Public opinion is the only barrier to any government draining the NZ Superannuation Fund (NZS), former Labour Finance Minister Sir Michael Cullen told a CFA Society virtual audience last week.

In a wide-ranging  conversation, hosted by local financial industry identity Craig Stobo, Cullen said

“In our constitutional system there is no way of stopping the government raiding the [NZS] fund,” he said. “Even if you had an entrenched clause… all the constitutional experts I’ve ever talked to said the government can repeal the whole legislation… with a simple majority.

“So your protection is public opinion.”

According to Cullen, the previous National Party-led government under John Key “probably would’ve liked to raid the fund but knew politically they couldn’t so the next best step was not to contribute”. Current National finance spokesperson, Paul Goldsmith, has also vowed to stop the government contributions to NZS – which only restarted late in 2017 after an eight-year break – if the party wins power in the October 17 election.

The NZS, of course, was established under Cullen’s watch with legislation in 2001 (launching formally in 2003). Still sometimes referred to as the ‘Cullen Fund’, NZS now has about $46 billion under management. However, the former Finance Minister said via Zoom that the fund is at least $10 billion light due to National’s call to halt government contributions, kicking the original 2035 date to begin withdrawals “well down” the road.

Combined with his other substantial contribution to the NZ financial services industry, KiwiSaver, Cullen can claim responsibility for corralling what is today about $120 billion of the country’s capital into investment funds.  With about $70 billion and 3 million plus members now in the KiwiSaver system, he said the savings scheme had “turned out better” than many expected pre the 2007 launch.

While KiwiSaver has been tweaked under various governments since, Cullen said he harboured only one regret about the original design.“If I was to do it again, I’d make the $1,000 sweetener apply at age 18 rather than being able to be used at age zero,” he said. “That was a bit of a design error… it was quite expensive as a consequence.”

And in a what-might-have-been merger of both his legacy projects, Cullen said he did propose at one point of linking KiwiSaver post-retirement exits to NZ Super.

Under the still-born policy, KiwiSaver would’ve been compulsory while still retaining the government incentives. But in a quid-pro-quo, as members withdrew their KiwiSaver funds on retirement they would face a “10 to 15 per cent, in effect capital gains tax paid directly into the super fund”. IfIf the policy had been implemented, “the numbers we did then suggested we’d need barely any taxation to fund NZ Super [the government universal pension] by the end of the century with just one step change in the [retirement] age,” Cullen said.

Instead, the problem of funding the ballooning cost of government pension payments over the next few decades remains one for the future.

“I still think there is a lot to be said for thinking about something like that,” he said. “But again, politically, it’s very, very difficult to bring any change in this area… a government can say they’ll do it but oppositions are faced with the juicy, juicy plum in front of them that says ‘bite me’, and promise to reverse the change.”

Solving the government pension-funding dilemma, however, would be a doddle compared to reforming the NZ taxation regime, which Cullen experienced first-hand as chair of the 2018 Tax Working Group (TWG).

Charged with delivering a viable capital gains tax (CGT) proposal (among other reforms), the final TWG report – delivered early last year – ultimately saw Labour retreat in horror from the idea following public kick-back. “It’s one of those issues that are really weird,” he said. “Whenever you poll [on a CGT] the majority are in favour of it… as soon as you start suggesting one, the supporters seem to disappear.”

Cullen, who was diagnosed with terminal lung cancer earlier this year, said he had landed in favour of a land-based tax rather than the “whole hog” CGT proposed in the TWG.

bout half-way through the one-hour mix of memoir, policy details, tax chat and thoughts on the current financial situation (he’s “completely opposed” to a negative official cash rate), another pet Cullen subject pops up.

“I see my dog outside, who appears to be not actually connected to any lead,” he said. “Never mind, I’ll have to leave that for the moment.”