or suspending contributions now would affect the future affordability of superannuation.

In the speech English repeated much of the dark economic statistics he faces writing his first budget.

"Just about every unlikely event has occurred and every worst case scenario has become reality," he said.

The budget would focus on reprioritising government spending, particularly spending for public services.

There would be no room for significant fiscal stimulus in the budget and the rate of increased spending would be lower than in the past.

He said New Zealand was expected to permanently lose about $50 billion of output over the three years to 2012 because of the recession.

Tax revenue and receipts for the eight months to February were $1.8 billion lower than forecast in the pre-election update.

- NZPA