Smith Lockwood: Government Superannuation Fund Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Smith Lockwood: Government Superannuation Fund Amendment Bill — First Reading 
[Sitting date: 23 September 2008. Volume:650;Page:19067. Text is incorporated into the Bound Volume.] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I also should declare the same interests as Dr Cullen as a member of the old parliamentary superannuation scheme. In doing so let me make it clear that National will support the Government Superannuation Fund Amendment Bill being referred to the select committee if for no other reason than that we have a pretty unfair situation right now. Some members of the more recent Government Superannuation Fund schemes already receive cost of living adjustments of 100 percent of the annual CPI whereas some members started their contributory service way back before 15 June 1969 when the Government Superannuation Fund Amendment Act 1969 came into force. So some people in Government Superannuation Fund schemes already receive 100 percent annual cost of living adjustments and others in Government Superannuation Fund schemes and National Provident Fund schemes do not. That is clearly not a very satisfactory situation; it is quite an unfair situation. Even if there were no other considerations there is no justifiable ground for having such an arbitrary arrangement for annual adjustments to these schemes.  
Having said that another reason why this issue has become very important is that under this Labour Government the rate of inflation—or the annual CPI—is high again. It is years since it was 5 percent. [ 
Interruption 
] Dr Cullen laughs but this year the rate of inflation is projected to hit 5 percent. I ask Dr Cullen how long it is since we have had a 5 percent rate of inflation in New Zealand. Under Labour inflation has gone up as it always has done. I have been here long enough to remember what it was like pre-1990. Pre-1990 when we had a Labour Government last time around inflation was sky-high. We always get high inflation under a Labour Government and that is why this issue has become important again. When the inflation rate is up around 5 percent the annual CPI adjustment becomes more important.  
Why are we heading towards a 5 percent inflation rate this year? It is actually pretty easy to work out why we are heading towards a 5 percent— 
The ASSISTANT SPEAKER (Hon Marian Hobbs) 
: Be careful Dr Smith. This is about superannuation. Do not take off on a lecture on inflation. 
Dr the Hon LOCKWOOD SMITH 
: But Madam Assistant Speaker adjustment for inflation is the very purpose of this bill. 
The ASSISTANT SPEAKER (Hon Marian Hobbs) 
: But the purpose does not need a whole lecture on inflation. 
Dr the Hon LOCKWOOD SMITH 
: Well if it were not for inflation we would not need this legislation. That is the crucial aspect of it. The facts are that last year Treasury warned Dr Cullen that if he increased Government spending by the amount Cabinet was talking about he would see big inflation as a consequence. What happened? Dr Cullen knows exactly what happened. Dr Cullen ignored it— 
Hon Dr Michael Cullen 
: Oh really! 
Dr the Hon LOCKWOOD SMITH 
: I do not know whether Dr Cullen ignored it but his Cabinet colleagues walked all over him and he agreed to a massive increase in Government spending did he not? Against Treasury advice he agreed to a massive increase in Government spending. What has happened? 
Hon Dr Michael Cullen 
: That’s so silly. 
Dr the Hon LOCKWOOD SMITH 
: He says it is so silly! I put another challenge to him. Another reason why we have high inflation is that our productivity growth has collapsed under this Labour Government. The facts are very clear. Compared with the 1990s productivity growth since Labour has been in office has collapsed. By almost any estimate it is certainly under one-half and maybe even down to one-third of what it was during the 1990s. Those are Treasury’s figures not ours.  
When we have low productivity growth we get high inflation. There is no other possible outcome. Why do we have low productivity growth? Because—as we have been debating just now—Labour insists on regulating everything. That is one of the things that contribute to poor productivity growth: the more one regulates and constrains the productive sector the less productivity growth one gets. We have just been debating the latest example: more regulations around education in the Education Amendment Bill (No 3). So it goes on.  
Today all sorts of regulatory legislation has passed through this House and we should not be surprised that inflation under this Labour Government is getting higher and higher. That is why this legislation becomes important. People who cannot protect themselves against inflation and whose income is eroded seriously by escalating inflation are most affected by what this Labour Government has allowed to happen. 
It really is quite staggering to have projected inflation this year of 5 percent. It is years since we have seen that kind of level. Dr Cullen and his Labour colleagues should be ashamed that their policies have led to this. I ask Dr Cullen what the consequence has been for ordinary people with interest rates among the highest in the developed world and an exchange rate that has been very high and very damaging to our export sector. Sure it has started to come back down. The Reserve Bank has been forced in many ways to reduce the official cash rate and the exchange rate is starting to respond. But a lot of people on fixed incomes derived from the Government Superannuation Fund and the National Provident Fund are very affected by these factors. They are very affected by the high - interest rate regime of this Labour Government and very affected by the high-inflation policies of this Labour Government which all stem from its massive expansionary expenditure programme.  
We have all seen the papers that Dr Cullen presented to his Cabinet colleagues warning that increased Government spending to the level contemplated would mean that the Reserve Bank would have to respond. They were told that there would be higher interest rates. What did the Government do? It increased spending. We have seen exactly what was predicted—higher inflation and higher interest rates—and people have suffered.  
That is sadly why this legislation is needed. If the rate of inflation were way down in its proper zone of 1 percent to 3 percent—sitting at around 2 percent—this situation would not be so critical. The difference between a 90 percent and a 100 percent CPI adjustment when the inflation rate is only 2 percent is not great but when inflation is up at the level that this Labour Government has it at CPI adjustment becomes an important issue. The bill has some quite complex mathematical calculations in clause 3 around those whose next adjustment to their payment rate occurs before or after 1 April 2009 but apart from some of those complexities it is a reasonably simple bill. It brings the adjustments up to 100 percent for all people who are dependent on those schemes.  
National will support this bill. In some ways it is sad that we have come to the point where inflation has got so high that the difference between a 90 percent CPI adjustment and a 100 percent CPI adjustment is significant. A lot of people are affected by it obviously because the estimated cost of the change in 2009-10 as the Minister has said is over $33 million.  
Hon Dr Michael Cullen 
: That is the lifetime cost not the annual cost. 
Dr the Hon LOCKWOOD SMITH 
: Well it is an interesting issue that if one looks at the Treasury documents that were provided for the Minister himself—the exact advice from the Treasury—one sees that it has to come into the Budget in 2009-10. It has to pick up that full $33.2 million but the unfunded liability is unknown. The extent of the full unfunded liability is not known.  
Hon Dr Michael Cullen 
: It is $8 billion. 
Dr the Hon LOCKWOOD SMITH 
: That is only a guesstimate obviously for the unfunded liability. But it shows that given the rate of inflation and the projections this is a significant difference. That amount of money shows that it will be significant to the people affected. I repeat that National will be supporting the move and it looks forward to those who will benefit from it deriving the benefits.