Bleg: Nearing time to restart contributions to the “Cullen Fund”?
I’m current reading a paper discussing the different ways of measuring Gini mean difference (a statistical measure which you in turn use to get the Gini coefficient) and writing summary articles on HES expenditure, NIIP (including post-2009 revisions) in NZ and Aussie, and expenditure GDP factor shares for clients. As a result, I’m not brimming with insightful commentary, although I am having fun.
However, there is a question I’d love to hear your views on. Should we be restarting contributions to the “Cullen Fund” pretty soon? Here are some reasons that may support it:
- We are nearing surplus/concerns about the government fiscal position are less significant.
- We are experiencing a high high terms of trade. In some ways, the boost in prices for dairy products could be seen as a natural resource “boom”. In that case, could the Cullen Fund be seen as an appropriate sovereign wealth fund?
- The Cullen Fund was put in place because of concerns about the affordability of universal superannuation, these concerns still exist and if we are completely unwilling to increase the retirement age …
I do not have a comprehensively thought out view on this, I haven’t look at relevant data and fiscal accounts are my area of interest. Hence why I thought I’d ask some of you fine people who have no doubt put more consideration into these issues 😉
The history of the Cullen fund to date is based on the following beliefs:
1. We should be pre-funding some of the future costs of superannuation in order to balance current assets with the implicit liability of future superannuation payments in a world without steady-state demographics.
2. Either because we believe the observed equity premium is a paradox and not a compensation for risk, or because we believe the government can have a smaller risk premium than private investors, or because an international stock portfolio is a hedge against possible shocks, the pre-funding should take the form of a balanced investment portfolio rather than consisting of government bonds.
3. Somehow there is a discontinuity in our belief in the risk premium or optimal hedging so that while it made sense to invest fiscal surpluses in a stock portfolio rather than simply retiring government debt, it does not make sense to increase borrowing in a time of deficit in order to invest in a stock portfolio.
If one agrees with all three propositions, then we should be restarting contributions sometime soon. My guess is that most people disagree with one or more of these propositions, however. Those who didn’t want to pre-fund super or who would have preferred the asset base to be government stocks will not want contributions resumed, independent of the shift back to surpluses. Those who didn’t agree with suspending contributions will want them to resume, again independent of the fiscal situation. The bleg question is most interesting for those who agree with all three propositions above, but that may be an empty set of people!
For me, the best argument for the Cullen fund is that it is an accounting mechanism for bringing the implicit liability of future superannuation payment on-budget in a way that simply reducing public debt would not do. For that reason alone, I would like to see payments resume.