ROGER PARTRIDGE: What Did New Zealand Do With Its Trillion Dollars?

A familiar lament has resurfaced in recent weeks: that Robert Muldoon’s decision to cancel Norm Kirk’s 1975 compulsory superannuation scheme cost New Zealand a trillion-dollar nest egg. The Government’s weekend signal of higher KiwiSaver contributions has given that argument new life, encouraging some to reach again for the comparison. New Zealand, we are told, might otherwise be an “Antipodean Tiger.”

It is a compelling narrative. A trillion dollars is a wonderfully large number. But before we rewrite our history around it, it’s worth asking a simpler question: what would it have cost us to get there?

The trillion-dollar figure is reported as if it were a lost prize we simply left on a table somewhere. But retirement savings don’t appear out of thin air. They come from contributions: money that would otherwise have been in the pockets of workers and businesses. In other words, the “trillion-dollar loss” story leaves out the most basic concept in economics: opportunity cost.

Had the scheme continued, New Zealand workers and employers would have been required to contribute 8% of wages into a government-run investment fund. That money had to come from somewhere.

In the late 1970s and 1980s, it would have come from households already under pressure from stagflation, wage freezes, mortgage rationing, and declining real incomes.

Every dollar compulsorily saved is a dollar not spent or invested elsewhere. New Zealanders might have used that income to pay their mortgages faster. They might have upgraded their homes, invested in their own businesses, or simply managed the cost of living during difficult years.

These foregone choices are the essence of opportunity cost. To ignore them is to pretend the contributions would have been painless – that ordinary households had nothing better to do with eight per cent of their income.

The “lost trillion” calculations also assume the contributions would have earned high, steady returns in global markets. That is plausible over long periods for funds invested on a commercial basis – but so are alternative returns from housing, private business investment, debt repayment or different asset allocations. If New Zealanders had saved privately instead – voluntarily or through paying off their mortgages – the resulting wealth today could well rival the hypothetical fund.

None of these counterfactuals prove Muldoon right. But they do show that the story is far more complicated than “he destroyed a trillion-dollar fortune.” The fund’s gross value tells us nothing about the net benefit to New Zealanders once opportunity cost is taken into account.

There is also a political reality the trillion-dollar narrative ignores. Kirk’s scheme was not a modern, arms-length sovereign wealth fund. It was to be run by a government-appointed corporation at a time when ministers routinely directed public capital into favoured industries. This was the era of import licensing, development finance, and, soon enough, Think Big.

A rapidly growing pool of compulsory savings may have been an irresistible target for governments wanting to “nation-build” or rescue struggling sectors. The risk was not that the fund would buy too many shares on the stock exchange, but that it would be pressed into service for political priorities long before it ever reached its hypothetical trillion-dollar size.

There is also a wider assumption running through the trillion-dollar story: that Australia’s higher productivity and higher incomes are the direct result of its compulsory superannuation regime. It is an appealing claim, because it offers a single, tidy explanation for a decades-long divergence.

Australia’s deeper capital markets are undoubtedly part of the story of its economic outperformance – but so too are its scale, stronger competition in key sectors, far greater flows of foreign capital and, above all, its extraordinary mineral wealth. To claim otherwise is to reduce a century of economic history to a single policy difference. It is a populist oversimplification, not a serious economic explanation.

Another crucial fact the trillion-dollar story leaves out is that New Zealand already had a compulsory retirement system before Kirk’s plan – the pay-as-you-go scheme created by the 1938 Social Security Act. It provided both a small universal pension and a more generous means-tested benefit, funded entirely through taxation. Had the 1975 contributory scheme survived, it would not have replaced that system immediately. It would have sat on top of it for many years. In economic terms, New Zealanders would have been compelled to fund two overlapping schemes at once.

None of this is to deny that contributory, save-as-you-go systems have real virtues. They can strengthen personal responsibility, reduce reliance on the state, and give workers a clearer sense of ownership over their retirement income. They are also more likely to be fiscally sustainable than pay-as-you-go schemes like NZ Super. Many countries have adopted such systems for precisely these reasons.

If New Zealand were designing a scheme from scratch today, there would be a strong case for making a funded component a central pillar. But that question is quite different from assuming that the 1975 model would have been costless to build, immune to political diversion, or that its repeal is solely responsible for Australia’s relative prosperity.

As New Zealand embarks on renewed debates about compulsory savings, KiwiSaver, and the future of NZ Super, we should be careful not to base policy on romanticised histories or spreadsheet fantasies.

This article was first published in the NZ Herald on 27 November 2025. It was sourced from Roger Partridge's substack Plain Thinking