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Salient. Victoria University Student Newspaper. Volume 37, Number 2. 13th March 1974

'Super' Scheme Fighting Foreign Control?

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'Super' Scheme Fighting Foreign Control?

The following article, written by a law student at this university, is printed in the hope that it will acquaint our readers with some aspects of Labour's new superannuation scheme and start discussion on it. The opinions expressed in the article are not editorial opinion.

"The sense of responsibility in the financial community as a whole is not small. It is nearly nil."

J.K. Galbraith

Late 1973 law the appearance of the Government's White Paper on the NZ Superannuation Scheme. It also saw the first salvo's fired by various economic elements who are threatened by the proposed scheme. It would be foolish to suppose the fight is over.

The Government has proposed that the superannuation fund be administered by an independent corporation. It would work like this. Every person Who is employed, or self-employed, in NZ will have deductions made from his salary (up to a minimum of 4% after five years) by P.A.Y.E. type deductions. These deductions will be matched, dollar for dollar by the employer. They have no choice about it.

These contributions continue throughout the worker's life and on retirement he receives an income related mainly to his credit in the fund. The payments to persons who retire will be met by the cash provided by interest and other returns on investment, and by incoming cash from non-retired contributors.

Most businesses have traditionally offered superannuation to senior or key employees on a similar basis. Some schemes have been wider than others. They are useful in promoting savings, but being related to the particular firm they have some disadvantages. They are generally not profitable. If the employee leaves the firm before retirement he will generally be entitled to receive only his own contributions back, plus interest. Me gains the benefit of his employer's contributions only if he remains to his retirement.

The government's scheme will be fully portable. If you leave one job to go to another you lose nothing. All that happens is that one employer stops matching your contributions and another begins. But it is not this increased security and freedom which the employee has which threatens business interests although of course they don't like it.

The Insurance companies particularly, and other financial institutions, felt threatened by the scheme (which should have capital reserves of 2000 million dollars in 1985) because it is taking the money away from them. They administer the private schemes, and they also invest the floating or 'free' money which the compulsory' contributions will remove from the market place.

The White Paper allows for the continuation of approved schemes, both existing ones and future ones, but they are unlikely to be of significant size or number. Firstly, because any employee and employer can individually raise their contributions higher while remaining in the scheme (what you get out is related to what you put in); secondly, because it would be poor business for a firm to go on paying an administration fee for the running of a private scheme, when the Government scheme will meet its own costs out of the fund.

Image of an old man wearing a newsboy type hat

The President of the Life Offices Association and the President of the Auckland Stock Exchange (The Dominion, 30.1 1.73) queried whether the fund 'would be in the best interests of the nation'. They argued that such a massive accretion of capital in one pair of hands( the Corporation's)would not be good for the econonomy because of the control of industry and development which would flow from the control of this investment.

But if the control of this investment potential is not channelled into state-owned hands by the fund, where would the money go, and who would control it? The answer is of course that those who control most of it now would still control it. That is, the insurance companies, the trading banks and finance houses.

Generally speaking these institutions can be summed up in two words: 'foreign controlled'. In short then, the argument of the President of the Life Offices Association and the President of the Auckland Stock Exchange, is that it is better for NZ if foreigners control investment in our economy than that we control it. One might well ask, 'what manner of men are these'?

The objection to foreign control of investment is two fold: (i) selective investment for the purpose of maximising profit is unlikely to mean investment in particular areas of the economy which the Government may wish to stimulate and develop, and thus refusal to so invest can frustrate Government policies such as diversification of industry and regional development; (ii) the profits reaped by foreign investment are largely channelled away overseas—further draining our overseas reserves—rather than being ploughed back into the economy.

Both the Government and the insurance companies have avoided mentioning that the real issue is foreign control. The insurance companies have avoided it because they don't want to remind people that only the Government Life is New Zealand owned. The position with the trading banks and finance houses is the same—they don't want to remind people that only the BNZ and BNZ Finance Ltd, are New Zealand owned.

To give an example of the scale involved, the AMP, which is the largest Insurance company in New Zealand with its headquarters in Australia, was lending about a million dollars a week in 1972. To give an example of the effect, the National Mutual, as a result of a policy laid down in its Melbourne HQ, refused to issue a life policy to a half-Maori solicitor in Auckland in 1971. The policy referred to racial reasons (The Dominion 18-1 2.71).

The Government has probably avoided naming the real issue of foreign control of investment because it doesn't want to alarm the electorate by appearing too socialist, or too radical. Obviously 'superannuation for all' is a more comforting rallying cry than 'check foreign control of investment'. It is conceivable that they misjudged the electorate's mood. The last election gave Labour a virtually open 'doctor's mandate' to restore stability to the economy, and it is possible that if the real meaning of these moves were explained the electorate would thoroughly approve of them.

The real effect of the Universal Superannuation Fund therefore will not be to provide larger and more widespread retirement benefits—that will only be a side effect. The real effect will be to create a vast capital reserve whose investment will be virtually under Government control. As long as Labour is in power this investment will tend to be selective, from the point of view of maximum development, rather than of maximum profit.

It will probably be applied to encourage diversification in NZ manufacturing, to encourage further diversification in farming, and to foster regional development. Such investment may not always be most profitable in the short term, but in the long run such economic decolonisation cannot help but be in the national interest.

The Government has been very busy and it has taken many steps on the same pattern—innocuous enough on the surface, but, beneath, all playing a part in breaking the foreign strangle hold on the NZ economy. The NZ Shipping Corp oration is an obvious example. Shipping routes which were not profitable for P & O or the NZSS Co. may be profitable enough for us if new markets for NZ are at the destination.

A new division has been created in the Justice Department; the "Commercial Affairs' Division, which contains the merged functions of the Companies Office and the Official Assignee. The role of the Companies Office has been changed. It contains (and always did contain) a list of all companies registered to trade in New Zealand.

It also contained, as part of the registration requirement, lists of shareholders and certain financial information. The filing and up-dating of this information has, in the part, been an almost voluntary business. The Companies Office had no power to enforce the deposit of up-to-date information. The lists of shareholders in some companies were 20 years out of date.

But a statutory amendment has given the companies office the authority to demand that such information be kept up-to-date, and it has penalties to use which give it some muscle. The whole role of the office has changed—it will become a much more investigative body.

The shareholders lists are among the information Labour covets. They are the key to unravelling the precise extent of foreign control in our economy—and it is a very tangled web. The Government needs more detailed information in order to discover the precise ramifications of foreign control, and it is determined to have it.

It is becoming clear that Labour has a logically cohesive economic policy, that it is the inheritor of earlier Labour belief in the need to diversify, particularly into manufacturing industries in NZ, and that it is hostile to foreign control. It is also becoming clear that Labour is purposefully and quietly going about laying the groundwork for the achievement of its policy.

The logical next step, which may not eventuate until after the Superannuation Fund is set up is to reduce the definition of foreign control. At present foreign control is defined as a 25% shareholding in a company. By contrast a company is deemed to be foreign controlled in the USA if there is a 10% foreign shareholding. It is certain that their figure of 10% was not arrived at without good reason after all they almost invented foreign control. It doesn't take much of a block of shares to control some companies.

Not only does Labour appear to have a logical and well developed economic plan; for a Government with little recent practice in governing they are gaining their objective with a great deal of political skill. They have not announced their real and final objective. None of their measures, taken alone is really sufficient to support a charge from the political right of a socialist inspired attack on foreign capital. Yet the total effect will be more than an attack—in many areas it may be a victory.