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Step two in the logic of ACT budgeting aims to cover, again without any recourse to personal income tax, public debt to bondholders at home and abroad, as traditionally defined by the Budget.

The current level of our debt to bondholders if $40 billion. The annual cost to the taxpayer in debt servicing is $2800m, equivalent to $800 a year for every man, woman and child in the country. As mentioned earlier, the ACT budget contains a surplus of $14 billion, achieved by the new superannuation levy and settlement fees after they have covered the debt of the nation to all those people who are retired as at 1 July 1997.

A further $16 billion of our liability to bondholders will be eliminated by a systematic programme of asset sales, budgeted at $2-3 billion a year, during the first seven years of the programme.

Finally, an additional $10 billion will be realised by the sale of existing marketable securities, accumulated in the past for purposes which no longer have any relevance at all, given the nature and structure of the economy since the reforms of the past decade.

Those measures reduce the $40 billion of bondholder debt to zero. The annual saving to the taxpayer achieved by finding alternative means of covering our debt to the existing retired and our debt to bondholders is $2600 per person per year. More than $9000 a year on average for every family in the country.

Step three under ACT allows every New Zealander to make good use of the tax savings achieved by those measures.

By setting 7% of their income aside in their own personal retirement savings fund, they provide themselves with an assured capital sum on retirement which is immune from future political interference.

When New Zealanders personally cover those costs, income tax becomes unnecessary. Indeed, people would be paying twice if we tried to impose it on them.

Step Four

The fourth step in the logic of the ACT Budget involves dealing with our debt to all of the people who are still in the workforce but don't have enough time left to achieve a fund of $155,000.

Many of those people need our help, otherwise they would be in a hopeless position. Certainly, they can save something in that time but beyond a modest contribution, many depend entirely on the rest of the community for survival at the end of their working lives.

Between mid-1997 and 2015, 550,000 people will enter retirement at annual rates rising from 13,400 in 1998 to more than 43,000 a year at the end of that period. During their residual working lifetimes, saving 7% of gross income a year, their personal retirement savings will generally be insufficient.

ACT undertakes, at their retirement, to top up their personal retirement savings funds to $155,000 each so that they are in a position immediately to purchase an annuity which guarantees them retirement income significantly better than National Superannuation for the rest of their lives. Plus their own lifetime health care insurance policies.

That top-up will cost the Government $84 billion, payable during the period from 1997-2015.

Existing indirect taxes other than GST are forecast to produce $90 billion over the same period, a $6 billion surplus.

ACT will commit those taxes to provide complete retirement security for those retiring in that 18-year period. As the personal savings of the younger workforce gradually accumulate over time, the future retired, through their own 7% annual savings, become, in due course, increasingly self-funding.

On this basis, therefore, the future retired, like our existing retired population and our bondholder debt, can be satisfactorily and entirely funded without recourse to a single cent of income tax revenue.

As things stand, the present Government plans to halve our $40 billion bondholder debt by 2015. But during that period, debt to the existing retired is scheduled to rise from $99 billion to $128 billion and debt to the future retired from $160 billion to more than $182, billion. An increase of $30 billion.

By contrast, under ACT's programme:

• Debt to bondholders will be zero by 2015

• Debt to the existing retired will come down from $99 billion to less than $13 billion

• And debt to the future retired is scheduled to fall from $160 billion to $105 billion.

• A reduction of $180 billion.

The final step in the logic of the ACT Budget looks at the total bundle of residual Government expenditure commitments across the period from 1998 to 2015, against projected revenue for the same period.

In all cases, the baseline for these calculations is the latest projections of the Treasury for the 1997-98 year.

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