Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

The government’s Future Fund and, hence, the Future Fund Bill 2005 are flawed on two levels. First, the Future Fund is a misguided response to the challenges we face as a nation. Second, it is a missed opportunity on a massive scale. Locking up the assets for the sole purpose of paying our bureaucrats’ super is like a family saving for a rainy day whilst the foundations in their house require severe repair work and remain unattended to. Failure to attend to them gets more costly year after year.

Under the arrangements set out in this bill, this Future Fund will not be managed independently. Essentially we will have a Future Fund which is locking away money that we are not going to make the maximum use of for the maximum opportunity of the country, and we will expose this money to political misuse. For those two reasons, the opposition has substantial reservations about this bill. This government has shown time and time again that, to secure short-term political ends, it will interfere in the management of something that is open to its interference. This Future Fund is more an investment in the future of the Howard government; it is not an investment in the future of this nation or in our long-term national interest. Labor has a better alternative which will harness the fund to meet our long-term challenges whilst ensuring its absolute independence.

I would like to talk briefly about some of the challenges we face as a nation. We have enjoyed enormous prosperity in recent times, with 14 years of uninterrupted growth. As the architect of the reforms of the 1980s and early 1990s, Labor is rightly proud of the role it played in delivering that prosperity. In recent times Australia has also had its fair share of luck. We have moved seamlessly, as Access Economics has said, from record house prices to record commodity prices, which has kept our economy buoyant. We have recently had a $40 billion boost to our national income from record commodity prices. But beneath all of that things have changed, which is putting our future prosperity at risk. It is not just the Labor Party that is making this observation; it has been made by many. All of the peak industry groups are making this observation. For example, the Business Council of Australia recently warned: ‘the performance of Australia’s economy is slipping and we are heading for trouble’. They have even gone to the extent of taking out billboard advertising to ram home their message to the government. They disagree with the government on a number of key areas of policy which go to the heart of securing future prosperity: the failure of the government to reform the tax system, to put incentive in it and to keep it efficient and fair; the failure to ensure that we are internationally competitive; the regulatory burden, which is a drag on productivity; the failure to invest in the skills and the education of our people; and the failure to deal with entrenched buck-passing and overregulation which flows from gridlock in federal-state relations. These are all matters that are of the highest priority if we want to protect prosperity well into the future.

It has been the failure of the government to attend to the critical areas of policy that has led even organisations like the Business Council of Australia to observe:

… Australia’s economy is slipping and we are heading for trouble.

Our future prosperity and our capacity to create wealth for future generations is simply at risk, and the most fundamental thing that we as a nation can do to cope with the ageing of our population is to create wealth. First and foremost, that is the factor which enables us to deal with the long-term pressures of the ageing of the population. Central to wealth creation is our productivity and lifting our productivity over time.

If we look at what has occurred in recent times, our productivity has gone into reverse. In 2004-05 labour productivity fell by 1.3 per cent—the first fall since 1986-87, the largest since 1982-83 and only the sixth fall in the last 39 years. This fall was broadly based, with 11 of 14 market sectors recording a decline in productivity. This is a massive problem and it should set alarm bells ringing inside the government, but of course they have simply hit the snooze button and gone back to sleep. They have put all their eggs in the basket of a low-skilled, low-wage path and claimed that their response to declining productivity—a raft of industrial relations changes which will eat away at the living standards of many in our workforce—will have some magical solution. Everyone in the country agrees that we need a broad based reform program and/or vision across a raft of policy areas to deliver the productivity that we require for the future—except the Treasurer, Peter Costello, and the Prime Minister, John Howard.

Nothing is more symptomatic of our decline in competitiveness, and the decline underneath that in our productivity, than our recent trade performance. The Minister for Trade claimed in the House today on the back of one set of figures that somehow the records that have been set with current account deficits in recent times have been dealt with by a slightly improved recent performance. They have not. There is a very long way to go if we are to deal with our entrenched problems of competitiveness and their reflection in our current account deficit and escalating net foreign liabilities. We have a long way to go in lifting our trade performance from where it is at the moment, which in many ways is a very poor performance.

Australia has made very little headway in this decade in either existing export markets or in moving up the value chain into new products and services that can deliver higher paid jobs and strong company profits well into the future. Sure, we have a one-off boost to our national income from record commodity prices, but that cannot be guaranteed to be there forever. When it passes, what will we be left with? We must use this fortuitous set of circumstances to invest for the future, and this Future Fund is not setting Australia up to do that, which is why so many people hold such deep reservations about the motivation of the government in setting it up and the inappropriate nature of its structure. Our poor performance in ETM exports is well documented. From double-digit growth in the 1990s, almost half are now in absolute decline, and we are all aware that since 2000 Australia has shed something like 115,000, or 10 per cent, of our manufacturing workforce jobs. There is a very substantial challenge ahead of us there.

The government might just shrug its shoulders and say: ‘Well, the decline in manufacturing is inevitable given the rise of China and India. There’s not much that can be done.’ I think we all know that we are in the middle of one of the most substantial restructurings of industry in our economic history, brought about by the rise of China and India and Asia more broadly. The Treasurer himself publicly acknowledges that there will be a substantial shift in economic power and activity into the Asia-Pacific throughout this century. We all know that as a result of this, in many ways across the board, things are going to get tougher, particularly for our manufacturing industry. But we also acknowledge that if we get the policy settings right in this country there are great opportunities in that restructuring and in the movement of wealth into the Asia-Pacific region. But what we have to do is to put in place the policy settings that maximise the opportunities for this country. We know that what is going on in Asia means that the pace of innovation will only quicken and the pace of competition will only quicken and intensify. That is why we urgently need a much more broad based approach to dealing with lifting our productivity across the board. If we do not do that, are we as a nation prepared to see our manufacturing industry, for example, disappear? I for one am not.

If we look at what has been going on with our service exports, we find there are great challenges there. Our overall export performance in services is dismal, and the challenge to lift its performance is daunting. Our service sector exports are just four per cent of GDP—the third lowest in the OECD, one-third of the OECD average. Just 27 per cent of our service exports lie outside tourism and transport, down from 30 per cent in 2000. Tourism and transport are of course important, but what about the vast array of other high-skilled, high-value added services? For example, in the US such high-end services account for 90 per cent of service exports, including education, financial services, communications and computer services, scientific and medical research and software and movie distribution. So there are big challenges ahead for this country.

Most thinking people who have observed our economy over the years recognise the need for a new vision in this community which goes to the core of lifting our productivity and our competitiveness. But what do we get from the Howard government? We get two responses. We get a narrow set of industrial relations changes which take us down the low-skill, low-wage road. The only other solution they have to cope with all of these structural changes and the ageing of our population is this Future Fund. We need something much broader than that. Crucial to lifting our trade performance, creating wealth and sustaining prosperity is making our economy much more productive across a range of policy areas with a new range of policy initiatives.

So what role does the government’s Future Fund play in meeting this challenge and lifting productivity and sustaining our prosperity? In short, absolutely nothing. The government’s Future Fund is a solution which is looking for a problem. The problem the government have identified is increasing underfunded public sector superannuation liabilities; that is the problem they have identified. On the face of it, the headline numbers are daunting. These liabilities are projected to increase to $140 billion over the next 10 years. But that headline number is misleading. What is crucial is not the absolute size of superannuation liabilities but the cost to the budget each year arising from these liabilities. The reality is that official projections already show the cost to the budget is currently in decline. While the government have refused to release the latest projections, the future call on the budget was further diminished following the close of the Public Sector Superannuation Scheme on 1 July last year. Public sector superannuation liabilities are a problem that has already been solved by the closure of the largest defined benefits scheme. Public sector superannuation liabilities are a red herring in this debate.

So what is Labor’s alternative? Labor believes that the government’s priority should be to secure our future prosperity by lifting the productive potential of the economy as soon as we can, to meet the challenge of intensifying competition in our region, to capture a much greater share of the opportunities that are arising from that and to minimise the risk that is flowing from it. Under Labor the assets in the government’s Future Fund would be retained in the Building Australia Fund. However, under Labor the income stream from the fund would be applied to productive purposes including infrastructure investment, not set aside solely to offset the cost of bureaucrats’ superannuation payments, which are already in decline.

For almost 10 years this government has stood aside while our key economic infrastructure has declined. The Business Council of Australia says there is a $90 billion shortfall in Australia’s infrastructure and the BCA estimates substantive infrastructure reform could lift the level of GDP by two per cent or $16 billion annually. We need national leadership in infrastructure, and it is not just a question of trumping up public funds. We need a completely new national approach to infrastructure which brings the capacity of the government, the private sector, state governments and local governments together to meet the challenges across the board to do something about our infrastructure to lift our productivity. But there is nothing about that in this bill.

The Reserve Bank of Australia cautions that capacity constraints in the non-residential construction and resource sector mean new projects are being put off. Even the Prime Minister’s own hand-picked task force found there were underlying weaknesses in Australia’s infrastructure which must be addressed to ease capacity constraints and bottlenecks in export industries. A federal Labor government will allow the Future Fund to consider all important investment opportunities suitable to its return and risk objectives, and that would include commercially attractive infrastructure investments.

But what really disturbs us about this fund, apart from the missed opportunities, is what this crew will do with it, because the governance arrangements are not up to scratch. This is not a locked box. It is worth recalling what the government promised when the details of the Future Fund were announced in last year’s budget. The government said:

The fund will be managed by an independent statutory board ... in accordance with a broad investment mandate from the Treasurer and the Finance Minister. The Board will set the investment strategy and the strategic asset allocation of the Fund. Actual investment management will be contracted out to private sector investment managers.

In other words, the government will set the risk and return objectives of the fund, an independent board will decide what type of investments will enable them to achieve these objectives and independent fund managers will decide on what specific investments will be purchased. That is what they said then. The Treasurer crowed at the time that the fund would be managed by experts free from government interference. If only that were the case! We were expecting to see in this set of arrangements a locked box, but that is not the case. This bill shows that is not the case.

The bill shows that the government’s power over the fund will go far beyond the setting of a broad investment mandate. This bill is intended to empower the government to direct the investments contained in the fund. Whilst I have a lot of respect for the chief executive that has been appointed, the rules that govern the operation of this fund are not what the government originally promised and not what they should be if this money is going to be locked away for the future, as the government claims. The fund will not be overseen by trustees, as is the case with every other public sector superannuation fund in this country. There will be no trustees whose independence will be protected by law—I repeat that: no trustees whose independence will be protected by law—and who will have a duty to act only in the best interests of the fund—that is, it can be subject to political direction. Instead, the Future Fund will be overseen by so-called guardians who must do what the government tells them even if, in their professional judgment, it is not in the best interests of the fund. These corporate arrangements are not up to scratch and they must be brought up to scratch.

These arrangements could allow or include underwriting the ill-advised sale of Telstra. This may include falsely inflating the value of Telstra’s shareholding to ensure the government’s forward estimate of zero net debt appears achievable. Anything can now happen with these arrangements. But the risks go beyond Telstra, given this government’s record of pork-barrelling on an unprecedented scale. Under this bill, the government will have the power to direct how an additional $18 billion pool of cash is invested. Fancy having an $18 billion pool of cash sitting there for the pork-barrelling proclivities of this government, in particular those of The Nationals. Its track record does not give any comfort that this money will be used to lift Australia’s productive capacity. It could well be used to try to lift the Liberal Party’s popularity in marginal electorates.

Take AusLink, for example. On the face of it, it was based on reasonable principles but in practice it was completely contaminated by politics. AusLink included a $150 million discretionary fund, a fund that could have built high-yield, low-cost projects with regional significance. Instead, the government squandered almost $100 million of that fund during the last election campaign not on merit but on political advantage. The member for Oxley can tell us all about that, about the effects that that is having on the Ipswich region that he represents and about the impact on the productivity of that region of the country of the government’s failure to invest properly in the infrastructure that we require.

Last November the government announced it would increase this fund with an additional $100 million to shore up marginal electorates. The list goes on. In the Liberal seat of Forde, the government spent over $5 million on a steam train that had not generated enough steam to boil an egg! In the seat of Dobell, held by the Liberal Party with a margin of under one per cent, the government committed $1.5 million to dredge the Tumbi Creek. The problem was that the creek had already dredged itself! And the list goes on. In the seat of Gwydir, the electorate of the then Deputy Prime Minister, $1.2 million was given to a company with a $1 share portfolio to develop an ethanol plant in Gunnedah. To date, not a single drop of ethanol has been produced.

We must absolutely get some decent governance arrangements for this fund. With decent governance arrangements, we can then have an argument about what the income stream ought to do. But there is absolutely no doubt that the potential has been put in place for the product of the hard work of millions of Australians in recent times, reflected in the surpluses that are going into this fund, to be squandered for political purposes and not used properly to enhance the productive capacity of the nation in the creation of wealth to secure our prosperity in the long term. This is a massive wasted opportunity for this country. It breaks the promise given by the Treasurer when he announced this measure, and we intend to hold the government accountable for it.

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