Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

I rise to contribute to this debate on the Future Fund Bill 2005, which, as we know, gives effect to the government’s commitment to create a fund to provide for the public sector’s superannuation liabilities. These liabilities are continuing to accrue and will gradually mount over the next 20 or 30 years, with the Commonwealth Superannuation Scheme and the Defence Force Retirement Benefits Scheme currently completely unfunded, and liabilities accruing under the Military Superannuation and Benefits Scheme and the Public Sector Superannuation Scheme only partly funded. Together, these schemes make up 95 per cent of the government’s superannuation liabilities. Payments of the fund will generally not begin until after 2020, although this will depend on financial circumstances leading up to that time. The initial capital for the fund will be a transfer of $18 billion from the RBA, and the government has not committed itself to providing additional funding apart from this amount. As we know, the Future Fund board will be responsible for deciding how to invest those funds.

Labor have some genuine problems with what we regard as serious weaknesses in the approach being taken by the government, even though we do acknowledge and support the broad concept of the Future Fund. As Senator Sherry has already indicated, the rationale for the legislation itself is highly questionable. Firstly, the public sector superannuation liabilities that the government is seeking to offset are finite, because the relevant schemes have been closed. Secondly, at the moment the percentage of the annual budget of the government that is occupied by public sector superannuation liabilities is still a small proportion of the total budget. This fund will bring an additional cost of $30 million for a separate fund over four years. We have to ask: do we really need this?

The Minister for Finance and Administration, Senator Minchin, has suggested that there was a potential conflict of interest between investing on behalf of individual fund members with their money versus investing on behalf of the government with funds that would ultimately be appropriated to the individuals. Frankly, I am not convinced by that argument. Of course, the Treasurer—and today we have heard the same debate here and the same assertions made—when he announced the Future Fund drew heavily on the Intergenerational report, painting a grim picture of the likely impact of the ageing of the population on the federal budget over the next 20, 30 and 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. The government has used this report to justify so many of its policy pronouncements in recent months: cutting access to the Pharmaceutical Benefits Scheme, reducing the number of people on disability support pensions and supporting its broader political agenda. So it suits the government to talk about the ageing of the population and the longer term impact that will have on the nation’s fiscal circumstances. But it also suits the government because this government is rolling out a variety of new entitlements to particular groups—entitlements that will inevitably explode in their burden on the federal budget over time. These are entitlements like the mature age tax offset, the utilities allowance, the capital gains tax exemption for people retiring from small businesses and the superannuation copayment. This is a growing list of entitlements that the Howard government is producing purely for political support and which will be very substantial longer term burdens on the budget, especially once the baby boomers retire.

So the 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 the long-term national interest. Labor have a better alternative, and we will harness the fund to meet our long-term challenges while ensuring its absolute independence. We need to think very carefully about the economic prosperity of our nation and the challenges that we face. We have had 14 years of uninterrupted growth, but our future prosperity could well be at risk by many external circumstances. That is not being a naysayer; the Business Council of Australia recently warned that the performance of Australia’s economy is slipping and we are heading for trouble. They disagree with the government on a number of key areas of policy which go to the heart of securing the future prosperity of the nation: the failure of the government to reform the tax system, to put incentives 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 the entrenched buck-passing and overregulation which flows from gridlock in federal-state relations. These are all important matters that we need to attend to to protect our prosperity well into the future.

We have the capacity for our future prosperity to create wealth for future generations, but right now that is at risk and the most fundamental thing that as a nation we can and should do is cope with the ageing of our population by creating wealth. First and foremost that is the factor that enables us to deal with the long-term pressures of the ageing of the population. Central to wealth creation, of course, is our productivity and the fact that we must lift our productivity over time.

If we look at what has been happening recently, we see that 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. It was a broad based fall, with 11 of 14 market sectors recording a decline in productivity. That should set alarm bells ringing for all of us, but it does not seem to have set alarm bells ringing for the government. The government has put all its eggs in the basket of a low-skilled, low-wage path, claiming that its response to declining productivity—a range of industrial relations changes which will eat away at the living standards of many in our workforce—is going to be the magical solution. Everyone in the country agrees that we need a broad based reform program and a vision across a raft of policy areas to deliver the productivity that we require for the future—everyone, it would seem, except the Treasurer and the Prime Minister.

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 recently in the House of Representatives 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. Well, I do not think so. 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 to lift our trade performance from where it is at the moment. While we have a one-off boost to our national economy from record commodity prices, that certainly cannot be guaranteed to be there forever. So the circumstances now are such that we must invest in the future, and this Future Fund is not setting Australia up to do that. This is why so many people hold such deep reservations about it and about the motivation of the government in setting it up in such an inappropriate way.

Our poor performance in ETM exports is well documented, from double-digit growth in the nineties to almost half now being in absolute decline. We are already aware that, since 2000, Australia has actually shed something like 115,000 of our manufacturing workforce jobs. There is certainly a challenge for us there. We know that, as things get tougher, particularly for our manufacturing industry, we need to be looking at the rest of our economy and at how we can improve productivity. 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 across the Asia-Pacific. But what we have to do is put in place the policy settings that maximise the opportunities for this country.

If we look at what is going on with service exports, we find there are other 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 and 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 important, of course, but what about the vast array of other high-skilled, high-value-added services? We need to see that we have an investment in high-end services such as education, financial services, communication, computer services, medical research and software. They are the big challenges that we face as a nation. What is this Future Fund doing to contribute to that?

Most thinking people who have observed our economy over the years recognise that there is a need for a new vision in this community that goes to the heart of lifting our productivity and competitiveness. We are not getting that in the Future Fund Bill. We are getting this very narrow focus based on industrial relations changes and we see this peculiar thing, the Future Fund. We need something much broader than that—something that is crucial to lifting our trade performance, creating wealth, sustaining prosperity and making our economy much more productive across a range of policy areas, with a new range of policy initiatives.

Let us have a look at this Future Fund and how it is going to play its role. It certainly does not actually do anything about lifting productivity or sustaining our prosperity. It does nothing. It is really a solution which is looking for a problem. The problem the government has identified is increasingly underfunded public sector superannuation liabilities. On the face of it, the figures are pretty daunting. We talk about an increase to $140 billion over the next 10 years. But, in fact, 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 those liabilities. The reality is that the official projections show that the cost to the budget is currently in decline. While the government has refused to release the latest projections, the future call on the budget was further diminished, as I said before, by the closing of the Public Sector Superannuation Scheme on 1 July last year. Public sector superannuation liabilities are a problem that has already been solved with the closure of the fund. It is a big red herring in this whole debate.

Labor’s alternative is a much more sensible one. We believe 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 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, and not set aside solely to offset the cost of bureaucrats’ superannuation payments, which are already in decline.

What we need is some national leadership in infrastructure. 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 government, the private sector, state governments, local governments and communities together to meet the challenges across the board and to do something about our ageing infrastructure that is going to lift our productivity. But there is nothing about any of that in this bill.

The Reserve Bank of Australia cautions that capacity constraints in the non-residential construction and resource sector mean that new projects are being put off. Even the Prime Minister’s own hand-picked task force found that 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. That is an important difference.

But what really disturbs us about this fund, apart from the missed and lost opportunities that it presents, is really the issue of governance. That is what has been discussed here in the chamber today in several of the contributions to the debate. It is worth recalling the government’s promise 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 issued by the Treasurer and the Minister for Finance and Administration ... the Board will set the investment strategy and the strategic asset allocation for the Fund ... actual investment management will be contracted out to private sector funds 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. But that is not the case.

The committee heard in evidence to its inquiry that this certainly is not the case. The bill demonstrates that that is not the government’s intent. The bill shows that the government’s power over the fund will go far beyond the setting of a broad investment mandate. It is intended to empower the government to direct the investments contained in the fund. We had a lot of discussion and speculation about the chief executive officer in a discussion about the probity issues. That was raised again here in the chamber by Senator Watson. It was very concerning to all senators from both sides of the chamber who were involved in the inquiry. The rules that govern the operation of this fund are not what was originally promised by the government and they are 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 the country. There will be no trustees whose independence will be protected by law and who will have the duty to act only in the best interests of the fund when 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. This hardly seems to be good governance to me.

We had a long discussion in the inquiry about the announcement during the summer period about the placing of Telstra sales into the Future Fund and the arrangements that might exist around that proposal. We are very concerned about this. Some interesting scenarios were discussed about falsely inflating the value of the Telstra shareholding to ensure the government’s forward estimate of zero net debt appears achievable. Anything can happen with these arrangements, but the risks go far beyond Telstra. We are genuinely concerned about the government’s power to direct how an additional $18 billion pool of cash is invested.

We talked about the pork-barrelling proclivities of this government, particularly those of The Nationals. We have seen just in recent days how the National Party electorates have been favoured in so many programs of this government. Its track record certainly does not give us any comfort that this money will be used to lift Australia’s productive capacity at all. We know, of course, that it is going to be used to try to lift the Liberal Party’s popularity in marginal electorates. That really is what this is all about. The Future Fund, as we see it here on this side of the chamber, is at risk of being manipulated by a government that is intent on securing its own political mandate for a further decade, heaven forbid. We are very keen to see that some good governance amendments are put to the bill—that is, those being suggested and supported by the Democrats and Senator Sherry on behalf of Labor.