Chris Bowen (Prospect, Australian Labor Party) Share this | Hansard source

The Future Fund Bill 2005 represents the government’s proposal on how to spend the proceeds of government surpluses built up over recent years. Government members—and the honourable member for Ryan is no exception—talk about the government’s economic record in laudatory terms, and that is what you would expect; but the $18 billion which is the seed funding for the Future Fund represents the proceeds of the government’s fiscal cutbacks and privatisations over the past 10 years. It is not some magic formula; it is not some economic genius. Surpluses come from taxing more and spending less, and that is what this government has done.

We have, of course, seen the privatisation of 49 per cent of Telstra as well as the privatisation of most of Australia’s airports, the Australian National Line, Auscript, ADI, Commonwealth Funds Management and various other organisations. And we have seen the government’s financial cutbacks. Just a quick glance at this list of cutbacks is instructive. When the government came into office we saw the abolition of the Commonwealth Dental Scheme, which produced a saving of $110 million; the abolition of Better Cities, a saving of $150 million; cutbacks in syndicated research and a reduction in the R&D tax concessions, savings of $2.2 billion; and various other cuts. So this is very much the people’s fund, built by the sacrifices and hard work of the Australian people and by the sale of organisations which have been in the ownership of the Australian people in some cases for 100 years.

The responsibility for ensuring that this is put to only the most worthy causes and is administered properly is a very onerous one. Some say that the money accumulated by the government would best be spent in other ways and not put into a fund. For example, some say that it would be best spent on tax cuts. This is the view of the Australian Chamber of Commerce and Industry and the National Farmers Federation. I disagree and my party disagrees with this view. The proceeds of privatisation in particular must be ring fenced to ensure that they are not used on short-term measures. It is very unsound economics to take one-off cash injections such as from the proceeds of privatisations and spend it on recurrent items such as tax cuts or on recurrent expenditure. The principle of a fund being established, ring fenced and managed in a prudent manner in a commercially sound way and the proceeds being used on matters of national importance is a sound one, and it is one which Labor supports.

There are, however, a number of concerns about the Future Fund Bill 2005. The primary concern that I personally have is the use of the dividends from the fund’s investments. The government has identified its unfunded superannuation liabilities as the most pressing fiscal burden facing the nation over the coming 20 years and, accordingly, the only thing which the proceeds of the fund can be spent on. I believe that it has got that decision wrong. The shadow minister for finance, the member for Melbourne, has likened it to putting aside money to pay your council rates for the next 20 years while there are other more pressing and urgent expenditures that you could be using the savings for. The government’s unfunded superannuation liabilities are certainly very large. However, they have been successfully and sustainably funded annually from the budget each year, just as they are by the state governments. This is not just my view; it is also the view of the Australian Government Actuary, who said:

At the present time, there seems no reason to suppose that the future expenditure on superannuation for Commonwealth Government employees will place an unsustainable burden on the budget. It is presently around three percent of total government expenditure, and less than 1% of GDP. Moreover, as a percentage of GDP it is expected to fall in the next few years, and to stabilise at a rate which is less than half the current rate.

The government has closed most of the defined benefits superannuation schemes which have been in existence for many years, so it stands to reason that the liability will fall over the next 20 years. I also agree with Alan Wood, the economics editor of the Australian, who has written:

As Costello must know, the unfunded liabilities of Canberra’s public servants are not a problem.

And I agree with Ted Evans, the former Secretary of the Treasury, who wrote:

... the ability of future generations, and their governments, to meet the needs of their day will be entirely dependent upon the size of the economy they command at the time ...

The proceeds of the investments of the Future Fund could be spent on things which actually enhance our economic capacity as a nation. The government could, for example, have earmarked the proceeds of the Future Fund to be spent on education. It could have said, ‘The most important resource for the future is our children and we will use the proceeds of the Future Fund to ensure that we have the world’s best education system.’ That would have been a decision of some vision. That would have been something which the Labor Party would have welcomed. That would have been something which I think everybody in the community would have welcomed. It could have said, ‘We will use the proceeds of the fund to ensure that we have the world’s best preschool system, that we have the best education for people before they go to school in the world.’ That would be something which every educational expert in the world says would be a very good thing—the best contribution that we can make to improving the education of our children. That would have been a decision which, over time and over the long term, would have increased the economic capacity of our nation. It would have been a decision of vision, but it is not the decision that this government took. Alternatively, the government could have taken the decision to invest the proceeds of the fund in infrastructure. That would have been a decision which definitely would have improved the economic capacity of our nation.

We are faced with the situation now that this government and this nation have the best terms of trade that we have had in 50 years. However, we are running a trade deficit. If we had the terms of trade now that we had in 1986, the time of our last current account crisis, the current account deficit would now be well over 13 per cent of gross domestic product—clearly an unsustainable rate. The other interesting point is that we are one of the very few primarily commodity-exporting nations in the world that is currently running a trade deficit. Countries like Norway and Brazil have managed to capitalise on the record terms of trade, which are being driven by the Chinese expansion, and to turn in trade surpluses. Yet this government has failed miserably in the area of trade and exports. There is no single solution, there is no magic bullet when it comes to improving our export performance, but it is clear that one of the major causes of our poor export performance is poor infrastructure. The government itself says this. Not untypically, it attempts to blame state governments for the lack of infrastructure, but it admits that one of the primary causes for our absolutely abysmal export performance is poor infrastructure. Again, this government could have taken the visionary approach. It could have determined that the proceeds of the fund be spent on infrastructure projects. I am not talking about, with all due respect to you, Mr Deputy Speaker Scott, the dodgy National Party pork-barrelling that we often see. I am not talking about that sort of infrastructure project. I am talking about projects of national significance.

Last year the Treasurer came into the House and tried to tease the Leader of the Opposition by saying that the view of the Leader of the Opposition was that some of the proceeds of the investments in the Future Fund should be spent on the Pacific Highway. The Treasurer made a joke out of that. Of course, the families of those who have lost their lives on the Pacific Highway do not regard that as a laughing matter. Furthermore, the Pacific Highway is the major freight route between Sydney and Brisbane. The road is not only notoriously dangerous but also notoriously slow and inefficient. I would have thought the economic benefits of an upgrade would be obvious. We have seen the economic benefits of a major piece of infrastructure in Western Sydney with the M7, the Western Sydney Orbital—which, I must say, was built in my electorate and surrounding electorates through cooperation between the federal government and the New South Wales government. This has substantially reduced freight travel times and also the cost of freight, even with what is a substantial toll.

Major infrastructure projects such as this would, in my view, meet the test of having the long-term economic success of the nation in mind. These projects would be worth while to fund out of the proceeds of the Future Fund—a fund, as I said in my opening remarks, that will be built through the sacrifices and hard work of the Australian people. It is their fund; it is not the government’s fund or anyone else’s fund.

The second area of concern regarding this bill is the amount of independence of the guardians of the fund. Here, again, the government could do better. It could adopt the model that the New Zealand government has formulated in the New Zealand Superannuation Fund. In New Zealand, the finance minister can give a ‘direction’ to the guardians, but any direction must not be inconsistent with the guardians’ duty to invest on a prudent commercial basis, which is in contrast to this bill where the funding strategy can be directed by the minister, who may take into account ‘broader policy and national interest considerations’. In New Zealand, any directions must be tabled in parliament and the guardians must have regard to any ministerial directive but are not obliged to follow it. That would have been a better model than this one.

The government say they are at arm’s length—both the Treasurer and the Minister for Finance and Administration have been at pains to stress that. They do not say they will exercise ministerial control, but this bill gives them the ability to do so. It is hypocritical for the government to suggest they are at arm’s length while at the same time they are giving themselves the opportunity to direct the guardians on how to invest the money.

My third concern with this bill is what I fear will be the government’s uncontrollable urge to shove large amounts of money into the pockets of investment consultants. There is no doubt that there will be a huge amount of money under the management of this fund, and some consultancy advice would be appropriate. As always in these matters, the test will be one of what is reasonable. This government has form. Last year it spent $360 million of taxpayers’ money on consultants and well over $100 million on private sector recruitment agencies. It has an addiction to spending large amounts of money on private sector consultants because it has an ideological aversion to establishing the necessary skills for such tasks in-house.

The member for Ryan referred to the agency that will be established to manage this fund and which eventually will control funds equivalent to some 10 per cent of GDP, and he said it will have just 20 staff. The reason this agency can have only 20 staff is that it will be putting the funds under the control of private sector consultants. Again, I must stress that I am not opposed to private sector consultants, but the test is one of reasonableness. How much would it be reasonable to spend and to what degree should the government bring those skills in-house? I am not alone in these concerns. Barrie Dunstan wrote in the Australian Financial Review:

The government has also determined the fund must use investment managers ... Before this was spelled out in the legislation several people in the industry had been assuming the Future Fund would operate much like some of the other very large government sector funds, with an internal investment staff to handle some of the investments as well as dole out mandates to external managers.

Frankly, I find it extraordinary that the government has seen fit to mandate by legislation that external fund managers must be used. It does this in proposed part 3, section 28. Unless approved by the responsible ministers, the board must use investment managers to invest money in financial assets, acquire derivatives, enter into securities lending arrangements or realise financial assets. The responsible ministers may provide approval in writing for certain methods of investment other than through investment managers, should it be prudent and cost-effective to do so. I feel it would be more prudent to allow the Board of Guardians to make an assessment about what is the best mix of internal and external involvement in investment decisions.

These are people to whom we will be entrusting a major fund that will have under its control 10 per cent of the gross domestic product of this nation, but this government is not willing to entrust them with the decision of whether to use external consultants or internal skills to manage those financial assets. Here we see this government’s ideological obsession with outsourcing coming to the fore. Surely these people whom we are entrusting with a fund that will reach 10 per cent of gross domestic product should be trusted enough to determine whether investment managers are necessary without getting a permission slip from their responsible ministers. They should not need a note from the minister to say, ‘I give you permission not to use external advisers.’ They should be entrusted with that responsibility.

I assume that these people will be appropriately and comfortably remunerated. I assume that the guardians will be properly rewarded for the responsibility they are being entrusted with. If we are remunerating them appropriately, we should be giving them the responsibility to do their job. We should be letting the managers manage and not allowing this government’s ideological obsession with outsourcing to interfere with the fund’s operation.

I would like to briefly mention another concern I have with this bill. Clause 38(3) specifies that the responsible ministers must be satisfied that a board member—a guardian—has:

(a)

substantial experience or expertise; and

(b)

professional credibility and significant standing;

in at least one of the following fields:

(c)

investing in financial assets;

(d)

the management of investments in financial assets;

(e)

corporate governance.

Of course, I have no quarrel with that. However, I note that there is no requirement for board members to be fit and proper persons. In the vast majority of cases, they will be fit and proper persons. In the vast majority of cases, we will not need that requirement in the act. But, given the huge responsibility that will fall on the shoulders of the guardians of these funds, I would have thought it prudent to include a clause in the bill making this an explicit requirement. Why would that be prudent? We saw last year why that would be necessary with the appointment of Mr Rob Gerard to the board of the Reserve Bank—the most important financial institution in this nation. This government has form. It appoints mates to important jobs without doing the necessary character checks. It appointed a man to the Reserve Bank board who was fined by the Australian Taxation Office. He received a fine of some many millions of dollars—in the multiple of hundreds of millions of dollars—for tax cheating.

The government has introduced a bill into the House which establishes another very important financial mechanism, yet there is no requirement in the bill for the appointment of the guardians to the board to be people of fit and proper character, to be fit and proper persons. I would like to think that is an oversight rather than an intentional clause. The government would be well advised to take that on board and to put a clause into the bill which would ensure that those appointed to the board are fit and proper persons.

In conclusion, this bill represents another missed opportunity. It could have been an act of great vision from this government—a fund set up to pay for important infrastructure for future generations. Sadly, it has become an avenue to simply fund unfunded liabilities, which almost every commentator of any credibility regards as not a major problem which, in any event, will subside over time as the defined benefit schemes are closed down.

This is a missed opportunity like so many other missed opportunities that we see from the government. The government has taken an appalling attitude to the infrastructure of this nation. The government has seen the infrastructure of this nation driven down over the last 10 years. It is a government that sat on its hands and did nothing about section 51AD of the tax act for some six years. It did absolutely nothing about section 51AD of the tax act and it let the infrastructure of this nation be driven down. Now the government has missed the opportunity to use this fund—this once in a generational opportunity.

How many times does a government have the chance to set up a fund such as this? But what does the government spend it on? It spends it on a liability which every economic commentator of any credibility in this nation says is not a problem. It ignores the issue of infrastructure. It ignores education. It intends to ignore every important economic issue that this nation faces and instead spends this fund on an accounting mechanism which every economic commentator of any credibility says is not a problem.

A Labor government will return to this matter and ensure that the proceeds of the investments of the Future Fund are spent on projects which will benefit all Australians and help our economy grow. A Labor government will return to this matter and ensure that this opportunity is not missed. I hope that that opportunity comes sooner rather than later, because the Australian people cannot afford to see the money—which is their money paid for through the privatisation of their assets, cuts to their services and increases in their taxes by the highest taxing government in Australian history—tied up in this fund and the proceeds from it whittled away. They cannot afford to see them wasted. The money must be spent on infrastructure.

The government and the opposition are at one that a fund needs to be established and that the proceeds of the investment must be spent on a worthy cause, but we disagree vehemently on what is a worthy cause. The government has missed its opportunity, but Labor will not miss it when it becomes our responsibility.

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