Peter Costello nicely stitched up Wayne Swan in his Fairfax column this morning, pointing out how Labor has squandered the best terms of trade in generations.
However, Costello was also typically sneaky with the description of his own record when he wrote the following about the federal financial position five years ago:
“The federal government was running budget surpluses. It had paid off its debt so it established a sovereign wealth fund — the Future Fund — to save for the future. This was to prepare for a time when things were more normal and to cover the costs of the ageing population. About $60 billion was deposited into it.”
If the Howard government had really “paid off” all of Labor’s debt, then what on earth were the $58 billion of Federal government bonds on issue when Kevin Rudd came to power in November 2007?
Sure, the home page of the federal borrowing authority now reveals it is up to $189.84 billion, but Labor didn’t start with no debt.
Costello’s description of the Future Fund as “a sovereign wealth fund” is also completely misleading because it is nothing more than a half-funded superannuation scheme for current and past federal public servants, as Crikey has regularly pointed out over the years.
And it was Costello who recklessly allowed unfunded Commonwealth public section superannuation liabilities to blow out by $29 billion to $98 billion over his first 10 budgets before the Future Fund was established.
Costello then did the right thing and pumped in a quickfire $50 billion as the commodities boom started to take hold in the final two years of the Howard-Costello years.
It didn’t take Labor long to squander the surplus and simultaneously end additional contributions to the Future Fund, which will now take decades to be fully funded, rather than 2020 as the first Swan budget claimed.
Contrast all this with what the Victorian local government sector has been through over the past few months.
Vision Super, which handles the superannuation of all current and past council workers, slapped Victoria’s 79 councils with a $71 million bill earlier this year to top up the defined benefit elements of the liability.
Darebin, an inner-city council led by mayor Diana Asmar, who is married to a Stephen Conroy staffer, was hit with a $2.7 million bill and paid in cash on March 31. This hit will be fully reflected in Darebin’s 2010-11 budget outcome and the 2011-12 budget.
Indeed, many Victorian councils are jacking up rates by more than they had planned because of the $71 million cash slug to maintain fully funded super schemes.
Manningham City Council is having a special meeting of council tonight to approve the 2011-12 budget and our first ever 10-year financial plan. The officers have proposed a 5% rate rise and this is expected to be approved, even though the past two years have both been lower at 3.7% and 4.8% respectively.
The superannuation slug was the final straw that saw a majority of councillors move back to the long-term plan of compounding 5% rate rises.
The Manningham budget reveals a total provision for the super blowout of $2.5 million, comprising $1.34 million in 2010-11 and $1.14 million in 2011-12.
Even after this slug, Manningham remains completely debt free with $50 million of cash in the bank, although some of this is restricted cash for liabilities such as nursing home bonds and long-service leave.
But none of that cash includes funds set aside for superannuation, as this is handled off balance sheet by Vision Super. In other words, Manningham really does have no debt and a net cash position after considering all liabilities, unlike the Commonwealth during the Costello years.
Contrast that with Peter Costello and Wayne Swan who, for all but two of the 14 budgets between them, have failed to properly fund ballooning liabilities for public sector superannuation, the majority of which relates to ridiculously generous defined benefit pensions for the military.
In the case of Costello, he has even erroneously claimed that the inadequate funds that have been set aside for military pensions are somehow equivalent to a sovereign wealth fund like those run by genuine saving countries such as Norway and Singapore.
The very simple question for Peter Costello and Wayne Swan goes as follows: if Victorian councils are forced to fully fund defined benefit blowouts as soon as any shortfall is identified, why not the Commonwealth and why not states like NSW and Victoria which together have more than $40 billion in unfunded super liabilities?
Stephen Mayne is a Manningham City councillor who receives no superannuation from council and was not paid for this contribution.
I don’t mean to be picky but wasn’t the so called ” labor debt” that cosello supposedly paid off, in fact bequeathed to hawke and keating by fraser’s treasurer howard?
Stephen Mayne seems to be an intelligent sort of chap who knows a thing or two about this and that, so perhaps he can answer the following for the benefit of Crikey readers. Why is it that for 80 or so years after it first established employee superannuation, the Commonwealth paid the beneficiaries out of current income, but suddenly in the last few years it became urgent to fund future liabilities NOW? Presumably the same change has applied to the States and (from Stephen Mayne’s piece here), local government; again, why?
Not many people spin as effortlessly and shamelessly as Sleepy Pete Costello.
@ Armstrong. I’m surprised the commonwealth had super in the 1930s given the impact of the great depression on employment. No wonder PS jobs were so highly valued.I expect the answer to your question would have something to do with the current size of the public service as well as the baby boomer effect. No doubt Stephen would know more about it.
“…if Victorian councils are forced to fully fund defined benefit blowouts as soon as any shortfall is identified, why not the Commonwealth and why not states like NSW and Victoria which together have more than $40 billion in unfunded super liabilities?”
Are you insane? Councils are already suffering from fully funding their employees’ superannuation. Recall that these councils had thought that they had fully funded their employee’s retirement, until the GFC whisked away some of those funds (and usually into the pockets of far-too-clever-to-be-trusted US funds managers).
You really think that waving a $40B carrot in front of companies with a track record like Goldman Sachs is a good idea? Because that’s what you are suggesting. There is a substantial risk that the taxpayer will end up paying twice for their employee’s retirement income.
Also, what about the net present value of money? Taxpayers would much rather pay tomorrow and have their money to use today.