Coalition close to super deal

By VERNON SMALL deputy political editor

Labour and the Alliance are near agreement on building a huge superannuation fund to help pay for baby-boomers' pensions.

A proposal is likely to be ready next week, with the cabinet to consider the compromise position within a fortnight, sources say.

If Labour and the Alliance reach agreement, Finance Minister Michael Cullen would still need the support of at least one minor party.

He said he would talk to New Zealand First, then the Greens, but was hoping for wider political backing.

"I would really like to talk to National. I'm a bit disappointed. Their attitude is: 'How can we turn this into a test of credibility of Cullen and knock it off?' - which I don't think is actually terribly brilliant."

He said he had grave doubts that National would come onside once the scheme was established.

Labour had wanted a portion of the annual tax take diverted into the fund, but, after opposition from other parties, agreed instead to inject cash equal to a percentage of gross domestic product.

But the Alliance was concerned that might have seen the Government borrowing to meet the fund's needs when the Budget was in deficit or the surplus was small.

Sources said the compromise was likely to see just cash surpluses paid into the fund.

Dr Cullen confirmed that there was no intention to borrow money for the fund.

The Government plans to adopt an approach similar to the Fiscal Responsibility Act method, which would require it to state why it had deviated from its plans if there was insufficient cash for the fund in any given year.

Conversely, more money would go into the fund in years when the cash surplus was larger.

Normally about $1 billion of the surplus is in non-cash items such as revaluations and surpluses from state-owned enterprises.

Dr Cullen said the compromise approach would not mean slower growth for the fund, and the Government's pension plans should still be sustainable over the same 40-year period.

But dropping the tied-tax method would mean "lumpier" payments into the fund.

In the Budget, the Treasury made a technical assumption that $600 million would go into the fund in the 2001/2 year, followed by $1.2 billion and $1.8 billion in subsequent years.

Combined with earnings from investment, calculated at 7 per cent a year, that would see the fund reach $3.8 billion by the end of 2003/4.