Au-Yeung, Wilson, Jason McDonald, and Amanda Sayegh, 2005,, “Australian Government Balance Sheet Management,” Australian Treasury Conference Paper, available at www.nber.org/~confer/2005/ease05/mcdonald.pdf.
Iglesias, Augusto and Robert Palacios, 2000, “Managing Public Pension Reserves, Part I: Evidence from the International Experience,” World Bank Social Protection Discussion Paper, No. 0003 (Washington: World Bank).
Palacios, Robert, 2002, “Managing Public Pension Reserves, Part II: Lessons from Five Recent OECD Initiatives,” World Bank Social Protection Discussion Paper No. 0219 (Washington: World Bank).
Salgado, Ranil, 2004, “New Zealand Superannuation Fund: International Comparison and Economic Implications,” in “New Zealand—Selected Issues,” IMF Country Report No. 04/127 (Washington: International Monetary Fund).
Prepared by Li Cui (Ext. 36539).
Superannuation is financed by employment related contributions. This differs from the non-contributory age pension which provides a safety net for the elderly and is financed out of general taxation. See Carey (1999) for further discussion.
In particular, superannuation liability accruing under the Commonwealth Superannuation Scheme (CSS) and the Defense Force Retirement Benefit Scheme (DFRDB) are completely unfunded. Liabilities accruing under the Military Superannuation and Benefits Scheme (MSBS) and the Public Sector Superannuation Scheme (PSS) are partly funded. These schemes account for about 95 percent of the Commonwealth's superannuation liabilities. The Commonwealth Government has closed these schemes, with the exception of the MSBS, to new entrants, so that the Government will pay the superannuation obligation for new public servants as they accrue rather than adding to the superannuation liability further. Nonetheless, the superannuation liability is expected to rise due to the growth in the MSBS and the entitlements accumulated for existing workers in the other schemes.
The Australian Productivity Commission (2005) estimates that about two-thirds of the gap is accounted for by the increase in healthcare costs, and about a quarter is accounted for by the increase in age pensions.
The investment earnings of the FF are excluded from the government underlying cash balance and can not be used for budgetary spending.
This estimate assumes that the average investment return on FF assets is about 7 percent each year.
Budget Overview, Commonwealth Government, May 2005.
Treasurer Costello, Budget Lock-up Press Conference, May 10, 2005.
Investments for political objectives have been shown to be associated with lower returns, such as the case in Korea and Japan. See Iglesias and Palacios (2000) for further discussion.
The former is required to state how environmental and ethical considerations are taken into account without relinquishing the overall goal of high return on capital, and the latter is asked to “avoid prejudice to New Zealand's reputation as a responsible member of the world community.”