Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Link to this | Hansard source

The Future Fund Bill 2005 before the parliament today gives effect to the government’s commitment to create a fund to provide for the public sector superannuation liabilities that are continuing to accrue and will gradually mount over the next 20 or 30 years and that are currently paid for from the budget on a pay-as-you-go basis. Labor is not opposed to the bill per se, and we will vote for the ultimate bill, but I will move a second reading amendment which outlines a number of reservations that we have with the strategy that the government is pursuing. That amendment should have been circulated and stands in my name. I will outline the content of the amendment in due course.

I wish to deal with a number of aspects of the Future Fund Bill and in particular focus on what Labor regard as the serious weaknesses in the approach being taken by the government, even though we do acknowledge and support the broad concept. The rationale for the legislation is highly questionable. The public sector superannuation liabilities that the government is seeking to offset are finite because the relevant schemes have been closed. The defined benefit schemes which have been funded on a pay-as-you-go basis for some considerable time have all been closed to new entrants. So, although there is a considerable tale of liabilities associated with public sector superannuation in the vicinity of 50 years or so, it is a finite amount and will peak at a certain time in the next few decades and then gradually decline thereafter.

Secondly, at the moment the percentage of the annual budget of the government which is occupied by public sector superannuation liabilities is only in the vicinity of $4 billion, a couple of percentage points of total budget outlays, and although it is expected to increase to something like $7 billion—maybe three or 3½ per cent of total budget outlays—it is still a relatively small proportion of the total budget. It is questionable whether it is appropriate or necessary to establish a very large, stand-alone, supposedly independent investment fund in order to provide for the payment of these liabilities at some point in the future.

In many respects it is equivalent to an individual establishing a separate bank account with a very large capital sum in order to use the interest earned on that bank account every year to pay their council rates. Council rates for an individual or family are a fairly significant impost; they can often cause some difficulty with the weekly or monthly budget when they arrive. Sometimes people pay them quarterly; sometimes they create difficulties. Ultimately, it is really not very sensible for people to be setting up separate bank accounts to earn interest in order to cover their next 30 years of council rates, but that is effectively what the government is seeking to do in this instance. It is setting up a separate fund with vast sums of taxpayers’ money off the back of asset sales and recent large surpluses in order to earn revenue that can be used to offset a future liability that in the overall scheme of things is not particularly threatening or substantial.

It is also questionable why the government has chosen to set up an entirely separate fund for this purpose when it already has an established working and entirely adequate structure with respect to Commonwealth superannuation that manages investments on behalf of members of the various funds that are covered which could perform the same task with the sums that are involved to cover the employer contribution to the ultimate liabilities to the retired employees. The additional cost of having a separate fund, and all the arrangements associated with that, is approximately $30 million over four years and it is questionable whether there is any need to do this.

The Minister for Finance and Administration, Senator Minchin, indicated that, in his view, there was potentially a conflict of interest between investing on behalf of the individual fund members with their money versus investing on behalf of the government with funds that would be ultimately appropriated to the individuals. I think that is a highly technical way of looking at things and in practice I do not think that is very meaningful. I think the government is really spending money here which it does not need to.

There is also a question about the approach of not using the money that the government does have at its disposal—particularly asset sales, proceeds and surpluses of recent years—to further pay down government debt and to maintain the bond market. In effect, the government has made a decision to artificially maintain the government bond market at a given level in order to ensure a minimum level of liquidity. As a result of doing that, when it has the capacity to repay most or all of the remaining government debt, it therefore has to find something to do with that money. The end result of what it is doing is effectively borrowing to play the stock market. Whichever way you dress it up, the net outcome of what the federal government is doing is, by maintaining a substantial debt of $50 billion or $60 billion, to continue to borrow and, by implication, using the borrowings to play the stock market.

That means that it is going to be necessary for the Future Fund to always beat the bond market and the bond rate. It is going to be important that the Future Fund returns are better than the bond rate. You would expect they would be, but there is not necessarily a guarantee of that. Of course, if they are not, then the government is subsidising the bond market. It is maintaining borrowings for the purpose of ensuring that the bond market remains in existence—there are some arguments and a complex debate about that topic—and therefore losing money by not getting the same return when it invests that money itself. Time will tell whether the Future Fund and its managers manage to always get a better return than the bond rate. One would hope that generally they will. Historically, over time I suspect they probably will, but there are no guarantees when you are investing, and it clearly is a question that the government has failed to deal adequately with.

It is also important to note in this context that the government’s claims about the reduction of federal government debt and how this has come about are highly specious and should not be taken seriously. The bulk of the reduction in government debt that has occurred under the Howard government has been financed by asset sales. Particularly until the last couple of years when we have had very large surpluses driven by commodity price increases, mostly from demand in China, the bulk of the reduction in Commonwealth debt has effectively been financed by asset sales.

Irrespective of your view as to whether that is a good thing or a bad thing, the one thing that we should note is that it is not very difficult to sell an asset and repay debt. That is a very simple thing to do—any government can do that. It is a very simple thing to go out and sell a bit of Defence land or buildings or undertake any of the various asset sales they have undertaken—to sell parts of Telstra, take the returns and repay debt. To claim some sort of great economic triumph is simply ridiculous: it is not a sign of good fiscal policy or a sign of anything in particular. It is very simple to repay debt if you are selling assets. It is pretty easy to get rid of your mortgage by selling your house.

The second theme that I wish to address is the broader policy context in which this is occurring regarding the impact of the ageing of the Australian population on the budget. The government seeks to walk both sides of the street on this issue. On the one hand, it regularly regales us with tales of woe about the likely impact of the ageing of the population on the federal budget over the next 20, 30 or 40 years, particularly with respect to health expenditure, aged care expenditure and various other items in the budget. The 2002 Intergenerational report provided some pretty frightening projections of the likely impact of the ageing of the population on fiscal balances. So, when the government is seeking to do things like cut the access of ordinary people to pharmaceutical benefits or reduce the number of people on the disability support pension or do a whole range of different things that happen to support its broader political agenda, it suits it to talk about the ageing of the population and the longer term impact that that will have on the nation’s fiscal circumstances.

But at the same time, for narrow political purposes, it has also been rolling out a variety of new entitlements to particular groups in the population which will inevitably explode in their burden on the federal budget over time—things like the mature age tax offset, the utilities allowance, the capital gains tax exemption for people retiring from small business and the superannuation copayment. There is a very substantial and growing list of entitlements that the Howard government is producing for purely political support—electoral reasons—that are putting very substantial longer term burdens on the budget. They are relatively modest in cost at the moment, but when the people of my generation retire in large numbers—people who are currently in their late 40s or into their 50s, the baby boomers—the impact on the federal budget is going to be enormous. So, while the government seeks to portray itself as being fiscally responsible and looking after the longer term future, in many respects it is simultaneously doing the opposite in order to curry political favour with selected constituencies.

It is worth noting some interesting data regarding government spending. When you look at the figures for the percentage of government spending as a percentage of GDP over the past 15 or 20 years, you will see that over the past five or six years there has been a significant drop. That is a false comparison, because since the GST package there has been a major structural change in the accounting arrangements. Certain things that were previously counted as expenditure by the Commonwealth no longer are, even though in practice they are still happening, and so it looks much rosier for the Howard government than it actually is. In particular, the abolition of financial assistance grants to the states as part of the GST package—they were effectively replaced by the GST—means that a particular category of expenditure by the Commonwealth that is recorded in the figures for Commonwealth expenditure prior to 2000 is no longer in the figures. In 2000 it was something like $18 billion—a very large sum of money. Fortunately, in the budget papers there is actually a notional figure for what the FAGs amount would be had that system continued. So you can get that figure for each of the subsequent financial years.

When you factor that into the equation you then get a very different perspective on the level of federal government spending as a proportion of GDP. I refer back to the late 1980s, which is the previous time when Australia was in a period of fairly prolonged economic growth with a high current account deficit and things of that nature. Under the Hawke government, in 1988-89 federal government spending as a proportion of GDP was 22.7 per cent and in 1989-90 it was 22.4 per cent. Thereafter, it escalated fairly significantly because of the impact of the recession, which reduces GDP and effectively increases the burden on the budget and so increases expenditure. But that is where federal government expenditure was the last time we were in similar circumstances in this country.

When you factor in the FAGs payments, then for the past five years of the Howard government you get 25.1 per cent, 24.8 per cent, 24 per cent, 23.7 per cent and 23.7 per cent. So, even though we have had federal government revenue soaring and GDP has been generally growing strongly over that period, government expenditure has also been growing very strongly and is still, as a percentage of GDP, significantly higher than it was in the latter part of the Hawke government. In fact, if government expenditure now was the same proportionally as it was in 1989-90, the Howard government would be spending $11.6 billion less this financial year than it currently is.

All of this points to a core reality about the Howard government, that for all of its rhetoric about small government and freedom of the individual it is in fact, like the Bush government, a practitioner of big government, but it is big government in favour of its mates—big government in favour of favoured constituencies who it either expects or actually gets support from. The most outstanding and outrageous examples of this have of course been the regional rorts that have proliferated for many years through a whole variety of programs, Regional Partnerships being one example and Networking the Nation another—an endless stream of very substantial amounts of money being doled out very selectively and very carefully to marginal seats in order to entrench the positions of mostly National Party MPs.

The spread of new entitlements, the growth of middle-class welfare and the extension of family tax benefits to higher income earners: all of these things have put upward pressure on spending. So while the government is talking tough about the longer term fiscal situation with respect to public service superannuation, the Intergenerational report and the impact of the ageing population on longer term budgetary circumstances, it is busily adding to that future fiscal burden as fast as it can in order to protect its own political future.

The current surpluses that we are experiencing will not last. They mostly flow from the huge increases in commodity prices driven by demand in China and elsewhere and, inevitably, commodity price booms do not last. Access Economics is anticipating that the extreme nature of the surplus that we are currently experiencing is probably only going to last for another year or two. We will inevitably see the gradual deflating of that commodity price boom and the gradual reduction of the temporary surge in receipts that it produces for the government through a variety of taxation arrangements—through company tax, indirectly through income tax and so forth.

At the same time as we are coming off that wave, we will just be starting the initial wave of the giant demographic change that is going to be enormously adverse to the federal budget. At the moment Australia is in the optimal position where the percentage of the total population of workforce age is at its absolute peak. We will be in that position for another few years but, shortly thereafter, there will be a dramatic decline and the ratio of workers or potential workers to dependants, who ultimately have to be paid for either through families or through government, is going to alter very substantially in a way that is very adverse to the federal finances. The Future Fund does not address this problem, which is a much more serious and substantial problem; it is focused on one particular relatively lesser priority: federal government superannuation.

The next point that I want to address is the governance arrangements of the Future Fund, which are grossly inadequate and which are wide open to abuse. These are exactly the kinds of problems that both Labor and a number of commentators alluded to when the idea was first floated. We were told this was going to be a locked box. We were told that this would be impervious, that it would not be able to be accessed by nasty politicians wanting to curry favour in particular electorates—that is, the National Party’s grubby hands would not be let anywhere near it. In practice what has happened is quite the opposite. The responsible ministers, the Treasurer and the finance minister, will be given the power to issue an investment mandate to the managers and board of the Future Fund—in other words, to give them instructions about their investment direction.

In the explanatory memorandum there is a very telling phrase. In explaining the nature of this investment mandate and the powers of the two ministers concerned, it says that in issuing instructions the two ministers can ‘consider broader policy and national interest considerations’. We in the Labor Party have become a bit accustomed over the years to special meanings for terms like ‘national interest’ and ‘national importance’. They are code for National Party pork-barrelling. The most outrageous example of this in recent times is the infamous Roads of National Importance program, which many years ago, as shadow minister for transport, I dubbed ‘roads of National Party importance’. We had such outrages as the federal government, while not prepared to fund really major arterial roads, roads of huge economic importance to the nation, proposing to put federal government money into something like Main Road 92 between Nowra and Nerriga, a road that is in part a dirt road and not even a priority road at the state level. Why? Because it happened to suit the political agenda of the government at the time. So we know very well what coded terms like ‘national interest’ in this context mean.

It is significant to compare the governance arrangements with those in the New Zealand fund, which resembles the Future Fund in many respects. The minister there does have a power of direction with respect to the investment mandate of the fund but it is heavily constrained by a requirement that the directions must comply with prudential and commercial criteria. In other words, the minister there does not have the power to issue directions to invest other than in an entirely commercial way. The legislation we have before us today is effectively silent on that issue. It is wide open to abuse; it is wide open to a government in the future directing the board to invest in particular ways in order to obtain political benefit for the government. The government also retains a very broad power to dismiss board members. They can be dismissed on grounds of unsatisfactory performance—in other words, virtually at will. Most statutory boards have much tighter criteria for dismissing board members.

It is also worth noting that, although there is a ban on the Future Fund investing in non-financial assets—it cannot, for example, buy a coalmine, a bridge or something like that—that can be very easily circumvented through modern financial instruments, derivatives and various other devices. So, although that may be seen at first glance to provide some protection against National Party pork-barrelling, it is not that difficult to get around those kinds of restraints. ‘National interest’ in this context is code for National Party interest. It means that in practice the Future Fund is not going to be a locked box; it will be a slush fund. It may not be this year, it may not be next year and it may not even be the year after but, at some point, if the Howard government remains in office and the kind of philosophy that has driven its attitude to government spending remains, the Future Fund will be raided and it will be raided for political purposes. Labor believe that the governance arrangements in this legislation should be much stricter and that is one of the issues that is dealt with in our second reading amendment.

The legislation is also significant in that it deals with the prospect of the government moving some or all of its current Telstra share ownership into the Future Fund. The government, of course, has obtained parliamentary approval to sell the balance of its Telstra shares, the 51.9 per cent remaining public ownership in Telstra. The legislation is designed to enable the government to move the entirety of this shareholding or any part of it into the Future Fund. If that were to occur, it would produce an entirely bizarre outcome where we would have public ownership of Telstra without public accountability. So the government, in making the Future Fund the owner, would effectively retain government ownership and certainly retain the kinds of alleged efficiencies that it claims are associated with government ownership of Telstra but at the same time deprive itself of any capacity to exercise the benefits of public ownership, particularly its control over board appointments.

While the government would retain the power of the minister to direct Telstra until such time as the overall public ownership of Telstra fell below 15 per cent, that power has never been exercised. In reality, the main source of government power and influence over Telstra flowing from public ownership is board appointment. In effect, what the government is proposing here is a situation where it may ultimately retain government ownership but divest itself of the power to get any value for the community out of that government ownership. That strikes me as a complete absurdity. It also raises a significant question with respect to the structure of the fund because, even if half of the remaining government shares in Telstra were sold, it would still mean that the Future Fund will be heavily overweight in Telstra shares and that its weighting of Telstra shares as an investment versus other possible investments will be skewed. For obvious reasons, that is not particularly good investment practice—notwithstanding the question of what value Telstra shares have from time to time.

So there are some fairly complicated and difficult questions that the government has failed to address here. It is caught between conflicting imperatives: a desire to establish the Future Fund as a stand-alone, allegedly independent investment vehicle and, at the same time, a need to get itself off the hook from the mess that it, with a bit of assistance from Sol Trujillo, has got itself into regarding the future of Telstra. That is not good for the taxpayer or for future budgetary circumstances, and the risk of some kind of mess eventuating as a result of all that is all too high.

I would like to remind the parliament of Labor’s view of how the Future Fund should be dealt with. In our reply to the budget last year, we outlined our Building Australia strategy and indicated that it is our intention to use some or all of the returns on the fund for the purposes of financing infrastructure development in Australia—not the capital but the earnings from the fund which under the government are simply going to be locked away within the fund. In our view, there is a much more urgent priority for this nation than putting aside money to fund future public service superannuation liabilities, which ultimately will always be a pretty minor part of the overall budget. We believe that the dilapidated state of infrastructure throughout Australia and the major problems in many parts of our infrastructure networks require much more urgent attention and that it makes much sense to be investing some of the returns from the Future Fund investment in infrastructure.

Whether it is fixing the Pacific Highway or the Hume Highway, fixing our appallingly dilapidated interstate rail network, ensuring that Australia gets world-class broadband so we can be at the forefront on broadband internationally rather than languishing way behind as we currently are, dealing with the widespread problem of outer urban roads in major cities such as Melbourne, Sydney and Brisbane which were designed for small country communities and are now groaning under the huge traffic flows generated by new growth areas or dealing with problems at major ports with road, rail and sea interchanges, there are huge infrastructure tasks facing our nation. The Howard government’s only approach to these problems is to try to avoid responsibility by blaming the states and to use funds, where it is actually spending some money, in a way that is designed to maximise political bang for the buck rather than actually doing something strong and positive for the nation.

Our overall economic picture in Australia is one of relatively strong, albeit occasionally waning, growth along with low levels of unemployment. Our economic good fortune is being driven by a spectacular boost in commodity prices driven by demand in China and the fact that, for the first time in a very long time, all the major economies in the world are growing. This is the first time in a very long period—decades, in fact—that we see reasonable economic circumstances pretty much right around the developed world. From a more structural perspective, the reforms put in place by the Hawke and Keating governments and the very astute management of the Reserve Bank have been very important factors in setting the scene for the economic growth we are now enjoying.

There are some less benign factors involved, particularly a dramatic increase in Australia’s indebtedness at both household and national levels, which is a cause for great concern. For two years we had domestic demand increasing at the rate of six per cent. That is unsustainable—it proved to be unsustainable—and it is only our good fortune that, just as that fell away, the commodities price boom really took hold and has, in a sense, taken over as the engine of the economy. But both are transitory, and our government is allowing a range of fundamental weaknesses to build up in our economy which ultimately will come to a head—most importantly, our current account deficit and trade deficit, which are very serious and eventually will cause major shocks to the Australian economy, and our underinvestment in research and development.

In spite of a long period of economic growth, it is only just recently that Australia has returned to the level as a percentage of GDP of investment in research and development that we reached under the Hawke and Keating governments. We are the only nation in the developed world where public expenditure on education generally has been declining—and, of course, we have major skills shortages, which is in part a symptom of that. For the past 18 months productivity has been going backwards. After a prolonged period of improvement until the late nineties, our relative productivity compared with the United States has been declining so that we are heading back towards the magnitude of gap between Australia and the United States that we had 20-odd years ago. That is a very major cause for worry.

I believe that the Future Fund is, in some respects, the indulgence of an extremely complacent and arrogant government that is feeling very good about itself because it has the kind of short-term economic statistics that enable it to crow about particular levels of unemployment, economic growth and these kinds of things, which while important should not mask the fact that, underneath, the fundamentals are rotting. Eventually—sooner, maybe later (we do not know) but eventually—those fundamentals are going to bring us undone unless we take action. In particular, we need to focus on infrastructure and invest in learning through education and skills. We must start to get serious about exports beyond our agricultural and mineral sectors and start to tackle some of the structural problems that are associated with the very ordinary performance over the past five or six years of much of our export sector.

They are the challenges that we face in economic policy in Australia. I regard the Future Fund, albeit positive in its own narrow terms, as essentially an indulgence that is not particularly necessary. I think in years to come—in 10 years or 15 years—it will be looked back on as something of an oddity by a government that really had its priorities wrong. That is assuming that the Future Fund lasts that long and that the National Party has not got its grubby hands on it already.

I indicate again that Labor will be voting for the legislation, but I move the second reading amendment:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House is of the view that:

(1)

the Future Fund should only invest on a prudent commercial basis and manage funds in a manner consistent with:

(a)

best-practice portfolio management;

(b)

achieving desired returns without undue risk to the Fund as a whole;

(c)

enhancing Australia’s reputation as a responsible and ethical investor; and

(d)

building productive capacity in the Australian community; and that

(2)

the income stream from the Fund should be used for productive national economic purposes rather than being set aside solely to offset the cost of public sector superannuation as the Government intends”.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

Is the amendment seconded?

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

It is particularly interesting to follow the contribution by the member for Melbourne on the Future Fund Bill 2005 and to have a tour of his various hobbyhorses that he read through. I am sure part of it will appear in his book. Interesting though his points may be, in many cases they were without a whole lot of merit. I liked his comment that this legislation was an indulgence by the government. When is protecting yourself against future liability an indulgence? I would have thought that part of the problem with the previous Labor government was that they indulged themselves too much. They indulged themselves to the tune of $96 billion as they racked up debt. Indulgence in government is when you do not look at your fiscal responsibility in the way that you manage the budget and that you rack up debt to an extraordinary level.

The member for Melbourne also railed against middle-class welfare and highlighted some of the schemes that he personally took objection to. Is it Labor Party policy for him to be against, for example, mature age allowances and capital gains exemption for some of the older members in our community? I am sure that that would go down well with the more mature citizens in the seat of Melbourne if that were the case! He commented that this bill was a lesser priority issue. It is extraordinary that the man who is the shadow minister for infrastructure, privatisation and a whole range of other things is back in the old socialist mould of what he wants the government to do. He does not like a whole range of initiatives that we would see as being important. So be it.

I would have thought that the review today of the member for Melbourne was his own indulgence as he ran through his various hobbyhorses. Be that as it may, instead of putting money into a Future Fund to meet superannuation liabilities of the future, he suggested firstly that we should simply shore up existing super schemes. The problem is that that avoids the reason the fund is being set up separately. It is being set up so that it is not captive to the super scheme itself; it is there to protect against future liabilities—an important distinction. Secondly, I would have thought all members opposite would be ashamed at such a huge level of government debt that they left for us to reduce. We have reduced it by $90 billion. There is $6 billion to go. Paying the interest charges on this debt incurred a cost of at least $6 billion every year. It is extraordinary when you think of what that money could have gone into. I heard the member for Melbourne talking about various projects—education et cetera—that were important to him. I know $6 billion would go very nicely in assisting the education budget. It would go very nicely in assisting the various challenges that the generational shift he talked about coming down the pike and challenging us.

In talking about reducing government debt, he said that it was somehow morally wrong to sell off assets and then claim that you had reduced your debt. The problem is that the previous government sold off the Commonwealth Bank, sold off Qantas and sold off Australian Airlines. It just went to the bottom line in order to assist its continuing pork-barrelling rather than look at the structural problems of the economy created by having such a huge amount of unserviced debt. This side of the House thinks it is entirely appropriate to use asset sales to repay debt and to reduce government liability so that those funds can be put into more worthwhile activities. Of course, much of the repayment of the debt has also come from government surpluses, which we are very proud of on this side of the House. Look at the many years of very large government deficits and the $10 billion plus left by the Labor government. And they claimed in their last budget that they were in surplus.

The member for Melbourne made a very strange point about Telstra shares being put into the Future Fund. He thought that it was inappropriate that we should take Telstra shares and put them in a government fund, because we would have part ownership of Telstra without having the benefit of deciding whom we put on the board et cetera—like the former Labor government did when they put their old mates on the board of Telstra. Why would you do that?

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

Tell us about the Reserve Bank!

Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

As somebody who chairs the Standing Committee on Economics, Finance and Public Administration, I know, as does the member for Hunter—whom I see is sitting beside the member for Swan—very well of the talent of the people on the Reserve Bank board. There is no-one sitting on the Reserve Bank board who does not have enormous talent, and I would challenge the member for Swan to name one who does not have enormous economic talent. But that is not the issue.

The issue is more about why, if you set the organisation free to compete in the private sector, you would want to take it back. If you take part of the Telstra shares and hold onto them and the price of the shares escalates, that will assist you more favourably. Part of the problem is that you have $30 billion worth of shares going onto the market, which will be the largest float in Australia’s history, and you may decide to phase it out. That would be the reason you would do it. The member for Melbourne seems to have missed the whole point of the issue.

Having talked about some of the hobbyhorse issues and the member for Melbourne, I will turn to what the fund is trying to do. It is trying to address in a meaningful way what has happened in other countries. A whole raft of countries have indicated that they want to follow a similar approach. I think New Zealand and Canada are in that group. Ireland and France have established future funds. Why have they established future funds? Because they have looked at the United States—the world’s largest economy—and they have seen that they have not provided for the future.

I visited the United States in April. One of the issues that the various think tanks are challenged by and constantly point out is that the government take in terms of taxation is about 15 per cent. If you go forward to 2030, in terms of the Medicaid requirements—that is, their medical funds, social security payments and so on—the actual take will amount to 22 per cent of GDP. The question they keep asking is: how will that work? You either have to increase taxation substantially or you have to slash in a major way medical benefits, particularly for medicines et cetera—like our PBS—otherwise it will simply not work. The United States have not addressed the challenge of their demographic shifts. They have not addressed the question of future liabilities.

The Future Fund addresses in a significant way the future liabilities that we are facing. We will have proportionately fewer people in the workforce—and even the member for Melbourne said that. The forecast is that, by 2040, we will have the same number of people in the workforce, but we will have more than twice the number of retired people. In my electorate 18½ per cent of people are over the age of 65. That trend will follow across Australia.

To meet this challenge we need to prepare for the future, otherwise we will be in the same position that the United States are in. Having inadequate preparation means they will have to either substantially lift their taxation levels or slash benefits. We do not want to see that happen and this proposal is preparing for the future in a very responsible way. It is not, as the member for Melbourne would say, simply an indulgence. We have seen the retirement of government debt. We are putting surpluses that we see in the future into this Future Fund, which will provide in a realistic way for the challenges of the demographic shift and also our retirement liabilities.

As a result of the repayment of the government’s debt, $6 billion a year will be released into the real activities of health, education and national security. Unfunded public sector superannuation is the largest liability on the Commonwealth’s balance sheet. As at 30 June 2005, unfunded public sector superannuation liabilities were around $90 billion. That is predicted to climb to an estimated $140 billion by 2020. The member for Melbourne says that is an indulgence, that we are overreacting and that this is a lesser priority.

How can you say that when you will have, on current estimates, liabilities of a superannuation scheme alone of $140 billion? That is the challenge that exists. His suggestion is that maybe we just shore up the existing government super scheme and all will be well. Unless we plan to raise taxes or to slash our benefits, driving the budget into deficit, we will not meet the equation that faces us. The best way is through the Future Fund, which other countries have successfully shown as the way forward.

The Future Fund will be invested, accumulating financial assets sufficient to offset the government’s unfunded superannuation liabilities by 2020. The bill provides for initial capital of $18 billion to be transferred to the fund in 2005-06. The government will also contribute any future surpluses and proceeds from government asset sales to the fund. Also, as the fund grows over time, the earnings of the fund will be reinvested and the assets held by the Future Fund will be protected from the rest of the budget to keep it secure. As I mentioned before, that is what other countries have done. The fund will only be drawn upon at the earliest in 2020 or at a time when an independent assessor determines that the future of the fund’s assets are adequate to offset the unfunded part of the government’s accrued superannuation liabilities.

Isn’t that what we are about? Isn’t that about responsibility in addressing our future liability? Taxpayers will face a much lighter tax burden than they otherwise would face, so it is our children who will experience the benefits of this. The fund represents a sensible financial policy now for the benefit of future generations. Queensland already has a fully funded superannuation scheme, and it has a Labor government. I am not quite sure why there is concern about this approach. The chairman of the board will be David Murray. There is all this talk about the way they might be doing it, the way they will invest their funds and ‘this will be rorted and used for the benefit of the National Party’ et cetera. What a nonsense. It is protected by legislation.

We have one of the finest chief executives in the country to head it up: David Murray. His track record in running the Commonwealth Bank is outstanding. The share price doubled, then doubled again, under his leadership, showing the great confidence the public has in the leadership of that organisation. He knows how the share market works; he knows how to invest to insure for the future. I certainly think he is a very fine person to have in that role.

The Board of Guardians will be assisted by a new government statutory agency—namely, the Future Fund Management Agency. It will undertake the associated operational activities; however, all investment activities will primarily be outsourced to private sector fund managers, which is appropriate. Of course, their performance will be measured against each other, so if one private sector fund manager does not perform against the criteria set up by the Board of Guardians and the chairman, they will be replaced and others will be brought in. It is a very competitive environment; it is not some sleeping, snoozing group of former bureaucrats who have just got their pensions and are looking forward to seeing their union mates down at the pub. This is a professional organisation with professional people who will be looking to the future of our government superannuees, which I would have thought most people would be concerned about.

As for restrictions, the bill provides a framework for these decisions by outlining an investment mandate to guide the board, as well by setting the broad parameters within which the fund is allowed to operate. The Future Fund is a financial asset fund. The board will be able to invest in a wide range of financial assets, including shares and bonds, but it cannot invest in non-financial assets such as direct holdings of property and infrastructure. It will have to report, and that report will be tabled in parliament. The fund will also appear before Senate estimates and be subject to other forms of parliamentary accountability. Members opposite will be able to quiz the chief executive on performance. They will be able to look at the performances of each of the fund managers to see how they are going and raise appropriate questions. They will be able to ask questions in terms of where the money is being invested, not only in terms of the outsourced fund management. They will also be able to ask questions as to whether any of the funds have been diluted to various electorates—and I would think not.

The legislation is basically to ensure that the fund will be protected from a future Labor government—heaven help us all if that does come about—rorting the piggy bank and looking after their mates if they get into government. The approach in the legislation is broadly consistent with the approach taken by other national funds operated by other countries, which works very well. It is about preparing for the future and ensuring that the government’s liabilities are prepared for and are going to be met. It ensures that we do not allow ourselves to be in a vulnerable position where future generations will have to meet the requirements and be subject to increased taxation or a reduction in benefits across the board. This is sensible, appropriate, pragmatic and responsible financial management. I commend the bill to the House.

Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Link to 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.

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

It is with some pleasure that I enter the debate on the Future Fund Bill 2005. I have just listened to the shadow Treasurer’s remarks on this very important legislation. I find his remarks a little confusing because, in the beginning, he was arguing that maybe this money was going to be quarantined from certain infrastructure works. In fact, I note that the second part of the amendment to which he has just referred says:

(2)

the income stream from the Fund should be used for productive national economic purposes rather than being set aside solely to offset the cost of public sector superannuation as the Government intends”.

I wish to say a bit more about that before I conclude my speech. It seems to be a very clear argument for close interference by government at every moment of the process. Yet, in the last part of his remarks, the member for Lilley was complaining bitterly about that sort of approach. It seems to be his view that if Labor were in control of these moneys everything would be done in a pure and honest fashion but if it were the responsibility of the present Howard government it would not. I have to disagree with him on those principles. Nevertheless, it is my view that from time to time there are substantial investments in the future needs of the nation that might be highly productive in meeting the eventual ambition of this fund.

But to start at the beginning: this fund is probably the final piece in the jigsaw that this government has implemented during its term in office to genuinely remove not only the existing debt of this parliament but also its prospective responsibilities. These responsibilities have accumulated over a long time—in particular, for public servants who are under defined benefit schemes. Quite properly, the government has decided that what people have they should keep, notwithstanding the lines being drawn in the sand, including in this place. And of course the new schemes are all contributory. But as we were advised in the second reading speech—and it was confirmed a moment ago by the member for Lilley—the defined benefit schemes are going to reach liabilities of $140 billion, according to actuarial assessment. I was somewhat surprised to hear the member for Lilley say, in one breath, that this was the amount of money mentioned by 2020 and, in the next breath, say that, really and truly, the problem has gone away because we have changed the rules. We have not changed the rules for a large group of public servants who had these other schemes available to them. Some of them are approaching retirement in future years and have made all their arrangements accordingly, and they are certainly entitled to that protection. Some people—in particular, in Canberra—who have a special interest in this issue should read the member for Lilley’s speech quite closely because it seems to argue both sides of the coin.

The biggest responsibility in achieving the sort of productive growth that the member for Lilley promotes—in my mind, quite correctly—is getting people to invest in Australia. One of the easiest ways to get people to invest in Australia is to ensure that the interest rates they are charged on borrowings for that purpose are as low as possible. I have always said that a lot of attention is paid to the decisions of the Reserve Bank and others. The reality of the modern economy is that, like any other commodity, the value of money is relative to the demand for it. When a government is a major competitor in buying money—hopefully the savings of Australians, but frequently, in the Australian context, the savings of people in other parts of the world—if it gets too competitive it forces the price of money up and that makes it extremely difficult for people to invest in their own assets, such as their homes, and difficult for business to invest in and develop our country.

At the moment, because government has virtually walked out of the borrowing market in a retrospective sense, we find all sorts of people wanting to invest in infrastructure assets. The money is available and it is cheap. We are buying infrastructure assets not only through our investment bodies in Australia but all around the world. I read in the paper the other day that Macquarie Airports now has massive investments in airports in Europe, as it does in Australia with Sydney airport. Other people are demonstrating to us just how wasteful we as government managers were in the use of the assets of an airport. Suddenly the terminals are full of retail premises, which are presumably making money, because they are always there when I return. Then we see areas of the airport where airplanes do not land but which are a necessary requirement of an airport development for all sorts of purposes, such as warehouses, retail centres and things of that nature, where we as a government said, ‘Oh, well, there’s a runway here and there’s a runway there.’ I have often in this place quoted the words of Maggie Thatcher when she visited this place once and told us that it was a good idea to keep politicians out of business because, after all, if we politicians were any good at business we would be in business. That may be a test that is worthy of judgment.

So the first thing that these proposals are saying is that politicians should not be too close to the decision-making process. The member for Lilley was a bit two bob each way on that issue, as I heard him. In one breath he was saying that they as a government of the future would take this money and invest it according to their decisions. That is intervention at a very close level. In the next breath he was saying that we as the Howard government should not.

We have a very interesting situation: the government, having surplus moneys to the revenues it needs, has said, ‘We will commence the Future Fund.’ The Future Fund will wipe out the last prospective debt of this government of this parliament, and I would be extremely disappointed to hear anything from opposition speakers that says that is not a good idea. The benefits will flow to the business community, to the private sector, because we are not in there competing for the money available in our community and elsewhere. So that is the first point: the Howard government has been the biggest contributor to national savings by paying off the debts previously accumulated. So this fund is important and will contribute to the infrastructure that the member for Lilley has said is so important and that the amendment of the opposition stresses.

Nevertheless, I am hopeful that there will be opportunity for the Future Fund to look at some of the investment opportunities that probably do need some seed money from government. That might come from revenue. It is not the first time I have stood in this place and talked about the huge opportunity in renewable energy that is available in the Kimberleys of Western Australia. It is a tidal resource that is equal to all the energy consumed in Australia. Funnily enough its only fuel is money, because once the money is invested in tidal power, as the French have proved over a 40-year period, all of the revenue—I would think 90 per cent—is profit.

I would think that our significant managed funds, be they trade union or other funds, should be looking at that themselves because, firstly, it insulates Australia. It would create an opportunity to create hydrogen fuel, and in fact at present even liquefy natural gas. Rather than burning natural gas, which we have the ability to sell to the world, why not use tidal power for the purpose of liquefying natural gas. It would also be used to create hydrogen, and that is the fuel of mobility for this nation. What a wonderful prospect. Outside of the environmental benefits, the economic benefits would not be beholden to any part of the world, particularly the more volatile sectors that currently dominate in the liquid hydrocarbon field.

So there are investments of that nature that require huge amounts of money, but if properly managed in terms of markets and other opportunities of the future they could be the ultimate in superannuation funding. As I have pointed out, every time someone refuelled their car with hydrogen generated from that investment they would be contributing to their own long-term pension. I think that could be part of this message, and I wish that were the intention of the opposition in its second reading amendment to the bill, which says in part:

(2)

the income stream from the Fund should be used for productive national economic purposes rather than being set aside solely to offset the cost of public sector superannuation as the Government intends”.

I think the example I have just given meets both those criteria. There are investment opportunities for this very large amount of money that could of themselves generate financial returns of significant quantity to pay those pensions, so you could have your cake and eat it too. I will always while I stand in this place be supportive of that idea. But where the Treasurer and others who have constructed this legislation become gravely concerned is when this sort of money, which is prescribed for a certain purpose—that is, the payment of superannuation—suddenly becomes the sort of slush fund that the Labor Party complains about on other occasions. There is a grave suspicion on our side of the House, considering the economic record and the business management record of the Labor Party the last time it was in government, when it accumulated this $96 billion worth of debt, that it might do so again.

Yes, you can argue until you are blue in the face about Regional Partnerships and some of these investment strategies, but they are primarily, from my observation, of great value to the community. I revisited one of the recipients of these grants in my electorate just the other day. They are a small community with a couple of highly technical, modern machines making them competitive in any marketplace with the product they manufacture. Of course, a large of proportion was paid for out of that grant. It is a fund and a grant that is working. I have never seen any program that governments operate from time to time that is 100 per cent successful, but the Regional Partnerships program, as mentioned by the member for Lilley, is 99 per cent successful. I think a lot of the programs that have been implemented in regional areas have not been done with large amounts of money. They are funded by the taxpayer, not by somebody whose job it is to manage moneys to pay the superannuation of those with future entitlement.

Looking at both the explanatory memorandum and the second reading speech, which are matters of record in this House, I cannot find the evidence, which the member for Lilley paints, that, while the Howard government manages it, it will be some sort of rort. We could have done that with the money in the first instance. We did not. As I have said previously, we have decided to pay out the prospective debts of the nation, having now paid out the retrospective debts—those already accumulated. It is a great honour to be part of a government that has taken those steps.

I do not know how long I have been reading articles in the commercial and business media complaining about the unfunded liability of government superannuation. As was said in the bill’s second reading, state governments have bitten the bullet, although many of them will have these old systems to deal with. This government is now biting the bullet. That means that people can be assured that the funds will be there to meet their retirement needs and the youth of Australia can rest assured that the funds will not be coming out of their pockets at a time when, because of demographic change, it would be extremely difficult for them to pay these sums of money through the tax system, as there will be fewer of them to do so.

I might add that, without contest, the member for Lilley had to have a shot at industrial relations. In my state at the moment it is quite a tragedy that a project to build a 30-mile passenger railway line, which was originally going to cost $200 million more than the track between Alice Springs and Darwin, is now running off the rails. It is very interesting to see how the industrial relations scene of Western Australia might have intruded. A well-known columnist and one-time Editor in Chief of the West Australian published an article the other day with the very strong hint that, at the insistence of the WA government, the prime contractor, Leightons, took on the CFMEU, as the controlling union, to dig a tunnel. In Western Australia in particular, and I think in many parts of Australia, the AWU has typically had coverage of what you do under the ground, with the CFMEU more likely to have coverage on top of the ground. I was most struck by his comments that a lot of people have been put into a workplace that they do not understand, which is not consistent with their culture. There are huge problems arising that some suggest will add $500 million to the cost of that project, which was already going to cost $200 million more than a railway line that goes halfway across Australia. There has to be something wrong there if there is privilege of that nature being granted.

Similarly, there are a litany of projects associated with our natural gas resources on the Burrup Peninsula and around the Pilbara area that have simply fallen over one after the other because, on final assessment, the investors from various parts of the world who want access to these natural resources have said, ‘It’s all too difficult; it’s all too costly.’ There must be components of our industrial relations regime that bring them to that conclusion. It was notable that when the WA Gallop government—now the Carpenter government—changed the Court industrial relations laws there was an immediate cancellation of a near-$1 billion project up in the Pilbara. That was the first one to go. I read the other day about five or six others that have fallen over before they have laid a brick, simply because Australia is not competitive. So what happens? We bundle our natural gas into a ship, it goes somewhere else and that is where the facility is constructed.

I think the opposition are being a little tongue in cheek with their amendment, and I think that is a pity. I do not dispute that part of paragraph (2) that states an income stream ‘should be used for productive national economic purpose’. I do disagree with the bit that says that it should be ‘set aside solely to offset the cost of public sector superannuation’. It is not offsetting the cost; it is providing a fund for the purpose of ensuring that people who have given loyal service to the government, particularly in this town, have the knowledge that their future superannuation is guaranteed when demographic change might otherwise make that very difficult. I thank the House for listening to me and I naturally support this legislation with enthusiasm.

Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Industry, Infrastructure and Industrial Relations) Share this | Link to this | Hansard source

I support the notion of a Future Fund, but not the government’s Future Fund. The government’s notion of a Future Fund has two fundamental and severe limitations, reflected by the legislation and addressed by Labor’s second reading amendment to the Future Fund Bill 2005. I firstly wish to associate myself with the remarks of the shadow minister for finance, the member for Melbourne, Mr Tanner, and the shadow Treasurer, the member for Lilley, Mr Swan. Any Future Fund, in our view, needs to make a contribution to our future national productive capacity. The parliament needs to ensure that any Future Fund is able to operate independently, at arm’s length, when it comes to its investment decisions, free from ministerial, political or government interference. On both those counts the legislation, as presented to the House, fails.

We need to ensure that the Future Fund makes a contribution to our future national productive effort. Australia has survived as a prosperous nation because we have over our period been internationally competitive. But to remain internationally competitive, to remain in the race for prosperity, to continue to be able to create wealth and to seek to distribute the proceeds of that wealth fairly within our community, we have to be internationally competitive and we have to be more productive. We are the beneficiaries of nearly a decade and a half of economic growth. That economic growth was, in large terms if not entirely, set up by the structural reforms of the former Hawke and Keating governments. But the great economic complacency of this government has been to live off those structural reforms and that economic growth and to not move our nation to the next level of productivity improvement. This is reflected by the government’s failures as far as the Future Fund is concerned.

That complacency is reflected by our serious trade deficit, our effective collapse in manufacturing and services and elaborately transformed manufacture exports, a skills crisis, crumbling infrastructure, a massive current account deficit and a record foreign debt which dwarfs the foreign debt we saw when Mr Howard and Mr Costello were running around with their so-called debt truck. I now know where they have hidden the debt truck. It is either hidden under snow and ice in Iceland or hidden under desert sands in Qatar—the only two countries that have a foreign debt larger than our own as far as per capita calculation is concerned.

Labor announced its approach to a Future Fund in the budget reply of 2005. Our notion of a Future Fund is described as a Building Australia Fund whereby it would be possible for the income proceeds from a Future Fund to be applied for productive purposes, in particular to help rebuild crumbling infrastructure. We made it clear at that time that the scope and nature of the government’s so-called Future Fund was too limited. The entire rationale for the government’s Future Fund is to make allowances for the unfunded superannuation liabilities of Public Service employees. The relevant fund is already closed. It is quite clear from any effort at an objective analysis that those liabilities can be more than comfortably met by the ordinary annual finances of government. Whilst you can argue that a Future Fund could pay some attention to those unfunded superannuation liabilities, it is frankly extraordinary for the government to base its entire public policy rationale on a Future Fund entirely for that purpose. The scope is too narrow and will not make a contribution to our ongoing productivity improvement and our ongoing capacity to be internationally competitive.

Secondly, it is quite clear, despite some utterances at the time by the Treasurer, that the Future Fund will be a locked box. And when Mr Costello said that the Future Fund would be a locked box we knew exactly what he was referring to—that he wanted the funds protected from the once-every-three-years splurge by the Prime Minister or the ongoing splurge by the National Party. It is quite clear that this was a view not shared by the Prime Minister. It is quite clear that, in yet another example of the Treasurer losing an arm wrestle with the Prime Minister, the Prime Minister’s view that these should be decisions for the government of the day to make has prevailed. So, contrary to the Treasurer’s assertions at the time that the Future Fund would be a locked box, the capacity for ministerial direction means that the governance of the Future Fund is entirely at risk of ministerial, political or government interference so far as individual, day-by-day investment decisions are concerned. These two deficiencies are addressed by the second reading amendment moved by Mr Tanner, which says:

(1)

the Future Fund should only invest on a prudent commercial basis and manage funds in a manner consistent with:

(a)

best-practice portfolio management;

(b)

achieving desired returns without undue risk to the Fund as a whole;

(c)

enhancing Australia’s reputation as a responsible and ethical investor; and

(d)

building productive capacity in the Australian community; and that

(2)

the income stream from the Fund should be used for productive national economic purposes rather than being set aside solely to offset the cost of public sector superannuation as the Government intends”.

Those deficiencies of the fund would be remedied by Labor in government. As that response to the second reading speech reflects, the provisions in the bill severely limit the independence of the fund and its guardians or its board. Secondly, the bill contains no proposed guidance or general investment mandate. The bill is also silent on when, how, if and at what price the government would transfer any remaining publicly held equity in Telstra shares into the fund. As has been observed by more than one commentator in the marketplace, that has the potential to massively distort the equilibrium of the fund from day one.

When the government initially announced its proposed Future Fund to be seeded with budget surpluses and future asset sales—which was code for the sale of Telstra—the government, particularly the Treasurer, assured us that the fund would be managed independently of the government of the day. As recently as 8 December, to coincide with the introduction of the legislation into the parliament, in an article in the Australian Financial Review, the Minister for Finance and Administration, Senator Minchin, stated ‘There will be a lot of transparency and accountability’. Unfortunately, that is not reflected by the actual bill as presented. The Treasurer had gone even further and likened the operation of the Future Fund to the independence of the Reserve Bank board. On 8 November, in an Australian Financial Review article, the Treasurer stated:

We have a board on the Reserve Bank which has a strong culture of independence and because it has a strong culture of independence with strong directors it makes independent decisions.

The Treasurer was, of course, distracted by the Reserve Bank board in a different context on that occasion. But, again, to hold out the independence of the Reserve Bank board and to seek to compare that with the so-called independence of the Future Fund is a nonsense. So, far from guaranteeing the independence of the fund, through this legislation the government is potentially placing the fund under direct political ministerial interference and control.

In a sense, this should not have been a surprise, as I alluded to earlier. On 11 April in the Australian Financial Review the Prime Minister stated that the fund should be under government control rather than be an independent authority. He said:

I don’t believe in too many statutory authorities. I think governments should be held accountable for what happens on their watch, just as they should have the power to influence what happens on their watch. The two go together.

          …            …            …

But my point is that going through the process of winning an election and then handing over all your authority to unelected officials, that is crazy, I have never supported that.

So it is quite clear that, in the arm wrestle between the Prime Minister and the Treasurer, the Prime Minister had his eyes on the capacity to pork barrel once every three years and the capacity to assuage his National Party colleagues from time to time. It is also a quote which might well be read back to the Prime Minister given his performance today. Today, during question time and in a different context, the Prime Minister was walking a million miles away from what happens, so far as governments are concerned, on their watch and the power to influence what occurs on their watch. Today, in a different context, from the Prime Minister, we had much more of a ‘washing of the hands’ approach so far as Iraq, Saddam Hussein and the Wheat Board are concerned.

So it comes as no real surprise that the legislation empowers the Treasurer and the Minister for Finance and Administration to give the Future Fund board written directions about the performance of its investment obligations. Page 13 of the explanatory memorandum makes the point that these ministers can ‘consider broader policy and national interest considerations’. In addition, ministers are given the authority to sack members of the fund’s board for ‘unsatisfactory performance’, though what this may constitute remains undefined. Furthermore, the bill contains no guidance on the proposed investment mandate of the Future Fund, a mandate which, though it is being presented to parliament, may not be disallowed. The absence of an investment mandate is a glaring omission, and the finance minister has chosen to provide scant or no detail through other public sources. In a letter to the Australian Financial Review on 19 December, the finance minister wrote:

Our proposed investment mandate simply seeks a target real rate of return of 4.5 to 5.5 per cent per annum ...

That is modest in that it equates with the Reserve Bank’s current cash rate. So, if that is the investment mandate, why don’t we just leave the money with the Reserve Bank board, where it currently is? It ignores any risk premium that a prudential and wise investment could make by investing money in a portfolio of shares. This raises the question that if the target investment return is simply to be the prevailing risk-free rate then, as I say, why not just leave the funds on deposit with the Reserve Bank or, indeed, with the Commonwealth Superannuation Scheme or the Public Superannuation Scheme, which have earned an average return of eight per cent over the past decade. The fact that that is the modest and underwhelming aspiration of the government is reinforced by the fact that some time ago the government appointed American asset consultant Watson Wyatt to advise on how to invest the Future Fund capital base. At the time of that appointment, Treasurer Costello said:

Watson Wyatt will provide advice to the Government on a range of issues, including the type of asset classes the Government might invest in, the expected returns and the associated level of risk ...

According to media reports, Watson Wyatt were to have reported within six to eight weeks of their appointment in late July 2005. Despite this, we have seen none of the details of any of those reports, and certainly none of the details are in the bill itself. Insofar as what we have been able to find on the public record, the investment mandate of the fund would be to simply meet the return which you could get by leaving the money with the Reserve Bank and getting a return for that deposit.

The Australian Chamber of Commerce and Industry, in its June review, argued that the government would be unable to resist pressure and opportunity to intervene on investment decisions and make uneconomic, politically motivated investments. I quote from the ACCI June review:

There will be political pressure for the fund to invest locally rather than overseas, intervene in specific markets and invest in projects which may not produce an economic return.

ACCI argues that the Future Fund will effectively amount to a ‘tax increase or a forgone tax reduction’ and that it will have a ‘limited effect’ on national savings—therein making the point of the limited nature of the fund so far as the government is concerned. In its June review ACCI made the point:

It is unclear why the government should provide for superannuation and not for other costs which are going to increase strongly.

So in that analysis we have a number of concerns: on the one hand, the capacity of the government to interfere through the capacity for ministerial direction in the day-by-day investment decisions and, on the other hand, an almost deafening silence from the government as to what the effective mandate guidance to the board would be. A much better, more sensible and rigorous approach would be for the legislation to simply allow general investment guidance to be given by the parliament and by the government of the day and for the board to then make independent, arms-length decisions in accordance with prudential requirements, reflected by the second reading amendment:

(a)

best-practice portfolio management;

(b)

achieving desired returns without undue risk to the Fund as a whole;

(c)

enhancing Australia’s reputation as a responsible and ethical investor; and

(d)

building productive capacity in the Australian community ...

All of that puts to one side the government’s deafening silence as to what, if any, Telstra shares will be placed in the fund at the direction of the government. There are a number of market commentators and a number of interested market players, including Mr O’Sullivan, the President of the Australian Council of Superannuation Investors, and Dr Michaela Anderson, the Director of Policy and Research at the Association of Superannuation Funds of Australia. They have both publicly drawn attention to the potential distorting capacity that that could have on the Future Fund.

Labor’s approach is to say, ‘Yes, there is a role for a Future Fund to play but a Future Fund which is, firstly, sensibly managed by an independent board of directors making impartial, objective and prudentially wise decisions subject to general mandate guidance so far as the government of the day is concerned and, secondly, trying to make a productive contribution to our national economic effort.’ In our view, the best approach to that is to enable the income stream from those independent impartial objective decisions to be available if required for national productive purposes through investment in infrastructure.

A strong independent intergenerational fund managed appropriately does have a significant role to play in improving Australia’s productive capacity. That will not occur through the government’s Future Fund but, on the election of a Labor government, it will certainly occur through what we have described as our Building Australia Fund. I support the amendment moved by my colleague the member for Melbourne.

Peter Lindsay (Herbert, Liberal Party) Share this | Link to this | Hansard source

Running the government’s budget is really no different from running your own personal household budget; it is just on a bigger scale. Every mum and dad who reads this speech will know that, in their household, if they continue to run up a liability and make no provision to meet it when it needs to be met, they are going to be in a spot of bother; there will be trouble. The Commonwealth of Australia is no different. If the Commonwealth runs up and continues to increase liabilities and makes no provision to pay out those liabilities, then the Commonwealth will be in a lot of trouble. It is pretty simple. I know, in the jargon of things, there can be all sorts of explanations about why that is not so, but I am a pretty simple person. I have found that, in life, if you treat things in a straightforward manner and look at things in a straightforward way, you get to the right answer, which is that we have responsibility. If we are allowing a liability to accumulate, then we have to equally make provision to meet that liability when it falls due. All the big words under the sun, all the philosophy and so on really does not change the fact that one day somebody has to pay.

It is prudent of the government to make provision to meet the Commonwealth’s unfunded superannuation liability. I know the amendment that has been moved by the opposition looks pretty fair. It states:

(2)

the income stream from the Fund should be used for productive national economic purposes rather than being set aside solely to offset the cost of public sector superannuation as the Government intends”.

But I would ask the opposition: why is it that other governments have already gone down the path that the Future Fund Bill 2005 is going to take the Commonwealth of Australia? Why is it that Labor state governments in Australia have the same view as the Commonwealth? Why does the state that I come from, Queensland, have the Queensland Investment Corporation? Of course, it is to strengthen their balance sheets and to address the unfunded superannuation liabilities—exactly what the Future Fund being proposed tonight is designed to do. The Australian government is doing no more than responsibly catching up with its state Labor counterparts. Similarly, there are a number of nations around the world who have already adopted what is in effect a future fund. France, Ireland, Norway, New Zealand and Canada have established funds similar to the Future Fund. I do not quite understand why the Labor Party has moved this amendment tonight knowing that other state Labor governments in Australia have the same view as the Howard government, that we need a fund to meet the liabilities of our Public Service superannuation. There is nothing wrong with that. It is a prudent thing to do.

I know it sounds good to say that we should be investing in productive national economic purposes, but we have a liability and, first and foremost, that is what has to be met. I know that as soon as the government announced the Future Fund the Leader of the Opposition jumped into the media by promising to raid the Future Fund. He wanted to make expensive promises and he told the Northern Star newspaper in Lismore, I believe, that he intended to improve the Pacific Highway in the Northern Rivers and he planned to commandeer Treasurer Peter Costello’s Future Fund. Of course, that is why the fund legislation locks up the money so that it cannot be commandeered.

That is irresponsible. If you establish a fund to meet an unfunded liability, that is the purpose for which it should be used. Through the provisions of this bill the government is intent that that will happen. It is going to be an independently managed fund of assets that will be sourced from future budget surpluses and the proceeds of asset sales. The fund aims to grow to match the Commonwealth’s unfunded superannuation liability by 2020. We are talking about a lot of money—over $100 billion. That is why it is very important that action is taken now, particularly in relation to what we have all read in the Intergenerational report and what other countries have read in their intergenerational reports.

I note that an article in the New York Times in December last year congratulated Australia for having the courage to face up to these unfunded liabilities so that we can pay our bills and for not taking the politically attractive option of spending the money—because once it is spent, it is spent, whereas with the fund that money will grow. It is going to be invested in safe areas. There is a broad direction from the government on what the fund may and may not do. For instance, there will be a prohibition on taking over publicly listed companies, a prohibition on borrowing and restrictions on the use of derivatives for speculation or leverage, and the fund will be restricted to investment in financial assets. It is a prudent way ahead for the Australian government and the Australian people.

The board will be independent and appointments will be for five years, which will help protect appointments from short-term political cycles. Of course, the Future Fund will appear before Senate estimates and be subject to other forms of parliamentary accountability. I support the establishment of the Future Fund. I support measures in the bill aimed at ensuring it will not be raided by future governments. I support the government’s vision in looking ahead to the liabilities that we will face as a nation in the out years and due to the ageing of the population. I support this bill.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

The amendments to be moved by the opposition are sensible and have been developed with a view to the future of Australia beyond the current electoral cycle. Labor has stood firm in its belief about the proper use of the fund that will be established by the Future Fund Bill 2005. Labor believes that it is necessary to use some of the considerable funds that will be controlled under the Future Fund for more than just fulfilling the minister’s investment objectives or acting as a halfway house to privatisation.

The bill before us signals another step in a return to big government under coalition control. This government is not content with being the largest taxing government in Australia’s history, nor is it content with threatening the fabric of Australian society by fundamentally changing the dynamics and interplay between individuals in employment relationships, and in other relationships for that matter. No, this government has decided that, when it comes to the funds that through this bill will provide for the ongoing superannuation liabilities of the Commonwealth, it will insert a clause that will give the responsible ministers scope to direct the Future Fund board to invest in a particular manner. Possibly the single most important aspect of this bill is the rules that will be established to govern the operations of the fund and its board.

Labor is not opposed to the fund—that has to be made clear. The Labor Party was the first to seriously attack the problems presented by our ageing population when it set out to establish a program of compulsory superannuation contributions. Labor members past and present know only too well the budgetary pressures that are likely to be faced in the not too distant future if we do not adequately cater for the ageing population. It is for this reason that the previous Labor government introduced the system of compulsory superannuation, and I have to say there was some foresight of this problem and support given to that decision by the trade union movement of this country. A system was introduced through which working Australians would save for their retirement to reduce the pressure on future budgets—it was a means through which ordinary Australians could save for their retirement with a degree of security.

Of itself, a system of compulsory superannuation would not guarantee that money would always be made through investment. The market fluctuates and no-one can make such guarantees in any event, but, in the main, the fear that many people had about investing in stocks and other financial assets was reduced, as superannuation funds would have the appropriate level of expertise in such matters with appropriate governance arrangements in place.

The government is setting up a future fund aimed at covering the unfunded liability of the Commonwealth when it comes to ongoing superannuation liabilities. There is no doubt that such a fund is necessary. Members on both sides of this House and the general public need only take a cursory glance at the numbers and compare the ratio of taxpayers to workers now and the expected ratio of taxpayers to workers in the future to see that it is prudent to establish such a fund.

As the Intergenerational report noted, Commonwealth spending is expected to exceed revenue 15 years from now and the gap between spending and revenue will continue to grow at five per cent of gross domestic product by 2041-42. There is a need to put some money aside to fund such a yawning gap between expenditure and revenue. There is a need to share the burden so that, through our own inaction, we do not create a considerable intergenerational inequity.

Of course, the important difference between the fund that will be established by the Future Fund Bill 2005 and the fund established to manage superannuation for future retirees relates to the government’s requirements of the proposed Future Fund. The arrangements that the government proposes to establish through this bill are merely a shadow of those which should be in place. I would have thought that the amount of money that is to be in the hands of the Board of Guardians would have compelled the government to make sure that appropriate checks were in place.

I would also have thought that, when it comes to managing a multibillion dollar fund of taxpayers’ money, there would be similar types of governance rules to those that apply to fund managers of other superannuation funds. Instead, what do we get? We have a bill before us that will establish a fund that is supposed to cover the unfunded superannuation liabilities of public sector employees and that does not need to subscribe to the same rules as other organisations. Despite the Future Fund being set up to receive some $18 billion in seed capital, it will not be held to the same standards as other superannuation funds. The $18 billion will be handed over to the Board of Guardians and a new statutory agency—the Future Fund Management Agency—yet it will not have the same requirements on its governance arrangements as a small industry based superannuation fund has.

The Board of Guardians and the management agency will be given a huge responsibility. They will be tasked with the job of taking the pressure off future budgets by reducing or possibly eliminating the risk of future generations facing higher taxes to cover the retirement of this generation. They will be tasked with the job of managing, investing and accumulating funds so that ongoing superannuation liabilities of the public sector will be taken care of. They are being tasked with the job of making sure that when the time comes to draw upon accumulated funds, some time around 2020, the money will be there and that the public will not have to choose which projects or what type of spending will have to be cut.

Quite frankly, this is a pretty big deal. Of course, the Board of Guardians will be required to do all of this while having to fulfil the request of the ministers responsible for this bill. So it could be a case of one eye on the investment goals of the fund and the other on the investment whims of the ministers in charge. Mr Deputy Speaker McMullan, I do not know about you, but it concerns me that a group of people in charge of this fund will not be held to the highest standard of governance on investing, managing or accumulating public funds.

Clearly, the government has in the back of its mind that there will be so much money in this fund that it will not be able to resist the temptation to use it at some stage, and therefore a backdoor measure of accessing the amount of accumulated funds is being placed in this bill. I am sure that is the reason why the government has decided that the board will have a statutory obligation to maximise the fund’s return over a longer term—a pretty logical requirement, I might say—and that the statutory requirement will be subordinate to the investment parameters set out by the government through the responsible ministers.

As difficult as it may appear, section 20(1) of the bill requires the board to take all reasonable steps to ensure that all policy and decisions regarding the operation and investment of the fund are in accordance with any direction and investment mandate issued by the ministers responsible, and those ministers are the final arbiters. I have to say that that is a pretty big hedge. As the ministers appoint the Board of Guardians, you would have thought that the government would have covered this off without needing to be so blatant—the government has been pretty loose in board appointments of late. Establishing this bill will simply allow ministers to appoint those persons whom they think they can trust to administer this fund—just appoint some of the Liberal Party stooges and take the pressure off. Surely a captive board would have been more adequate than putting this massive big hedging arrangement into the scheme for the Future Fund.

However, it seems that recent events have stung the government. They have been caught out once too often and now they are keen to cover off every possible angle through legislation—just like they did when, through the Work Choices act of 2005, they redefined ‘duress’ for the purposes of industrial relations. With the Future Fund, they are making sure that the primacy of ministers to direct investment strategies cannot be challenged. As we all know, the government have never been fans of appropriate levels of oversight and governance. Mr Deputy Speaker, you only need to look at the types of projects that were approved under the Regional Partnerships program or at what the Australian Wheat Board seems to have been able to get away with to see that ministers in this government do not like to be held to account.

But to set up a fund that is based on some fundamental principle that is different from the principle that applies to managing other superannuation funds—and bear in mind this fund will by that stage probably be in receipt of more than $100 billion of taxpayers’ money—and putting these caveats on it is contrary, in my expectation, to how the Future Fund would operate as it was originally announced in the budget.

I would have thought that a more prudent approach by the government—a government that does not have a reputation for the most transparent and appropriate use of public moneys—and a better idea would have been for the Board of Guardians to be placed at arms length. If the opportunity to override the board and to issue investment mandates were not low enough standards in governance, the Treasurer has now managed to set an even lower bar on this arrangement. Once again, learning the lessons of his colleagues, the Treasurer has decided that it is not good enough to make sure that the board is compliant. An added surety, section 56(1), requires the board members only need apply the degree of care and diligence that a reasonable person would exercise.

Unlike a superannuation trustee, who is required to apply the ‘prudent man’ rule when it comes to managing, investing and protecting taxpayers’ money, this government has set a lower standard of governance or requirement of persons who sit on the board. Under the prudent man rule, superannuation trustees are required:

… to exercise the degree of skill, care and diligence of an ordinary prudent person dealing with the property of another for whom the person felt morally bound to provide.

While the governance arrangements surrounding the Future Fund are critical to its proper operation, another important aspect of the fund outlined in the bill is where the money is coming from and how it will be accessed. The Treasurer, in his second reading speech, noted that seed capital of $18 billion is to be provided by the government in July to get the ball rolling. From then, the contributions of realised surpluses will proceed and the assets of sales will be credited to the fund. The bill goes into some detail about the crediting of moneys to the fund and the maximising of funds to be invested at any point.

Interestingly, though, there has been no detail provided about how government intends to make the biggest credit to the fund: the proceeds from the sale of Telstra. The 2005-06 Mid-Year Economic and Fiscal Outlook assumes that the sale of Telstra will be concluded and the full value of $26.6 billion will be received by the government. We all know that that value is unlikely to be achieved, based on the most optimistic view of the Telstra share price.

I do not know that too many domestic or international share markets are ready to buy nearly 6.5 billion shares of Telstra at the moment. The issue at hand is not really whether the market can bear an influx of Telstra shares; the issue continues to be—as it always was for this government—a case of accountability and detailing the plans. Late last year the Treasurer outlined that, if the full sale of Telstra did not go ahead—which was likely—the Future Fund would hold the Telstra shares and earnings allocated to the fund rather than the budget. I imagine that the plan of the Treasurer is also that the fund progressively dispose of the holdings of Telstra so that the government does not continue to indirectly own Telstra through the Future Fund. The whole process is a little unclear. It seems that the use of the Future Fund is in some way, as I said from the outset, being used as a halfway house, while either the Telstra share price or the market actually adjusts. Those things have simply not been well thought through.

Should this occur, what role would the government continue to play through its ongoing ownership of what may be a significant share in Telstra, while the fund holds the bulk of these unsold Telstra shares? What sort of impact will ongoing ownership by the government of unsold Telstra shares, through the fund, have on the government’s regulatory role when it comes to Telstra? These things have not been detailed. The issue of Telstra is not the only question when it comes to investment strategies of the fund. The Treasurer, in his second reading speech on the Future Fund, said, ‘It is a financial assets fund.’ That is, it is not an investment in non-financial assets, except through indirect means such as a pooled investment vehicle through trusts et cetera. He further stated, ‘It is not to invest directly in holdings of property or infrastructure.’

I am of the view that this element of the fund’s operation is unnecessarily restrictive, at least in the short to medium term. The government has been clear that the fund is unlikely to be drawn upon until 2020—that is now some 14 years away. I understand that, when the time of drawing on the fund occurs, the desire to have liquidity certainly increases. By the time we roll around to 2020 there will need to be a relatively liquid fund so that it can be easily drawn upon, not risk based capital needing to be liquidated quickly with the prospect of probably not gaining the most satisfactory results in superannuation payments. At that time, having the fund hold the vast majority of its assets in a liquid form is not an unreasonable request. Despite the need to have a greater degree of liquidity in the future, I do not think in the medium term that an investment strategy of the fund should be so restricted. There is a need for investment in infrastructure, an investment in the infrastructure that is necessary to increase productivity and continue to build this nation.

In saying that I believe that, subject to ordinary prudency checks and commerciality considerations, there may be a role for the Future Fund in investments that build capacity. I do not believe that it is necessary to restrict the type of assets the fund can hold to any one class of investment. (Time expired)

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

It is a pleasure to follow on in this debate on the Future Fund Bill 2005 from the member for Werriwa and from the members opposite, such as the member for Lilley and the member for Perth, all of whom come into this chamber and espouse the great Labor Party philosophy and the great Labor Party ideals that they would apply to the Future Fund. Of course, it is wonderful that the Australian Labor Party can come into this chamber and lecture the government and the Australian people about the ways that they would improve the Future Fund if only they were in charge. Their standing up and arrogantly proclaiming what they would do with the Future Fund stands in stark contrast to the fact that the Australian Labor Party, when they had the opportunity, left the economy of this country in a state of rack and ruin.

The only reason we are able to have this debate in the chamber today is that a coalition government has delivered—and delivered in spades—for the Australian people when it comes to good management of the Australian economy. It is all very well for the member for Werriwa to come into this chamber and talk about how the Future Fund is overly restrictive in that area and how the Future Fund should have more liquidity in this area—how we need to focus on building productivity, how we need to ensure that young Australians will have opportunities in different job markets and all manner of different considerations such as these that the member for Werriwa put forward in his contribution. Yet he himself is a member of a political party that racked up, in the 13 years that the Australian Labor Party was at the helm of the Australian economy, some $96 billion of debt. That was the legacy of the Australian Labor Party. That was what was left by the Leader of the Opposition as part of Kim Beazley’s black hole when it came to the last budget that the Australian Labor Party ran.

Bear in mind that $96 billion of public debt as left by the Australian Labor Party is even greater than the liability of unfunded superannuation that this Future Fund is attempting to address. Bear in mind that this coalition government has delivered seven budget surpluses since 1996—and what a stark contrast it is to the nine deficits that the Australian Labor Party ran in their 13 years in office. The fact that, for example, this government has been able to deliver $33 billion back in the black since we came into office in 1996 again stands in contrast to the record of the Australian Labor Party. The coalition government, under the strong stewardship and economic management of the Treasurer, Peter Costello, has delivered $33 billion in the black. What was the Labor Party record? It was $74 billion in the red.

I am fascinated to hear from such erudite people as the member for Perth and the member for Lilley—and no doubt the member for Rankin will make his contribution—about the great things the Australian Labor Party would do if only we would listen to them when it comes to the Future Fund. How do they explain $74 billion in the red as compared to $33 billion in the black under this government? So while the coalition government and the Treasurer, Peter Costello, continue to deliver budget surpluses when most OECD countries around the world are expected to record budget deficits in the year 2004-05 and likely next year, we have the Australian Labor Party, with absolutely no sense of irony, coming into the chamber and telling us how they could do things better. I am very sceptical, as indeed are all Australians. We are very sceptical of the Australian Labor Party, because the Australian Labor Party, as of only about 14 or 15 months ago, stood before us all, straight-faced, and said, ‘The best person to lead Australia, the best person to be Prime Minister, is Mark Latham.’

How interesting that I should follow the member for Werriwa, because the presence of the new member for Werriwa also highlights the fact that the former member for Werriwa is currently up on different charges before the police—assault and I think theft is another one. There is a range of four or five charges. And the former member for Werriwa is the man that the Australian Labor Party was telling us should be Prime Minister of this country! Any wonder that we think that perhaps the Australian Labor Party not only lacks credibility when it comes to economic management of Australia and when it comes to the way in which this Future Fund should be dealt with, but also lacks credibility by virtue of the fact that it is not in a position to comment on economic management in this country because it has demonstrated a complete vacuum of judgment? How many more times must the Australian Labor Party be shown to be the kind of unscrupulous party it is when it comes to putting forward good recommendations to the Australian people? I make the point that we should apply the same test to the Australian Labor Party when it comes to the Future Fund.

The Future Fund is an initiative of the Treasurer, Peter Costello. It is a very good initiative and one that I am very pleased to highlight to residents in my electorate of Moncrieff, as well as to residents of the city of the Gold Coast and more broadly to all Australians. It is an initiative that is particularly pertinent to younger Australians. It is a forward-looking initiative that ensures that in the longer term, thanks to the good economic management of the Treasurer, Peter Costello, this government is starting to meet those unfunded liabilities that have been racking up for decades under successive governments. This government, through careful economic management, is making a contribution such that we are in a position where we can alleviate some of the burden that will fall on future generations of Australians if we were not to ensure that we fund the current $90 billion of unfunded superannuation liabilities.

The Queensland government enjoys funded superannuation liabilities such that it has a funded superannuation scheme—introduced, I might add, by a coalition government. In the same way that the Labor Party in Queensland today can enjoy the fact that superannuation liabilities there are funded, this coalition government will ensure that the Australian people in the longer term can enjoy funded superannuation for public servants. It is a $90 billion expense, expected to grow over coming years to over $120 billion, but it is a challenge that this government can meet, and we are taking concrete steps forward with this bill. The amazing thing is that the Australian Labor Party stands opposed even to measures like this, which will make such a substantial difference to our wealth and to the tax liabilities that future generations of Australians will need to pay.

We must bear in mind that Australia, like many Western democracies, has an ageing population. The Australian people will see the proportion of the population aged 65 and over continue to grow from approximately 12 per cent in the early 1990s to closer to 27 or 28 per cent by about the year 2050. So we will see a very significant increase in the number of Australians who will effectively be retired, who will have an expectation that the government will provide funded pensions and who will continue to utilise services that we take for granted, such as Medicare. Bear in mind that, as more Australians start to utilise these services as they grow older, there will of course be proportionately fewer Australians working and paying the income taxes that fund these kinds of expenses. Consider the fact that, in combination with this ageing of the population and the draw-down on government services increasing significantly, there will also be a sizeable proportion of the Australian population that is currently employed in public sector roles that will be drawing down on what are presently unfunded superannuation liabilities. In that respect, we must be mindful of the importance of the fact that where possible we need to provide for these superannuation liabilities. That is very much what this bill does.

With respect to the construction of the Future Fund and the management committee that will put it together, we see an injection of initial start-up capital by this government of approximately $18 billion. This $18 billion flows from previous budget surpluses as well as proceeds of any future asset sales that this government will make. I heard the member for Werriwa talking about the fact that he thought it was a little unclear as to what the government’s policy might be with respect to the sale of Telstra and whether or not proceeds from the sale of Telstra will flow directly into the Future Fund or whether there might be a transfer of assets into the Future Fund in the form of Telstra shares. Apart from highlighting the hypocrisy of the Australian Labor Party when it comes to the privatisation of Telstra, given their track record when it comes to privatisations, I would simply say to the member for Werriwa and to all members opposite that at least this government, in privatising former national assets such as Telstra, is putting the money aside for a proverbial rainy day. At least this government is not squandering the millions of dollars that will be raised—and indeed, when it comes to Telstra, the billions of dollars that will be raised—by chewing it up as part of that particular year’s budget.

This was the legacy of the Australian Labor Party. When the Australian Labor Party privatised Qantas and when it privatised the Commonwealth Bank, that money was not set aside. That money was not used to pay down debt. That money was not used to ensure that we were paying less interest. That money was used in the budget of that year so that the Australian Labor Party could continue on with their merry and reckless way of spending taxpayers’ money—not in an educated way but simply in some mad scramble to try to improve the budget bottom line. That is the legacy of the Australian Labor Party—to spend national assets for short-term gain, to rid our nation of jewels so that they were not leaving a $20 billion budget black hole but were able to raise the budget bottom line to Kim Beazley’s $13 billion. That is the legacy of the Australian Labor Party.

I find it extraordinary that the member for Werriwa would come into the chamber and say: ‘I’m a little concerned about the sale of Telstra. I’m a little concerned about the fact that we are putting assets into a Future Fund.’ I say to the Australian people: it is fantastic. I say to my constituents: isn’t it good that this government, when privatising a company—moving it from the half-pregnant, half-public/half-private ownership model that we currently have with Telstra into a private sector form of governance so that the government is not conflicted by being both the majority owner and the regulator—can at the same time provide the benefit that future generations of Australians will be able to enjoy with these assets not only accruing in value, not only earning interest and dividend income, for example, but actually being used to meet future liabilities? These are issues that I am very pleased to talk to my constituents about, and the feedback that I receive from my constituents highlights the fact that they are very pleased that this government has the wherewithal to ensure that we continue the good, strong economic management that the Treasurer, Peter Costello, and all members of this government are renowned for.

With respect to the Board of Guardians, the board will have statutory responsibility for managing the investments of the Future Fund. I have heard previous opposition speakers call into question the qualifications and the operation of the board. I am willing to bet that it probably would not matter who was appointed to the board—they would do a better job than the Australian Labor Party would. What is more, the board that will govern the Future Fund has one single greatest threat, in my view—and that single greatest threat would be the election of the Australian Labor Party to government. The Australian Labor Party have already indicated that their policy is not to continue with the Future Fund. The Australian Labor Party will turn their backs on future generations of young Australians. The Australian Labor Party will ignore the hard work of this government that has built up assets for the Australian people. The Australian Labor Party, if they have the opportunity of getting elected to government, will raid this Future Fund. Once again we will see the tried and true form of the Australian Labor Party as they undo all the good work and years of strong economic management that the Treasurer, Peter Costello, has put into growing this Future Fund. They will raid the Future Fund, no doubt to try to prop up some budget deficit that no doubt they will accrue again in the future.

The Australian Future Fund is an important fund because it is about recognising that in the future the Australian people may not always enjoy the economic sunshine that the Treasurer has been able to bring about through economic management that is both sound and strong. The Future Fund is an important initiative that will help to ease the tax burden. By easing that tax burden, we will continue to ensure that this government, through the delivery of budget surpluses, is in a situation to provide money back to the Australian people. This government has delivered a number of tax cuts over its past 10 years in government. That stands in stark contrast to, as I am sure you would recall, Mr Deputy Speaker, the l-a-w law tax cuts that the Australian Labor Party said they would institute. This government actually brings about tax cuts, but the Australian Labor Party stand up and promise the people that tax cuts are l-a-w law and then turn their back on them. Once again, Mr Deputy Speaker, I would suggest to you that the Australian people are actually quite intelligent when it comes to determining who is real and who is phoney and when it comes to the way in which we deal with their money and the way in which we provide for the future of the Australian people.

I commend the Future Fund Bill 2005 to the House. I commend the fact that, through careful economic management, by delivering seven budget surpluses since 1996, through raising $33 billion in budget surpluses and by an injection of some $18 billion into the Future Fund, this government is able to take the pressure off future generations and, what is more, is able to provide some certainty to those in the Public Service Superannuation Scheme, which will be looking to draw down on this fund in the future. I commend the bill for ensuring that we have in place adequate management safeguards while at the same time ensuring that we have a fund that is able to build up capital and income as a result of varied investments.

I challenge the Australian Labor Party to recognise that they are not credentialed when it comes to the economic management of Australia. The Australian Labor Party do not have the credentials to determine the manner in which the Future Fund should be operated. Furthermore and most importantly, I challenge the Australian Labor Party not to raid the Future Fund, to use it to prop up the bottom budget line from some future deficit budget that they are likely to run, but rather to leave the Future Fund in place so that it can continue to earn income and fund those $90 billion of unfunded superannuation liabilities. The Future Fund, as an initiative of the Treasurer, Peter Costello, is a very good initiative, one I am very proud to support and one that I certainly know the Australian people are very grateful to see taken. I commend the bill to the House.

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

The member for Moncrieff gave the same old speech, but on a different topic, that the devil incarnate, as far as the member for Moncrieff is concerned, is the Australian Labor Party. That is his theme and then he builds a few details around it. I wish he would spend a little bit of time doing some decent research to come up with something productive in the debate. He sought to assure the parliament that there are going to be, as a result of the Future Fund Bill 2005, ‘adequate management safeguards’. I have had a look at the management arrangements in this legislation. Any such safeguards can be undercut by the ministers responsible issuing the investment mandate. I remind members of the parliament that this is a collection of ministerial directions to the board regarding the investments of the fund and that these directions are not disallowable. So much for ‘adequate management safeguards’! You could drive a Jordanian truck through these management safeguards, but in fact you probably would not be able to because that particular trucking company does not have any trucks, such is the cost-cutting competition for trucking in the Middle East. I wonder whether these particular ‘safeguards’ might be so wide as to allow the government to invest in the future in Jordanian trucking companies; it has certainly done that in the past. So much for ‘safeguards’ and so much for the noble cause of investing in Australia’s future!

This government has shown every capacity in the past to manipulate government spending programs and government savings for its own electoral advantage. We know that from the $400 million of infrastructure rorts and from the dredging of the mouth of Tumbi Creek, which had already been opened by rain—‘Never mind, we’ve got to get this marginal member re-elected so we’re going to dredge it even though it’s open.’ That is the standard that has been set by this government in its ‘adequate management safeguards’. The so-called Charter of Budget Honesty has led to unprecedented dishonesty in the budget papers. Nowadays they are unintelligible—deliberately so. The move to accrual accounting has been nothing but a smokescreen to make it impossible to read budget papers, so we get this standard of so-called ‘adequate management safeguards’.

The government has built surpluses—that is a matter of record—but it is worth examining how it has built the surpluses that will go into this Future Fund. It has built them on the backs of working Australians. It is the highest taxing government in Australia’s history, with very high levels of income tax in this country then supplemented by a $38 billion goods and services tax, the orphan tax. The day the goods and services tax was born was the day that this government disowned it and said that the GST, although it was passed by this parliament, is not a Commonwealth tax. The Auditor-General says it is a Commonwealth tax and the Australian Statistician says it is a Commonwealth tax. The only people who continue to assert that that $38 billion GST is not a Commonwealth tax are the Howard government. It is the highest taxing government in Australia’s history, yet it then purports to have achieved spending restraint.

Let us have a brief look at the government’s record on spending restraint. There was one budget in which it cut spending. In the 1997 budget there were very substantial cuts in government spending. But which programs were cut? Training programs were slashed. Is it any coincidence that Australia now has acute skills shortages? The training programs were an investment in Australia’s future. The government cut that investment in Australia’s future, creating acute skills shortages which are now operating as a constraint on our economic growth prospects and putting extra pressure on wage inflation.

What else did the government cut? We have heard many members of the government talk about the so-called l-a-w law tax cuts. Let us examine what actually happened. The first tranche of those tax cuts was brought forward. It was delivered not on time but ahead of time. The second tranche was converted into superannuation that would have lifted Australia’s superannuation adequacy to 12 per cent, which is a very reasonable figure—perhaps not all the way to 15 per cent, but to 12 per cent. The government went to the 1996 election promising in writing to deliver that superannuation contribution, which was such an investment in Australia’s retirement incomes, on time and in full. It did nothing of the sort. Instead, it abolished it. And that is why the government achieved spending restraint in the 1997 budget. The consequence of that is that we now have a situation of inadequate retirement incomes. Cancelling superannuation contributions that had already been included in the budget that it inherited was one of the most vandalistic acts of any government.

So when the government talks about spending restraint, the two key areas in which it cut spending were training, manifesting itself in acute skills shortages, and superannuation—a great investment in Australia’s future, a great investment in retirement incomes and a great investment in Australian infrastructure and productive assets. The government abolished that, despite promising in writing in 1996 that it would not do so. So the government’s record on spending restraint is to cut the most vital investment programs imaginable.

Since then, there has been virtually no spending restraint. Instead, the government has relied on taxing and taxing and taxing the Australian people almost into submission. The Australian tax system is crushing incentive. It is crushing the incentive to move from welfare to work. It is crushing the incentive for middle-income earners to go for a promotion or to work overtime. One million taxpayers are now confronted with a 42 per cent marginal rate and, within the next three years, another 400,000 taxpayers will go into that 42c tax bracket. If you look at Australia’s history of cutting high income tax rates, that task has been done by the Australian Labor Party. The highest top marginal rate of income tax of more than 62 per cent was delivered in the late 1970s by the then Treasurer and now Prime Minister of this country. Labor cut that rate and it is now down to 47c in the dollar. It was Labor that reduced those punitive income tax rates, and this government has allowed bracket creep to collect more and more tax.

In 2000, the government introduced the GST and said: ‘What jolly good fellows we are! We’ve delivered the greatest income tax cuts in Australia’s history.’ Weren’t those cuts compensation for the GST? The government says, ‘We gave back all this bracket creep.’ Wasn’t that compensation for the GST? The government has tried to count the same tax cut dollar in three different ways: as the biggest tax cuts in Australia’s history, as handing back bracket creep and as compensation for the GST. You can count it once, but not three times. We now have taxes going through the roof because the government has not restrained spending. So we now ask: why is the government accumulating surpluses? It is accumulating surpluses because of those tax increases and because Australia is enjoying the best mineral commodity prices in at least 30 years and perhaps 50 years. Australia is enjoying the most favourable terms of trade—that is, the price of our exports in comparison to the price of our imports—in 30 years and probably 50 years. This is the result of two forces: China, and increasingly India, has an insatiable appetite for Australia’s mineral products and we are bringing into Australia very cheap Chinese manufactured goods. These very favourable terms of trade have added $40 billion to Australia’s national income in the last few years. This is swelling the government’s coffers through company income tax and very high rates of personal income tax on people who are becoming wealthy as a result of the resources boom.

But resources booms have a habit of busting—or certainly of deflating. We must ask: where is this government’s investment program? Where is this government investing in Australia’s future productive capacity so that we do not have to rely indefinitely on the luck of high mineral prices as this government returns Australia to a quarry and a farm? Our luck ran out in 1986 when the then Treasurer, Paul Keating, warned of Australia becoming a banana republic. The government has taken us down that road again, relying on Australia as a farm and a quarry.

Under a very deliberate policy of the previous Labor government to insure against a minerals commodity bust, the volume of Australia’s sophisticated manufactured exports grew by 11 per cent per annum in the 10 years prior to the change to a coalition government. In the 10 long years this government has been in office, the volume of sophisticated manufactured exports has grown not by 10, nine, eight or seven per cent per annum but by one per cent per annum—compared to 11 per cent per annum under Labor.

So this government has no investment program to diversify our export base. As a consequence, despite the highest mineral prices in at least 30 years, we have Australia’s worst trade performance since the Second World War. We have a current account deficit that has passed seven per cent of GDP. Compare that with the 6.3 per cent of GDP that prompted Paul Keating to warn of the dangers of Australia becoming a banana republic.

This government said that it would follow policies that would bring down the foreign debt. The Prime Minister said that in launching the debt truck in 1995. At that time foreign debt was $180 billion. It has now more than doubled. It is now $430 billion as a result of the policies of this government. And it says that it is a responsible economic manager! It has presided over an economy where foreign debt has increased from $180 billion to $430 billion.

The government has failed to invest in the country, and nowhere is this showing up more clearly than in relation to productivity growth. Today’s productivity growth is tomorrow’s prosperity. Productivity growth as a result of the economic reform program embarked upon by the Hawke and Keating governments averaged 2.05 per cent over a 10-year period. The Intergenerational report, released by the Treasurer in 2002, warned of the dangers of Australia’s productivity growth slipping back from 2.05 per cent to 1.75 per cent. It actually forecast that from the end of 2005 this would happen and Australia’s productivity growth would slip back to its 30-year mediocre average. Well it has, but it has kept going backwards. It has not slipped back from 2.05 per cent to 1.75 per cent, or to one per cent or to half a per cent or even to zero. Australia’s productivity growth slipped into reverse gear at the beginning of 2004 and has been stuck in reverse ever since.

If today’s productivity growth is tomorrow’s prosperity, then today’s negative productivity growth bodes very badly for Australia’s future. Indeed the projections contained in the Intergenerational report, even at a productivity growth of 1.75 per cent, combined with the ageing of the population, would give Australia its slowest rate of economic growth per person in the decade starting 2010 since the decade of the Great Depression. It must be a sobering thought for every Australian that we face the prospect of a decade of economic growth per person that is the slowest since the decade of the Great Depression, and that is based on productivity growth assumed at 1.75 per cent, whereas at present it is negative. There is no immediate prospect of productivity growth turning positive, because the government does not have a productivity-raising reform agenda. Instead it is focused completely on labour market deregulation, as if working Australians will become more productive if their jobs are less secure. Have you every heard anything so ridiculous?

Orthodox economists like Professor Mark Wooden have pointed out the folly of this government’s industrial relations program. It will not deliver productivity growth. It will deliver further negative growth in Australian productivity and lead to a very sombre outlook for the decade from 2010 onwards. So despite the best terms of trade in almost 50 years, and despite $40 billion being injected into Australia’s national income from those high mineral prices and cheap manufactured imports, we have this very sobering outlook.

What Labor is saying in relation to the Future Fund is invest in Australia’s future, invest in a nation-building program to lift our productivity and our national prosperity. We need to invest in Australia’s intellect, in the youth of Australia, and give every young Australian a decent education. All of the international and national research shows that the most powerful, indeed the dominant, source of productivity growth in the 21st century is investment in people’s capacity, in their human capital, in their education and in their skills. What has happened? The year 12 retention rates have failed to rise significantly at all under this government. The number of children who are not completing a decent education is still at an alarming level. Australian literacy levels have not improved in the last 25 years.

There are estimates from the OECD indicating that one in five Australian adults is functionally illiterate. In relation to university education, last year for only the second time in 50 years the number of Australian students going to university actually fell. The figures are still coming in for this year but there is a fair prospect that it will fall again—that is, only three times in the last 50 years has that happened, because cash-starved universities are relying on full fee paying foreign students. All the growth in Australian university enrolments since 1996, since the change in government, has been accounted for by full fee paying foreign students. There has been no growth in enrolments by Australian students. Now the government has moved to full fee paying Australian students, and young people are saying that it is just not worth it. This government accuses Labor of being snobs about a university education. Every young person in this country who works hard and who has talent should be entitled to go to university and not be locked out of a university education by high fees.

We have a situation where China and India each year are producing 2½ million university graduates. We are down to around 150,000 graduates, and falling. The former Minister for Education, Science and Training, now the Minister for Defence, said that under this government, if it gets its way, within 10 years there will be further reductions in enrolments for Australian students. That is not investing in our future. Australia is one of only two countries in the Western world where increases in private funding in universities have not been complemented by increases in public funding but have substituted for it. So as the rest of the world is whizzing by here we are: not only standing still but going backwards.

On the second ‘I’, investing in ideas: where is the investment in Australian innovation? The other big decision that the government made in the 1997 budget was to cut the 150 per cent R&D tax concession to 125 per cent. Australian business responded accordingly by cutting its investment in research and development in this country.

This government has a program called Backing Australia’s Ability. It is best understood as ‘Backending Australia’s Ability’. The government is pushing out any investment into the future because it wants to pay the superannuation liabilities of public servants. It considers that to be a higher priority. It has failed to invest in our infrastructure. I do not only mean ports, roads, telecommunications, broadband roll-out; I mean our social infrastructure—our schools and medical facilities—to attract creative people to regional areas so that we can build on our dynamic regions and create a new engine of growth in our dynamic regions.

This government has failed to invest in initiative, to get the tax burden off the backs of those who want to move from welfare to work; those who want to improve themselves, do some extra overtime and go for the job promotion. They are confronted with very high rates of personal income tax, all in order to generate these surpluses that go into the Future Fund that the government in the end will control.

This government has no vision, no imagination—none whatsoever. It has a narrow-minded view that all it should do is put some money aside for Australian public servants. This government has an appalling investment record and should be condemned for it. (Time expired)

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

I am pleased to be back in the people’s House, this great democratic chamber of the Australian House of Representatives, to speak on bills and issues of importance not only to my electorate of Ryan but to the wider nation that I am so proud to be part of as a migrant Australian. At the very outset in this new parliamentary year I want to absolutely reject what the former shadow minister, the member for Rankin, has spoken of. The first thing that Australians have done to invest in their future has been to vote on four successive occasions for a coalition government. That is an investment in their future, not some Labor Party government that would take them into high interest rates, high unemployment and massive debt. The Australian people invested in their future in 1996 when they voted for the Howard government.

The member for Rankin spoke about the Howard government being a high-taxing government. But I recollect that in last year’s budget the federal Labor opposition did not want to support the Howard government’s tax cuts for all Australians. And I recollect that the member for Rankin did not vote for $21.7 billion worth of tax cuts. So this claptrap that the Labor Party, particularly the member for Rankin, talks about—that the Howard government is a high-taxing government—is absolutely rejected by this side of the parliament. To use an analogy from the Treasurer in today’s question time, like a reliable motorcar the Australian economy remains strong, robust and dynamic because of the management, the stewardship and the leadership of the economy in coalition hands. The driver of this economy is wearing a coalition badge. Thankfully, it is not the member for Rankin, it is not the member for Werriwa and it is not the current member for Brand.

The Howard government is committed to strong and sensible economic policy and the Future Fund Bill 2005, which I am pleased to speak on, is very much part of this package of good policies, of vision, of measures that will put this country in a very strong position for the future. The Howard government is committed to policies that keep this budget in surplus, that keep unemployment low and that keep interest rates low. All this is the envy of the world. We are the envy of developing nations and we are the envy of developed nations. This government is pro jobs and pro families. All this adds to a prosperous economy, a society and a community that Australians are all proud of. We are for the future. We are for the Future Fund. This is a commitment of the Liberal and National parties in coalition.

As I said, it is a pleasure to be back in the House in this new year, 2006, and to start off the year’s debates and presentations by speaking on a very important bill, a very fundamental bill for the future of this country, in particular for the future of young Australians, who will have a more secure future financially and economically.

This government, as has been alluded to in speeches so far, is approaching its 10 years in office. In that 10 years it has done some remarkable things in the interests of this nation. Of the $96 billion worth of debt created by the Keating government, some $90 billion has been repaid—incredible stuff, which is going to secure the future of this country, particularly, as I mentioned, of younger Australians.

The Future Fund Bill 2005, which I am pleased to speak on, is an example of what this government is doing. This government is all about addressing major issues, major policy challenges. One of the biggest policy challenges that we have is how to address this matter of unfunded public sector superannuation. The Future Fund will do that. The Future Fund is a mechanism, a vehicle, with which we can address this very critical issue.

For 13 years employers in Australia have been legally obliged to put aside a percentage of their staff salaries into a superannuation fund to ensure that employees are secure in their economic futures. Yet, somewhat remarkably, public employees have received no such guarantee. The government is currently relying on an ad hoc pay-as-you-go superannuation system. While this system works when the budget is in surplus and the economy is strong, there is no doubt that it becomes somewhat of a challenge when the economy faces weaknesses. We want to prevent any future weaknesses that might confront the economy from damaging the economic livelihood of Australians.

I think that most public servants have seen how quickly an irresponsible and incompetent Labor government can send this country into debt, indeed into near bankruptcy, as the years have proved when Labor has been in office. They are rightly concerned about how a Labor government—any Labor government, led by any member of the opposition—that gets back in power would be in a position to completely destroy their prospects. The collective sum of these entitlements is a massive amount of money: $140 billion of accumulated entitlements by 2020. This country, this government, must do something about that, and we are doing something about it. This is a further reassurance to the Australian people and why we have the confidence of the people—because we are seen to be acting, and we are acting in a very appropriate manner.

In such a scenario the government of the day would be forced to increase taxes, cut spending in other vital areas or go into deficit. Quite clearly, from this side of the parliament, they are all untenable policy options. This fear is especially justified when figures show us that, while at the moment there are some nine people paying taxes for every one person in retirement, with an increasingly ageing population this ratio will drop to just four working Australians for every one person in retirement by 2040. The Future Fund will cover this $140 billion liability, creating a fully funded public superannuation scheme without having to raise taxes or drive the budget into deficit. It allows the government to put money away in case of a rainy day so that Australians can be reassured that their economic futures are better secured.

We all know that the Labor opposition are on the record as attacking the idea—none more so than the member for Melbourne, the shadow opposition finance spokesman. In only December last year he questioned the need for the Future Fund, saying, ‘It is difficult to see why it is necessary to specifically fund future public sector superannuation liabilities,’ and calling this fund a ‘honey pot’. That is remarkable when in a few years time there will be $140 billion of entitlements due. All that the shadow minister in the responsible area can say is: ‘Why do we need to have it?’ It is just remarkable. Quite simply, the federal Labor opposition cannot be trusted with the future prosperity of this country and with the management of this economy. This was never more reflected than by the Australian people’s commanding result and commanding voice at the last election in 2004 when they spoke emphatically and decided not to trust the former member for Werriwa and the Labor Party in government; it was just too much of a risk.

Today the sun is shining on the Australian nation and the Australian people. We have a very strong economy, we have low unemployment rates and we have strong budget surpluses, but we do have this lurking issue of the ageing population, which all my colleagues on this side have referred to and some of the speakers on the Labor side have also acknowledged. This is an issue of immense importance. I was pleased in my first speech in this chamber when I was elected in 2001 to refer to it. I drew the attention of the House and the electorate of Ryan, which I have the great privilege of representing, to the significance of this issue of the ageing population. How this government and future governments manage and lead on this issue of the ageing population will shape the future prosperity of our country.

Quite frankly, I am not yet sure that the Australian public fully appreciate the gravity of this issue and the implications of an ageing population. I encourage all my colleagues on this side of the chamber, as well as those opposite, to continue the good and important work of drawing the public’s attention to this issue of the ageing population and what it means in particular for younger Australians. We do not want working Australians in the future to be saddled with enormously high taxes to sustain the current high quality of services that we deliver to the wider community at the moment. One thing I will say and predict in this parliament today is that Australians of my generation will be in for a very big shock if we think that nothing needs to be done to address this important issue. The government and all those in this place, as I will reiterate, have an abiding responsibility to educate and emphasise the importance of this issue for future Australians.

The Future Fund Bill establishes an initial deposit of $18 billion from the 2005-06 surplus. It will allow for deposits in the future both from surpluses and from the sale of any government assets. This includes the possibility of placing government shares in Telstra into the fund. Importantly, though, it does not set out any obligation on the government to deposit funds—which is quite unlike the equivalent New Zealand Superannuation Fund. Therefore, in times when such an allocation of funds would be inappropriate, such as if the budget was in deficit, the government is not obliged to contribute to the fund.

The fund is a financial asset fund, meaning it will invest in financial assets such as shares and bonds but not directly in property, art or infrastructure—although it may invest indirectly in infrastructure projects through listed infrastructure vehicles. Although it is expected that the fund will invest in appropriate Australian companies, it must be said that no legal mandate exists for it to do that; it is not compelled to do that. In accordance with international best practice, it is expected the fund will also invest heavily in overseas markets to spread its risk and also to avoid possible distortion of the Australian market.

I now want to refer to the Board of Guardians. The bill establishes important controls over the management of the fund. One very important control lies in the quality of the Board of Guardians. I have heard in presentations by Labor speakers preceding me that this fund is going to be accessible almost at whim by the government. That is just absolute nonsense; it is claptrap. Why speak in such language when it is just not true? There are controls in place. The purpose of this piece of legislation is to ensure that there is a significant amount of money in place for a very specific purpose—to meet unfunded superannuation liabilities of $140 billion plus. It is absolutely absurd to suggest that the government, in coming up with this initiative, is in fact keeping its money aside for ulterior purposes. Why create the fund in the first place if we are going to use it as a honey pot? That is absolutely not the case. This has a very specific purpose, and to protect the integrity and legitimacy of the Future Fund controls have importantly been put in place.

The first is the Board of Guardians. A seven-member panel of eminent Australians, including a chairman, the Board of Guardians will be independent of the government and will be responsible for the fund’s investment decisions. The bill sets out an investment target of around 4½ per cent to 5½ per cent per annum for the guardians and also allows for the government to present the board with a broad investment mandate. The guardians themselves will be responsible for the particulars of all investment decisions. By protecting the guardians’ power in law and recognising their control over investment decisions, the Howard government is ensuring the Future Fund cannot be raided or used as a ‘honey pot’—to quote the shadow finance minister, the member for Melbourne. We are not in the business of fiscally irresponsible practice, as the Labor Party has been when it has been in office.

The CEO of the Investment and Financial Services Association, Mr Richard Gilbert, has recognised the government’s efforts in maintaining a separation between the government and the administrators of the fund. He stated:

It is critical that the Future Fund operate at arms length from government and it appears that the legislative foundation will achieve this.

The guardians will be assisted by a new statutory agency, the Future Fund Management Agency, which will provide operational support for the guardians. The Future Fund Management Agency will be self-funded, drawing directly from its capital for its day-to-day running costs so as not to put a strain on future budgets. It will be based in Melbourne and is expected to employ some 20 people.

The bill provides provisions to ensure the Future Fund is secure and legitimate and that its integrity remains in place. The Future Fund cannot be accessed until it is sufficient to cover the public superannuation liability or until 2020. This allows the guardians to plan an investment strategy across a longer term without the fear of future governmental interference.

The fund will be absolutely transparent and accountable. This is completely consistent with the entire purpose and motivation for the creation of this fund. I want to take this opportunity to quote from the Treasurer’s budget speech last year for the benefit of those opposite, because quite clearly they were asleep when he was giving his presentation or they have not taken the liberty of reading it and listening to its very wise words. For their benefit—and this might assist future opposition speakers in not making geese of themselves when they come into this chamber to give their presentations—this is what the Treasurer said on this issue of transparency and accountability and the entire purpose of the bill:

It will begin to fund the liabilities we have already incurred but not yet made provision to pay for. Earnings will accumulate in this fund and it will be safeguarded by legislation. Whilst the fund will invest the money allocated to it, no government will be able to draw money out of it until it is sufficient to meet all the unfunded liabilities to which it is dedicated. A statutory independent board will be created to manage the fund.

This is quite simple, even for some of those sitting opposite. I am sure—I would like to think very much—that they understand the very simple language of the Treasurer in explaining the essence of the Future Fund. I draw attention to this for the benefit of those Labor speakers following me.

As I have alluded, we all know that Labor stands on the opposite side to the government on this bill. I am at a loss to understand why. In my electorate I have had the opportunity to discuss this bill with businesspeople and everyday Ryan residents, and they see complete sense in it. They see absolute logic in this bill and they see the importance of it. They see it as a protection for future Australians—for their children and grandchildren. I cannot see any reason whatsoever why the federal Labor Party would oppose such an important initiative.

Again, I draw the House’s attention to the comments of the shadow minister for finance, whose responsibility is to comment prudently and wisely on this sort of topic and yet he comments that it is difficult to see why it is necessary to specifically fund future public sector superannuation liabilities. Once again, I say that this legislation funds $140 billion worth of unfunded superannuation liabilities. It is as simple as that. The member for Melbourne has once again revealed his complete misunderstanding of the purpose of this bill. I only hope that those around him might be able to bring him to an appreciation of this piece of legislation.

The track record of those opposite tells us that they have no integrity whatsoever in the stewardship of the Australian economy. Australian taxpayers continue to pay off a debt that totalled $96 billion when we came into office in 1996. Fortuitously, a very impressive government was elected to address that important issue; otherwise, Australians today and in the future would be saddled in an untenable way. Australian taxpayers continue to pay off this enormous debt, and the multibillion dollar surpluses and the ability to save for the future are luxuries afforded only by a coalition government.

The five Labor budgets preceding 1996 were each in deficit to the tune of an average of nearly $14 billion. In contrast, in 2005 the coalition government brought down its eighth budget surplus in nine years. It is a remarkable achievement by a very good government—a government that has a right to be proud of 10 years in office come March this year. If we continue to work together, to appreciate that it is a privilege to be in government and to realise that we are here in the interests of the Australian people, then we will continue to have the confidence of the Australian people. I commend this bill to the parliament very strongly. In this new year of 2006 I wish all my colleagues a very good year.

Chris Bowen (Prospect, Australian Labor Party) Share this | Link to 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.

Mal Washer (Moore, Liberal Party) Share this | Link to this | Hansard source

The Future Fund Bill 2005 gives effect to the government’s commitment to establish a dedicated financial asset fund—the Future Fund—to meet unfunded superannuation liabilities. By accumulating assets to meet liabilities that will become payable at a time when spending pressures associated with an ageing population are likely to hit, the fund will strengthen the Commonwealth’s long-term financial position.

Currently estimated at $90 billion, unfunded public sector superannuation is the largest single liability on the government’s balance sheet. Four Commonwealth superannuation schemes account for 95 per cent of current unfunded superannuation liabilities: the Commonwealth Superannuation Scheme, the Public Sector Superannuation Scheme, the Military Superannuation and Benefits Scheme, and the Defence Force Retirement and Death Benefits Scheme.

To restrict the growth of these unfunded liabilities, most of these schemes have been closed to new members. The only significant Commonwealth government defined benefit superannuation scheme to remain open to new members is the Military Superannuation and Benefits Scheme. A defined benefit scheme is one which pays a benefit calculated upon a member’s salary and their years of service, or a similar formula.

The bill outlines proposed measures in relation to governance, management, funding, investment policies, taxation and the treatment of the Future Fund in the budget. Governance of the Future Fund will be overseen by a Board of Guardians—not directors, as would be the case in a commercial entity. However, the governance arrangements for the board are substantially the same as the duties of directors under the Corporations Act.

The board will consist of a chairman, Mr David Murray, who was formerly the long-serving CEO of the Commonwealth Bank, and six part-time members. It will be a body corporate, having a separate legal identity from the Commonwealth, and it will make investment decisions independently. It will have a statutory responsibility to manage the investments of the fund and it will hold these investments in its own name; however, the Commonwealth will retain beneficial ownership of the fund’s assets at all times.

The Future Fund Management Agency will be responsible for the operational activities associated with the investment of the fund and will also provide executive support for the board. The costs of running the agency will be met from the fund; however, it will still be subject to scrutiny through the budget and estimates process.

Initial funding will be a transfer of $18 billion from the Reserve Bank of Australia. Further funding will be through realised surpluses and proceeds from asset sales. The government may also transfer some of its remaining equity in Telstra to the fund. Detailed investment decisions will be left to the board.

However, the bill provides a framework for those decisions by setting a benchmark for long-term returns and outlines restrictions such as: the fund will invest only in financial assets, including overseas financial assets, such as shares and bonds. It will not directly invest in property or infrastructure. However, it will be able to invest in pooled property and investment vehicles that do invest in these types of assets. It will not take control of listed companies or unlisted companies with more than 50 members. It will invest in a wide portfolio of financial investments. It will exercise its voting rights in relation to companies in which it holds shares, and it will not borrow, except for short-term borrowing associated with the settlement of transactions.

Strategic guidance will also be provided to the board through an investment mandate by relevant government ministers. The board may make a submission on the draft directions given to it, which will also be tabled in parliament, along with the final investment mandate. The investment income of the fund will not be subject to income tax, nor will the transactions of the fund be subject to a state or territory tax law, such as stamp duty, if the Commonwealth is not subject to that law. It will, however, be subject to notional fringe benefits tax and goods and services tax. Fund earnings will be recorded on the government’s balance sheet but will be excluded from the underlying cash balance, as they are precommitted and not available to meet current payments.

There has been a fair amount of discussion on whether a fund to meet future demands should be established. Before this matter is discussed, we need to keep in mind a couple of important aspects. It is estimated that the public sector superannuation liability will be up around $140 billion by 2020. The government has experienced a period of strong cash surpluses and this is expected to continue over the next 10 years. However, from 2014 to 2015 the federal budget is projected to slip into increasing deficits due to the effects of the structural ageing of the Australian population.

Some have argued that the establishment of the fund will result in the government limiting the volume of services and/or tax cuts by running a budget surplus to be deposited in the fund. They believe that liabilities should be paid from revenues as they arise. However, it is unfair to saddle a future generation of taxpayers with liabilities incurred by a previous generation. If these liabilities are not met in a period of budget surpluses general levels of taxation may have to rise to meet those liabilities.

Also, not all future budget surpluses will be needed to be diverted into the Future Fund for the target balance to be met. As mentioned before, $18 billion that is currently on deposit with the Reserve Bank will be the seed capital. The combination of this amount, expected surpluses from the 2005-06 and the 2006-07 budgets, plus the expected proceeds of sales from Commonwealth assets, suggest that the Future Fund could be $62 billion by June 2007. An average yield of 6.5 per cent per year for the next 13 years will see the fund reach its target of $140 billion by June 2020, without further contributions from budget surpluses.

The report from the Productivity Commission entitled Economic implications of an ageing Australia projects a substantial increase in real income by 2040. Some feel that the projected increases in costs and the shortfalls in government revenue can be met from increased taxes at that time. It is thought that such taxes will have less adverse effect on that future generation due to the increase in real incomes and living standards. However, it is not that simple, as raising taxes can have other consequences. There are only three economic flows that can be taxed: labour income, capital income and consumption.

As pointed out by the current Treasury secretary, Dr Ken Henry: ‘Higher rates of tax on consumption’—that is, a higher GST rate—‘are not politically sustainable. Higher rates of tax on capital income would dry up flows of international capital, which are likely to be vital in the future, and higher tax rates on labour income simply accelerate the withdrawal of labour into early retirement, thereby decreasing a source of revenue.’

There are also concerns about the impact of the fund on financial asset prices due to the likely size of the fund. An initial transfer of $18 billion and a projected size of $140 billion in 2020 is certainly large. However, it needs to be assessed against the current and expected size of the superannuation industry to determine any potential impact on Australian investment markets.

If all of the initial $18 billion were invested at once the fund would only have been around 2.3 per cent of the total size of the superannuation industry at the end of the December quarter 2005. If half of this initial asset were invested in shares it would represent only one per cent of the total market capitalisation.

By 2020, the total value of superannuation assets in Australia has been estimated to be between $1,700 billion and $2,280 billion. Based on these figures, the fund in 2020 will be around 5.7 per cent to 7.6 per cent of the estimated total superannuation funds invested. Large as the fund may be, it may not be large enough to significantly affect asset prices in the way some have feared, and if an effect did occur it is likely that the investment managers of the fund would seek alternative investment opportunities.

Several commentators and the Australian Labor Party have called for the fund to concentrate on directly investing in infrastructure assets, as we have recently heard. The assumption behind this is that there is a shortage of funds available for investment in infrastructure within Australia.

However, Mr Dennis O’Neill, CEO of the Australian Council for Infrastructure Development, has noted that currently there is no shortage of money for infrastructure developments. Also, the fund is investing part of the government’s fiscal surplus—that is, money that is left after outlays on recurrent expenses and new capital works. Investment in infrastructure should be considered as part of outlays by the government, not part of its surpluses. The fund should not be hindered by imposing a requirement that part of the fund be reserved for investment in public infrastructure.

Some have a concern about taxpayers having to meet public servants’ superannuation liabilities. This concern is irrelevant as this will be the position whether or not the fund is created. The government acknowledges its legal obligation to meet these liabilities, irrespective of the existence of the Future Fund. Also, although budget surpluses may be put into the fund, its total assets will be made up of investment earnings and proceeds from asset sales. Contributions from these sources are likely to dwarf contributions from tax revenues.

Others have mentioned the establishment of other types of funds instead: the Building Australia Fund and the establishment of 20 million small funds for every Australian. Once again, this is irrelevant, as there is still a liability of $90 billion which is expected to increase to $140 billion by 2020. This liability needs to be addressed. This bill addresses this liability and allows future generations to deal with the massive changes that the ageing population will bring.

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

I stand here tonight to support the Future Fund Bill 2005, but in doing so I must express some concerns. Whenever this government introduces legislation of this kind, I am always overwhelmed with feelings of missed opportunity. That is what I think this legislation is, to a large extent: a missed opportunity. The establishment of a Future Fund could have been embraced. If this government had a real vision, it would have been a lot more than what we have before us tonight. Time and time again this government brings in legislation which is flawed in one way or another. I believe there are some serious flaws in this legislation, in addition to it being legislation that is a missed opportunity.

This bill grants the Treasurer and the finance minister the power to credit cash amounts to the Future Fund through a special account and to transfer financial assets to the fund. Transferred funds are to come from realised cash surpluses, including seed capital of $18 million and proceeds of any future asset sales. Whenever I hear this government talking about asset sales, I cringe. I think, ‘What can they sell next?’ Some of the things I think they are looking at selling include Medibank Private. There has already been a scoping study done, and I am very concerned about that proposal to sell Medibank Private. Then there is the Snowy hydro-electric, the Submarine Corporation and the list goes on. If it is not tied down, this government will sell it. Everything is up for grabs, and everything is up for sale.

The bill quarantines all fund assets for the purpose of making provision for the government’s unfunded superannuation liability. This is where it becomes very narrow. The simple fact is that this government is focusing on the unfunded superannuation liability rather than having a wider vision, rather than looking towards what previous speakers have talked about: an infrastructure fund. I would now like to turn to the Treasurer’s budget speech last year, where he set the ground for this legislation. He stated that the Australian government’s task:

... is to begin saving for the future to meet the costs of our ageing population.

We have had the Intergenerational report; now we have the Future Fund. At every opportunity this government has to talk about an ageing population, it does so from a negative perspective.

I believe that, along with some cost factors, the ageing population of this nation also creates opportunities. I believe this government has failed to grasp those opportunities—rather, it is fixated on the cost factors. When you can look at any issue in only one dimension, you are going to miss opportunities for a very long time to come and those missed opportunities will have an enormous impact on our nation. The Treasurer goes on to say that the Future Fund will be funding liabilities that have already been incurred and:

Earnings will accumulate in this Fund and it will be safeguarded by legislation.

Here is the legislation, and I think it really misses out on some of the safeguards that are needed.

The fund will be overseen by a Board of Guardians, consisting of a chair and six part-time members. It is a body corporate. The board will hold fund investments in its own name for the Commonwealth. Ostensibly this will provide a separate legal identity to manage fund investments, but the independence is undercut by the responsible minister issuing the investment mandate—a collection of ministerial directions to the board regarding the investment fund. Every time legislation is introduced into this House, we see the potential for it to be manipulated and we see the hand of the minister in there. These directions are to be tabled in the parliament but they are not to be disallowable—so, once again, the parliament will have a limited ability to consider them. We on this side of the House are not surprised by that; we are used to this government’s approach to all issues: the minister involved being able to manipulate, whether it be a fund or a controlling body, and then the parliament not being able to properly scrutinise or debate legislation. The board will decide, within the limits of its ministerial directed investment mandate, how the fund is to be administered and the agency will do the investing.

You might ask what the fund can invest in. It can invest in financial assets, including overseas financial assets. Telstra shares can also be transferred to the fund. This raises the issue of Telstra and what the transfer of the Telstra shares to the Future Fund means. I have some concerns about that. We would all be very aware of the fact that the government has already made comments about this in the parliament. The Treasurer, at the time the legislation went through, stated that he thought that Telstra funds could be transferred to the Future Fund. A transfer of Telstra shares to the fund is not a Telstra sale scheme because the Commonwealth will retain beneficial ownership of the shares. A Telstra sales scheme is a scheme designed to achieve a transfer, or progressive transfer, of all of the Commonwealth’s remaining equity in Telstra to other persons. Mr Deputy Speaker, I ask you and the House to consider that. However, a transfer of shares to the fund does affect the Commonwealth’s regulatory power to control Telstra. Under the Telstra Corporation Act 1991, the government retains a power of ministerial direction until the Commonwealth share of Telstra drops below 15 per cent.

You might ask why the government is so keen to transfer the Telstra shares to the Future Fund. I do not think that you have to be too suspicious to come up with some answers to that question. The 2005-06 MYEFO assumes that Telstra will be sold for $26.6 billion in 2006-07. It is hard to see this happening, because the average share price of $4.13 is too low. Secondly, it is hard to see that the local and international markets have an appetite for 6.446 billion Telstra shares in one year. The government may decide not to sell or to part sell Telstra simply because it is not in their interests to go ahead with the full sale. You have to be very suspicious of where the government is going in relation to this issue.

I would like to highlight some of the issues that I think are areas of concern. There are a few main points. Firstly, the Board of Guardians is not at arm’s length from the government and will be at the beck and call of the government. Have we not seen that time and time again with legislation that we have looked at in this House? Either the government has the ability to become involved in the operation of and influence the board, the minister has the power to override the board or there is a lack of transparency. I feel that this is quite a big issue that needs to be looked at when we are considering this legislation. I understand that the New Zealand legislation was the model that this was based on, but unfortunately the government has not adopted all the aspects of the New Zealand model. If they had adopted all those provisions then we would be debating a much better piece of legislation today. It would have much better safeguards in place and I would have far fewer concerns than I have today. The Board of Guardians will not operate with the same protection as other public sector superannuation bodies, such as the PSS, where the board of trustees is independent of the government and required to act only in the best interests of members—the prudent man rule. That is what I have been talking about.

Secondly, it is too easy for responsible ministers to terminate the appointment of a board member if their performance is unsatisfactory. The bill explains what ‘unsatisfactory’ refers to. Once again, this is a means by which board members and the actions of the board can be influenced simply because they are so beholden to the government. Thirdly, the blanket potential ministerial override on conflicts of interest flies in the face of good corporate governance principles. That is what my concerns are all about—the impact that this legislation will have on good corporate governance. What we as a parliament should demand is good corporate governance. What we as a parliament should demand is open and transparent legislation. What we as a parliament should demand is a Board of Guardians that will operate at arm’s length from the government. Unfortunately, I do not believe that we have that before us today. Fourthly, the government has done a reasonable job of detailing qualifications to inform the selection of board members, but there is a lack of detail in the legislation on the investment mandate. Once again, it is very flawed legislation.

I will quickly turn to what I said at the beginning of my contribution: this is a missed opportunity. The government could have used this as an opportunity to invest in the infrastructure of the nation. I have heard previous speakers say that there is no shortage of money for infrastructure. If there is no shortage of money for infrastructure, why has our infrastructure been allowed to run down, and why does this government refuse to invest in infrastructure? I support this legislation, but I do so with some serious concerns and I say once again that this is a piece of legislation that will result in missed opportunities for the Australian people and the Australian nation.