Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

The legislation we are considering is the Future Fund Bill 2005. In speaking to this legislation on behalf of the Labor Party, I indicate that the Labor Party will be supporting it and that I will be moving a second reading amendment later, during business. This legislation gives effect to the government’s commitment to create a fund to provide for public sector superannuation liability payments. The liabilities, which are to continue to accrue, will gradually increase over the next 25 years, approximately, when they will reach a peak and then start to decline. At the present time these liabilities are paid from the budget on a pay-as-you-go basis. We pay the current age pension liabilities in the same way—on a pay-as-you-go basis. I point out that we have not set up a separate fund to pay the increasing age pension liabilities of this country. So it is not uncritical support that we bring to this legislation; there are some aspects of it that do concern us.

However, the purpose of this bill is to establish the fund and to provide it with funding from a number of sources, including the sale proceeds of Telstra. That in itself leads to questions about what moneys will be going into the Future Fund from the sale proceeds of Telstra and how certain governance issues that I will get to a little later will be exercised.

I wish to deal with a number of aspects of the Future Fund Bill. I will focus on what we regard as some serious weaknesses in the approach taken by the government, particularly in governance matters and the general efficiency of establishing a separate fund. We believe that the rationale for those two principles is questionable.

The public sector superannuation liabilities that the government is seeking to offset are finite because most of the relevant schemes and those that contain the greatest liabilities have been closed. These are the defined benefit schemes, the main public sector schemes—the PSS and the CSS—and also the Parliamentary Superannuation Fund. There are, however, a number of still open defined benefit funds or schemes—those that relate to the military, the Governor-General and judges. They will continue to accrue increasing liabilities.

If we look at the current pay-as-you-go basis for our public sector superannuation liabilities, we see that they are not a significant burden on the budget. They are well managed and they are well contained as a cost. There has been no particular difficulty in meeting those expenditures on a pay-as-you-go basis. At the present time they amount to approximately $4 billion per annum. That is a couple of per cent of total budget outlays. That $4 billion is likely to increase at its maximum and peak at a figure of approximately $7 billion. It may perhaps reach some 3½ per cent of total budget outlays. So it is a relatively small proportion of the total budget. As I said earlier, if we follow the logic of creating a fund to cover public sector super liabilities, presumably the same logic would be that you would establish a fund to meet what is effectively a defined benefit fund for the payment of age pension liabilities. But we are not proposing to do that.

What is being created is, over time, a very large, stand-alone and supposedly independent investment fund in order to provide for the payment of these liabilities. It is an investment fund separate from the funds that contain the public sector super liabilities themselves. In many respects it is the equivalent of an individual establishing a separate bank account with a large capital sum in order to use the interest that is earned year on year from that bank account to pay for, for example, their council rates or a significant ongoing liability that they know they are going to continuously receive. Council rates for an individual or a family are a significant impost. They can often cause difficulty with budgeting when they arrive. Sometimes people pay them quarterly; sometimes they pay them half-yearly or yearly. They do create difficulties for some people. Ultimately, it is not really sensible for people to set up separate bank accounts to earn interest in order to cover what will be an ongoing liability over 20, 30 or 40 years in respect of substantial areas of expenditure. But that is effectively what the government is doing here in seeking to cover a liability in this way.

The setting-up of a separate fund does involve an operational cost, approximately $30 million a year, and we will get those final figures once the fund is up and running. It is an estimated $30 million a year to establish a separate fund when in fact the public sector superannuation funds that contain the liabilities also contain some assets. It poses the fundamental question: why aren’t the moneys being placed in the superannuation fund structures themselves? It would be a far more efficient way and, I would argue, a much safer way in terms of governance to place the funds into the existing public sector superannuation funds. With the creation of a Future Fund, we have got the creation of a new set of management, administration and investment skills, and the costs associated with that, when the investment management skills for the administration of moneys already exist within the current public sector superannuation funds. Nevertheless, the government has determined that it will create a new fund.

In the case of private sector superannuation liabilities, in this country the law requires full funding. An employer must place sufficient assets in the fund and, if there is a shortfall for whatever reason, the employer must correct that shortfall over time. The liability on the employer in the private sector to meet those payments and to meet the funding is not different in concept from what is being proposed by the government with its Future Fund. If in the private sector the law requires funding and the placement of the assets into the superannuation funds structure itself, why are we doing something different with the Future Fund?

The other advantage in placing the moneys within the trust structure of the existing public sector superannuation funds is that the governance arrangements are much stronger and much clearer. If the assets were placed in the existing superannuation funds, they would be covered by superannuation trust law. I would argue that, in terms of governance and preventing a future government—particularly the National Party—diverting moneys from what will be a newly established Future Fund, it would be extraordinarily difficult. It would be much more difficult to do it from an established superannuation funds structure. There would be such an outcry about taking moneys that have been deposited into a superannuation fund that it would be very difficult indeed to do. But a Future Fund, a separate fund, does make it more open to the possibility that we will have the National Party—and some of them at least, except for Senator McGauran, are socialists a hundred kilometres outside the GPO—wanting to dabble in all sorts of particular adventures, and this sort of fund and the governance that is being proposed does not preclude a party like the National Party dabbling in its favourite ventures in rural and regional Australia, using some of the proceeds.

We think it is a questionable approach in terms of the establishment of a new structure which will cost moneys to establish and to service ongoing management when we already have those structures in place doing a perfectly satisfactory job. Even the government, when I raised this issue with Senator Minchin in estimates, acknowledged that the current public sector superannuation fund trustees do a first-class job of administering some $10 billion plus in assets already. They get a very good rate of return with very low management fee costs. Again, it begs the question: why do we need to establish a separate fund?

The Minister for Finance and Administration, Senator Minchin, has argued that there is a conflict of interest between investing money on behalf of individual fund members with their money in a superannuation fund and investing on behalf of government with funds that will ultimately be appropriated for those individuals. That is just totally wrong. That is what a fully funded private sector superannuation fund does at the moment. It takes the money from the individuals and the employer—in this case, the Commonwealth government, if that is the approach—and it manages both groups of money, which are in fact held in trust as an asset to be accessed by the member of the fund, in this case in the form of a pension and/or some lump sum access when the individual reaches the access age.

So the government has a very technical view of this Future Fund and its basis. The government applies full funding requirements to private sector superannuation funds—defined benefit funds. It applies those laws rightly, in my view, very vigorously. The regulator, APRA, ensures full funding through an appropriate trustee, management and investment regime. If the government is applying that principle to itself, why doesn’t it deposit the money into existing superannuation funds?

Then there is the issue of the Telstra proceeds should the Telstra sale proceed. Despite this parliament having authorised the sale of Telstra, the government keeps making the point that it may not yet sell it. There are a number of complex reasons why it cannot sell Telstra or announce a sale date. Basically, the price of the shares has crashed. There are a lot of issues around that—the government’s mishandling of the proposal to sell Telstra not the least of them. The government cannot be sure that it will attract a decent price for the sale of Telstra. We have both the Treasurer and the finance minister, Senator Minchin, arguing an option at this stage that the entire proceeds of Telstra, whatever the value, may be shifted into the Future Fund.

If that occurs, the end result, whether it is just over 50 per cent or some lesser proportion—let us say it is 20 per cent if the government can sell off 30 per cent at a reasonable price—is that we will have a Future Fund overweighted in Telstra shares. That is not a balanced fund to give you a maximum rate of return. It leads to a series of practical issues—about which Telstra itself is concerned—about the Future Fund selling large parcels of Telstra, as it would need to do over time. That will impact on the Telstra share price. So there is a question about what the government will receive in Telstra sale share proceeds if it sells part or all of it and whether it will transfer it into the Future Fund. It also raises an important question of governance. How would the Future Fund exercise the voting rights that come with the shares that are placed in the Future Fund? There are a range of governance difficulties around that.

One of the interesting aspects of the Future Fund is that the government’s projected earning rate is very conservative. I think it is the current long-term bond market rate. I am not sure what that precise figure is, but it is a conservative figure. There would be no sense in setting up a Future Fund unless the long-term real rate of return was going to be higher than the bond rate of return. I think that is what will happen. I think the long-term rate of return will be higher than the bond rate. Looking at long-term balanced investment funds historically indicates that a maximising rate of return commensurate with safety, which is what I think the Future Fund would do, will be higher.

That poses an interesting question: what happens to the actuarial calculated surplus that I believe will exist at points in time? What happens when the government receives the actuarial report that shows the fund is surplus to requirements? What happens to that surplus? Does it remain in the fund and effectively the asset to meet liabilities is accrued at an earlier date?

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

It might be used every three years.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

On that basis the National Party could grab it every three years—you are right, Senator Murray. I am sure the National Party will be putting up their hands to grab that actuarial identified surplus for any manner of purposes.

I also want to address this issue in the broader policy context of the impact of the ageing population on the budget. It seems to me that the government is trying to walk both sides of the street in this debate. On the one hand, you have the Treasurer, Mr Costello, talking about the ageing population, the Intergenerational report and the need to ensure sustainable finances in respect of a range of policy long-term cost pressures as a consequence of the ageing population. On the other hand, the government has initiated a number of policies—and time does not allow me to go into any great detail today—which, because of the ageing population, will actually significantly increase liabilities in a number of expenditure areas, particularly in areas like health. So, on the one hand, it claims fiscal rectitude, long-term planning, responsibility and care about the ageing population and cost; and, on the other hand, in a number of policy areas on the expenditure side it has been increasing those costs—costs that will increase exponentially.

The Future Fund as outlined in this particular bill is not what was announced. There are a number of issues that go to allowing direct ministerial intervention—ministerial powers of direction that are allowed in respect of the Future Fund and that may expose the fund to political interference and undercut the investment performance of the fund. We do not believe that it is appropriate that ministers should be able to issue powers of direction. In this case the trustees are called guardians. In effect, there is no difference between a guardian and a trustee. Apparently, the term ‘guardian’ is the personal terminology creation of the Treasurer. We know that much from Senator Minchin’s comments in estimates. We do not believe it appropriate that ministers, in this case the Treasurer and the Minister for Finance and Administration, should have powers of direction over the guardians or trustees. If the sole purpose is to maximise a rate of return commensurate with safety and to build up a fund to cover public sector super liabilities, ministers of the day should not have the power to direct and influence investment.

If it were a Labor government proposing something like this, we would be accused of socialising the entire Australian economy—having Labor ministers in there with powers to direct and own every conceivable part of the Australian economy. Just imagine the hysteria of the Liberal Party criticising a Labor government with such powers. I move:

At the end of the motion, add “but the Senate is of the view that:

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

              (i)    best practice portfolio management,

             (ii)    achieving desired returns without undue risk to the fund as a whole,

            (iii)    enhancing Australia’s reputation as a responsible and ethical investor, and

            (iv)    building productive capacity in the Australian community; and

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

(Time expired)

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The Future Fund Bill 2005 proposes establishing a financial asset fund to meet the Commonwealth’s current and projected future unfunded public sector superannuation obligations. This bill has the potential for a substantial long-term impact on the way the government manages its budget surpluses and asset sales proceeds. It might also have a significant accompanying impact on the way capital markets operate.

The purpose of this bill is to establish a financial asset fund to meet the Commonwealth’s current and projected future unfunded public sector superannuation obligations. That current liability stands at about $90 billion and is projected to grow to about $140 billion by 2020. This bill proposes the establishment of the Future Fund, the Future Fund Board of Guardians and the Future Fund Management Agency. Critical issues to consider include the quantum of funds that are projected to be under management, transparency, board accountability and adequate and accurate reporting. These are all critical factors. A number of issues arise right up front that relate to the exercise of shareholder ownership voting rights. How will the Future Fund Board of Guardians exercise the voting rights of the financial assets under their control? Will there be a flow-through of proxies from fund managers to the Future Fund? Who will determine the voting pattern of the board on key investment matters, and against what criteria? And will it be politically influenced in any way in the future?

Ethical, socially responsible and so-called green investment policies are not discussed in the bill. Whilst there is merit in reserving investment decisions for the board, consideration should be given to limiting the investment in certain classes of financial assets such as tobacco. After all, this is a public sector body being set up in the national interest and it should be paying attention to issues such as those. Considering the importance of the decisions required in passing this bill, I note that the Senate wisely referred the bill to the Senate Economics Legislation Committee, which duly reported its findings yesterday following a somewhat rushed inquiry.

Whilst it is the decision of the committee that the bill be passed, with some suggested areas of concern noted for government consideration, I still have a number of concerns about the Future Fund that I wish to raise in the Senate today. Some of the concerns pertain to the merit of the Future Fund as a concept and, assuming the concept is realised, how it can be implemented to ensure that principles such as accountability, independence, transparency and propriety are upheld. There are indeed questions as to why the existing mechanisms for dealing with public sector superannuation funds have not been retained and why it is not possible to improve or increase the funding in those funds in a manner similar to those taken up by the states and territories. I refer you to appendix 3 of the report, where there is a useful table showing how the states and territories have addressed that matter, and none have adopted a legislative framework as is proposed here.

With regard to the merit of the Future Fund, one cannot ignore the scale of unfunded public sector superannuation. The Commonwealth’s unfunded public sector superannuation liability currently stands at approximately $90 billion, growing to approximately $140 billion by 2020—big bickies in anybody’s language. The government asserts that this is the single largest determinable forward liability and, as such, the purpose of the Future Fund is to make provision for more effective management of the Commonwealth’s balance sheet. The Future Fund is indeed one means of managing this liability, but it is not the only means.

The current method of funding the annual portion of the liability out of current revenue could certainly continue. The government’s argument against this alternative is that the liability will impinge upon the financial strength of future generations, yet there are two arguments that dispute this opinion. Firstly, the 2002 Intergenerational reportan excellent initiative by the Treasurer—asserts that unfunded government superannuation will fall, in fact halve, from 0.6 per cent of GDP in 2001-02 to 0.3 per cent in 2041-42, through the natural process of attrition in member numbers. A similar argument was presented to the committee by the expert witness Mr Kennedy and by the ACCI. Mr Kennedy stated that superannuation liabilities would level out in the future due to the falling number of members drawing down on unfunded superannuation commitments and that this liability is relatively insignificant compared with other unfunded and growing forward liabilities such as social welfare, including age pensions. However, it is asserted that future social welfare cannot be reliably measured and, as such, is not recognised as a liability for balance sheet purposes. From a commonsense perspective, as opposed to a technical perspective, that is a poor argument as it is certainly possible to credibly estimate future welfare obligations.

Regarding the accounting principle of a defined liability, from a balance sheet accounting perspective the recognition principle means that a liability is recognised—and, as the government asserts, is determinable—only once it can be reliably measured and is a probable future expense. Problems with measurement and timing do not mean that such unfunded obligations are not going to occur—there is simply greater uncertainty about questions of how much and when. Thus it is wise to not stick one’s head in the sand but, rather, acknowledge that, yes, there is consensus that social welfare, including age pension obligations, rather than unfunded public sector superannuation is the single greatest financial obligation facing future Australian generations; and, yes, while there is uncertainty about the quantum and timing of such obligations, they will still be very large.

More importantly, diverting public money to the Future Fund to ease the financial pressure of future generations is erroneous in the sense that there is a need to recognise the opportunity cost of an investment in the Future Fund because there will be less investment available in areas such as health, the environment, infrastructure, tax reform and social welfare. Those areas of reform would also benefit future generations and ease their financial burden. Indeed, such investments have the added benefit of boosting productivity and stimulating the economy, unlike the priority of a Future Fund which is to merely meet a future expense. Of course, I recognise that there is an indirect intention, because if you invest in the Future Fund you invest in the capital markets, and capital markets invest in productive activities. So you cannot completely discount the beneficial effects of that investment. Prioritising unfunded public sector superannuation, a defined liability with an extant method of funding, is equivalent to avoiding other undefined but equally pressing reform options—options with far better future economic and social outcomes.

The ACCI is correct in asserting that there is an opportunity cost associated with placing the money in the Future Fund when there are alternative present uses for it. The government responds with the view that the Future Fund is an ‘ex-post’ fund—that is, a fund which receives contributions only after all other investment decisions have been made. In other words, it is a genuine surplus after you have completed your budgetary intentions. But this is a notional assurance. It offers no protection for alternative investments or budget decisions of either a current or capital nature, since such alternatives can be easily avoided through policy setting and prioritising. Otherwise stated, an ‘ex-post’ fund can receive the entire surplus if no other investment decisions are made or if such decisions are not a priority for the government of the day. Indeed, the long-term perspective raises other worrying concerns, as suggested by Mr Kennedy at the inquiry into this bill. He stated:

In being created as such a long-term strategy, the Future Fund would inevitably find itself under the stewardship of different future governments and parliaments with, perhaps, a vastly different make-up to what we have come to expect, and for whom the policy agenda, and associated political and fiscal priorities, may profoundly differ from the present.

The inquiry did agree that it is not possible to completely insulate the Future Fund and that future governments will be able to change the law regardless of what are seen to be the prudential underpinnings of the bill. Thus, this is an obvious risk that arises from this form of financial planning undertaken by the government. It is important to recognise that it is a greater risk than the existing manner in which superannuation is managed.

If, as is obviously likely, the Future Fund becomes a reality—because the government has the numbers and, anyway, there is support from the opposition for this concept—the relevant question to ask is: what steps should be implemented to ensure the highest fiduciary standards apply to the management and stewardship of the fund? Considering the quantum of funds that are projected to be under management, from the Democrats’ perspective, corporate governance, transparency, independence, board accountability and adequate and accurate reporting are critical factors that must be instituted if the fund is to be successful. Furthermore, they must be monitored and they must be responded to if they are inadequate.

Key priorities in this area include a well-defined code of conduct for the board of guardians, including transparent processes, appointments on merit and well-defined conflict of interest safeguards. On the investment mandate side of things, there must be an ethical investment policy, a high level of independent professional analysis and the diligent exercise of voting on important matters.

I was pleased to note the suggestion from Mr Sandy Easterbrook of Corporate Governance International that the Future Fund provides a major opportunity to be a market leader in terms of best practice voting policy and engagement with companies in which a shareholding is held. The government should not resile from that obligation to be a leader in modern, accountable, ethical and advanced market participation by investment funds. As I have already stated, these are crucial areas from the Democrats’ perspective. Mr Easterbrook stated:

It is now accepted that best practice is that funds should vote their shares in all cases and should make sure that their voting is well considered.

I concur with the ideal of voting occurring in all cases, and I would encourage the government to adopt this practice as a matter of principle for the Future Fund. However, I recognise that investment managers are not always equipped to vote on all matters and they need to develop the abilities to do so. So my amendment, which will be put out later, only mandates voting in three key areas.

As I said earlier, there are questions relating to voting that need to be answered. They need to be determined in the founding principles and obligations that are applied to the board of guardians, and not later on. The government must put down its expectations. It must say how the Future Fund Board of Guardians will exercise, in general, the voting rights of the financial assets under their control. They must not have a hands-off approach to voting, in my view. It must indicate that there should be a flow-through of proxies and that proxies should be exercised. It should ask the board to be specific as to how they determine their votes. And, of course, the government must put in as many protections as it can to prevent or limit future political interference in the way in which the funds are employed.

The OECD principles of corporate governance, which were put out in January 2004, say the following concerning disclosure of voting:

The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.

Institutional investors acting in a fiduciary capacity should disclose their overall corporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights.

That is a very strong injunction for these sorts of funds not only to be participants in the market process but to be very clear, transparent and public about what their policy is. The OECD principles also state:

The voting record of such investors should also be disclosed to the market on an annual basis.

The Democrats believe that the trustees and managers of superannuation funds and managed investment schemes have a fiduciary duty to act in the best interests of their members and beneficiaries. We believe that a trustee can only satisfy their fiduciary obligations by taking an active interest in material corporate governance activities of their equity investments. That active interest requires them to develop an informed and professional understanding of these matters. Material corporate governance activities would include voting on three key matters, and in our view these are the three that matter most: on any constitutional issue—in other words, any change to the constitution of a company; on any decision affecting the election of directors; and on the remuneration packages of directors.

We note that Mr Easterbrook of Corporate Governance International goes further, but we believe that at least voting on these three matters should be mandatory. The Democrats will attempt to amend the legislation to extend the requirement to vote on material corporate governance resolutions to the Future Fund managers. Responses from Treasury and the Department of Finance and Administration about the exercise of voting rights for the Future Fund were decidedly and deliberately vague. Clause 24 of the bill was referred to as a suitable guiding principle ‘in a broad sense’. It is not. It is an invitation to a laissez-faire approach, it is an invitation to a hands-off approach, and in my view it is a derogation of responsibility. To put it frankly, the government need to set founding principles which clearly establish issues of public and national interest leadership in ethical corporate and investment governance. They clearly need to spell out—and they have the ability to do so—what they expect from that board.

Corporate governance and investment principles are not about broad and vague policies. They are about specificity, what can be done and what cannot be done—and in making those remarks I refer you to books such as the Blue Book: Corporate governance—A guide for fund managers and corporations, issued by the Investment and Financial Services Association Ltd, which are clear attempts to be specific about these matters. A broad, vague reference to what may or may not apply, conditional upon this or that, merely has the opposite effect of reducing transparency, crippling corporate governance structures and reducing responsible market behaviour.

Appointments on merit are another longstanding Democrat initiative that we continue to pursue and which have direct applicability to the Future Fund Board of Guardians. Wherever appointments are made to institutions set up by legislation, independent statutory authorities or quasi-government agencies, the processes by which these appointments are made should be transparent, accountable, open and honest. It is still the case that appointments to statutory authorities are left largely to the discretion of ministers with the relevant portfolio responsibility. There is no umbrella legislation that sets out a standard procedure regulating the procedures for the making of appointments. Perhaps most importantly, there is no external scrutiny by an independent body of the procedure and merits of appointments. An independent body should be given the responsibility of scrutinising government appointments against a set of established criteria.

This system works well in the United Kingdom since the 1995 Nolan commission. Lord Nolan managed to persuade the UK government to accept that appointments should be based on merit. Lord Nolan set out key principles to guide and inform the making of such appointments. These include: a minister should not be involved in an appointment where he or she has a financial or personal interest; ministers must act within the law, including the safeguards against discrimination on grounds of gender or race; all public appointments should be governed by the overriding principle of appointment on merit, except in limited circumstances; political affiliation should not be a criterion for appointment; selections on merit should take account of the need to appoint boards that include a balance of skills and backgrounds; the basis on which members are appointed and how they are expected to fulfil their roles should be explicit; and the range of skills and backgrounds that are sought should be clearly specified.

In response to the Nolan committee’s recommendations, the United Kingdom government subsequently created the Office of the Commissioner for Public Appointments, which has a similar level of independence from the government as the Australian Auditor-General, to provide an effective avenue of external scrutiny. The Democrats have used the Nolan committee’s recommendations in our persistent campaign for appointments on merit amendments in various items of legislation because they are tried and tested. Meritorious appointments are the essence of accountability. We will move appointment on merit amendments to this bill, even though we know that this government will reject, probably for the 30th time, the idea of appointments on merit.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I rise today to add my support to the government’s Future Fund Bill 2005. This bill is a very positive initiative to minimise future impacts brought about by past unfunded superannuation obligations on the Commonwealth. For years, legitimate criticism has been levelled at various governments about the size of this unfunded liability. Over past years, we have seen most state governments, in one way or another, move to fund their superannuation liabilities. The Commonwealth has indeed been a leader, particularly under this coalition government, because it has shifted from what is known as a defined benefits system to a defined contributions system. Nevertheless, we are left with the legacy of legal liabilities in respect of superannuation from the build-up in past years.

There are a range of reasons why dealing with this unfunded liability now is important, not least of which is the equity issue inherent in any intergenerational transfer of wealth or liabilities. Why should future generations unnecessarily pay for the largesse of former generations? Currently, we all know that, because of the good government of this country, Australia is enjoying a remarkable period of strong economic health and growth. So during this time the Howard government has very astutely retired something like $97 billion of government debt, largely from the sale of assets, and has conscientiously kept the Commonwealth budget in surplus. I regret that this is not a practice that is currently being followed by all state governments, despite the large amount of GST revenue building up their revenue base.

The Future Fund Bill will continue that tradition of leaving our future generations in the strongest possible position, and I therefore endorse it. We have no guarantee that future generations will necessarily enjoy the same benefits that we do now, particularly if we are headed by a different government to the one currently leading this nation. Indeed, with our ageing population, it is almost certain that there will be problems in the future. Therefore, it is prudent to ensure that the debts accrued by today’s generation, and past generations, are paid for by today’s generation.

Submissions to the committee inquiry outlined a number of concerns about the Future Fund Bill, not the least of which being that the Future Fund will be used as a hollow log. This concern is a flipside of the equity issue that I raised earlier, as we do not intend the Future Fund to be used as some form of piggybank to be raided on a rainy day and used for all manner of purposes. While this is a valid concern, it is a concern that the bill attempts to address. The bill implements a number of safeguards on the manner in which moneys can be released from the fund and ensures that the fund will not be used for non-superannuation purposes.

There is a big difference between the Howard government and the ALP. What do we find with the ALP? The ALP produced a second reading amendment which shows them in their true colours. While the government has legislatively attempted to ensure that the moneys set aside and built up by the accumulated revenue within the Future Fund are not used for purposes other than superannuation, the ALP have no such intention. They take an entirely different view, and we see this quite openly and opaquely in Senator Sherry’s second reading amendment. The second reading amendment says:

(2) the income stream from the Fund—

according to Senator Sherry and the ALP—

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.

Here in the open is a manifestation of the Labor Party’s trickery.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Shock, horror!

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

They say, ‘Shock, horror!’ It is indeed shock, horror—and I think I have a responsibility during this debate to outline the subterfuge of the Labor Party. While supporting this, they take a hollow log type approach to it. I think that needs to be said.

Another concern has been expressed by some that the money should be spent on tax cuts, infrastructure and any number of other good projects and agendas. The obvious reply here is that it is possible to address the sleeping bear issue of unfunded superannuation liabilities and at the same time implement tax cuts—and I am confident that, in the coming budget in May this year, we will see reforms in this area. In some ways, tax cuts are a bottomless pit and can exacerbate the intergenerational transfer of wealth problem which I mentioned earlier. Putting off to tomorrow what you can do today is never good policy and could well be disastrous as the Commonwealth gathers more and more obligations with fewer taxpayers well into the future because of our ageing population.

On a more positive note, the previous action of eliminating the old defined benefit system plus the increasing value for public servants from the growing accumulation funds will mean that the Commonwealth superannuation obligations will peak and then fall as a percentage of GDP over coming decades. These reforms will further assist in softening the cash flow of future superannuation payouts and the general growth in accumulated funds nationwide will soften the blow of the aged pensions needed for our expanding number of retiring Australians.

The current liability for unfunded superannuation is something of the order of $90 billion. Some have criticised the need for the Future Fund, saying that the discharge of the unfunded superannuation—met on an annual basis by payments from consolidated revenue as the legal payments become due—represents only a small percentage of GDP. While this percentage argument might be true, it does not mean that the Future Fund should not be established. I believe that the challenge for the board will be to keep administrative and operational costs down, achieve their benchmark return rates and efficiently and effectively discharge their obligations to Australian taxpayers.

I believe there could be a number of minor refinements to the bill—and I am sure that the government will take my points on board. With respect to the manner in which the board members are appointed, I would like to see a more formal system put in place—a system which shows a degree of openness and transparent scrutiny of all the candidates to ascertain the merit of their appointment and independence. I believe this is important for two reasons: firstly, to ensure that all board members are eminently qualified and able to carry out their duties—$18 billion of taxpayers’ money deserves capable overseers; and, secondly, to restore and maintain public confidence in the way taxpayers’ money is handled, particularly by people outside the parliament.

I have also looked at the issue of the ownership of Telstra shares and how this transfer should be handled, because this can have ownership implications for Telstra as well as some taxation implications. In fact, I think Telstra is somewhat justified in calling for some notification of when the government intends to transfer Telstra shares to the Future Fund. That said, I believe that the time frame of 60 days requested by Telstra is far too generous. Telstra needs to get its act together. Perhaps a fortnight would be a more appropriate time frame than what Telstra has submitted.

Telstra initially had some concerns regarding the potential tax implications of a transfer of Telstra shares to the Future Fund. Central to Telstra’s concern is the interpretation of section 8AYD of the Telstra Corporation Act 1991. We have been advised by the Department of Finance and Administration that the intention of this section was to remove certain powers that the Commonwealth currently has due to its controlling interest in Telstra. It was not intended, according to the Department of Finance and Administration, to have any application to determining the ownership of the company for taxation purposes. The Department of Finance and Administration then went on to say that the department is working constructively with Telstra on this matter and that currently the department is optimistic that any issues are capable of being resolved administratively and, at the same time, is not convinced of the need for any change to either the Future Fund Bill 2005 or the Telstra act, as suggested by Telstra in its submission and in a number of press releases. The Senate economics report addresses both these issues quite satisfactorily.

To conclude, the Future Fund Bill is a very prudent piece of economic management ensuring that we as a generation meet our obligations, particularly in circumstances of strong and significant budget surpluses. I strongly urge my fellow senators to give their support to the bill without the Labor Party’s atrocious amendment.

Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

Like Senator Watson, I rise to commend the government for this far-sighted and important step in securing the future of Australia’s fiscal and economic stability. Also—on a more personal level, in a sense—I commend the government for having the foresight to provide for the superannuation requirements of many of my constituents, who obviously will benefit more directly from provisions of this kind, which provide for the future retirement needs of Commonwealth public servants. Of course, these funds will also be available to secure the retirement incomes of members of the federal parliament, but that is a matter I note only as a small aside.

The fact is that a measure of this kind is extremely important and makes an important provision for the capacity of the next couple of generations of Australians to meet not only their obligations to their community but also those of the previous generation of public servants who reach retirement age. Why do we need to do this? Very simply, the Commonwealth’s unfunded superannuation liability at this moment stands at about $90 billion. That is an enormous amount of money, approaching half of the total annual expenditure of the Commonwealth in any given year. By 2020, less than 15 years from now, that figure will reach $140 billion, approximately two-thirds of today’s annual Commonwealth expenditure.

So to ignore the implications of these facts or to suggest that somehow those who are making public policy in 2020 will be able to cover that kind of liability is laissez-faire nonchalance. It is bad governance, it is foolish and it is grossly unfair to the next generation of Australian taxpayers. I am proud to say that the Australian government has seen that need and has seen that a fund of this kind is important to guarantee intergenerational equity and also to ensure that Australia is able to continue to project a strong sense of economic and fiscal responsibility in its management of its obligations to both public servants and, in particular, people such as members of the Australian Defence Force.

Financial security is an essential part of human security. I am happy to say that the government is taking steps to secure the retirement funds of young men and women who are serving Australia’s interests today in difficult and dangerous conditions around the world. It may be unsexy, it may be even a little boring, to put so much money away into a fund of this kind to cover the superannuation payments required for current public servants. But it is a responsibility that we all bear. If we do not make provision for that obligation we run the serious risk that, at that point in the future, either those liabilities will not be met or, perhaps slightly more likely, they will be met but at a great cost to the capacity of the next generation of Australian taxpayers to fund other important social objectives.

I mentioned a moment ago the issue of fairness. Australia is getting older. I read in the newspaper that we are getting a little bit fatter as well. Perhaps we are getting a little bit wiser. But, whatever the concomitant conditions, we are definitely getting older.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Fatter and wiser!

Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

As Senator Sherry said, getting wiser as well. Obviously my speech is proof of that fact!

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Self-praise!

Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

Indeed—I take what I can get, Senator Sherry. But we are failing in our responsibilities if we do not anticipate the challenges that such ageing and gentrification will bring. As I said, by 2020 our liabilities will have reached $140 billion. With this measure the government is putting aside an initial payment of $18 billion. I think that guarantees that the fund is well on its way towards providing for the obligations the Australian community has to meet at that future point.

I note the range of views which have been expressed by the Australian Labor Party about the idea of a future fund. I cannot honestly say that I can detect a single view—‘a range of views’ is the kindest description I can use with respect to their position. They have argued that perhaps we are putting this money into the wrong kind of chest. They have suggested at other stages that the fund is open to some form of manipulation. I note that on 10 May last year, just after the federal budget, the shadow Treasurer, Mr Swan, said that the Labor Party would support a future fund—thank you for the vote of confidence, Mr Swan—as long as it was locked away in a locked box and could not be raided by the National Party. That is an interesting comment, which contrasts in many respects with the comments made by Mr Beazley, the Leader of the Opposition. Mr Beazley said that he wanted a fund which, far from being locked away, was accessible for the purposes, as he put it, of laying the foundation for higher growth rates. He went on to say that ‘higher productivity and higher growth are the best and only ways to lay a strong foundation for the future’.

I further contrast those views with those of the Labor member for Fraser, Mr McMullan, who was at a budget breakfast the day after the budget. He praised the concept of a future fund, but suggested that more infrastructure work should be funded from that kind of measure. I think it is fair to say that Mr Beazley has a point in saying that investing in Australia’s infrastructure, if that is what he intends, and other measures to produce higher productivity and higher growth are good things and lay a strong foundation, as he suggests, for the future. But there is an essential ingredient that would link such a concept back to the concept of providing for the future liabilities of the Commonwealth with respect to superannuation. That is, you use the benefits of higher productivity and higher growth—meaning more revenue collected by the Commonwealth—to put money aside for just that purpose, without assuming that the higher growth and higher productivity will lead to the extra dollars being available at the point in time when you are going to have to spend it on meeting your obligations to public servants.

The fact is that that need and opportunity will not necessarily coincide. More importantly, the Australian Labor Party has shown very little capacity when the times are good to put away dollars for these sorts of purposes. We had, during the 13 years of Labor government between 1983 and 1996, a number of years when the Australian economy experienced quite satisfactory and good periods of growth. We also had some periods of recession; we all recall Mr Keating’s comments about the recession we had to have. But there were periods of growth. And what happened to the Commonwealth’s capacity at that time to meet these sorts of obligations? It was going backwards. We came to office in 1996 with, as Senator Watson has observed, debts of almost $100 billion. That is testament to how well or poorly the Australian Labor Party takes the trouble to put aside money that it reaps from higher productivity and higher growth. On its track record it cannot be trusted to make those sorts of provisions.

A measure such as a future fund is important to be able to secure those funds that come into the Commonwealth’s hands as a result of, for example, higher productivity and higher growth and put them aside for this very important obligation. The chief executive of the Australian Council for Infrastructure Development, Mr O’Neill, said, in the Australian Financial Review on 18 June, that there is no shortage of money for infrastructure developments in Australia at this moment. He makes the very good point that there is a lot of money in the system and that we do not, for the most part, need to divert money of this kind heavily into infrastructure projects that cannot be obtained in the marketplace. It is important, irrespective of what the periodic condition of the market is with respect to funding for infrastructure development, that there be a long-term strategy for securing obligations and liabilities into the future—and there is none bigger than the obligation to the Australian community with regard to superannuation for public servants. There is none larger than that $140 billion we have to find by 2020.

I strongly commend this bill. I note that it is not intended to be part of the current operating accounts of the Commonwealth on a day-to-day basis. It is to be separate. It is to be put aside with very strict rules about how it can be used. It is to be managed accountably and openly. I believe that, in those terms, it will operate very importantly as a bulwark against mismanagement in the future. Whereas I would like to think that the sound economic management which this government offers Australia will continue forever, I acknowledge that that is unlikely and that one day others will be on the Treasury benches. When that happens—hopefully it will not be soon—the Australian community will be grateful for the fact that provision was made through this legislation to put aside funds that otherwise might have been raided for short-term political gain by a government with much less financial prudence than has been shown by the Howard government.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to 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.

Ruth Webber (WA, Australian Labor Party) Share this | Link to this | Hansard source

Before I commence the substance of my remarks on the Future Fund Bill 2005, I would like to take a moment to thank my fellow members of the Senate Economics Legislation Committee and the secretariat of that committee. As fellow senators may be aware, the hearings into the Future Fund Bill were held at the same time that the chamber was considering the private member’s bill dealing with RU486. It makes organising representation in both places a little difficult, when one is facing a conscience vote. I particularly want to place on record my thanks to my colleague Senator Stephens for carrying the lion’s share of the workload in that hearing. I would also like to thank the other members of that committee and the secretariat for their forbearance because, when I did manage to get to the hearing halfway through their second day of evidence, I got a crash course on the proposal before us and how the government plans to administer it, and what outside groups think will be the outcome of that. It is important to place on the record their forbearance and tolerance in allowing me to learn a bit more about people’s views.

As Senator Stephens has said, and Senator Sherry before her, Labor’s major problem with the Future Fund Bill is that the government’s arrangements do not actually meet the government’s 2005 budget commitment. That commitment was, as has been said, that the Future Fund would be managed by an independent statutory board and that the board would be free to set the investment strategy and the strategic asset allocation of the fund. Indeed, while I was at the hearings, that was the main focus of our discussion. Despite having been through that crash course at the economics committee hearings, the Labor members of that committee were not convinced that there was evidence to say that the legislation actually meets the government’s commitment. Hence our additional comments to the committee’s report, which were basically that the Labor Party is of the view that the government’s arrangements for the Future Fund do not meet the 2005 budget commitment that the fund would be managed by an independent statutory board and that the board would be free to set the investment strategy and the strategic asset allocation of the fund, as I have said.

Labor’s concern also is that the Board of Guardians does not have the same legal protections that are afforded to Commonwealth superannuation boards. In addition, the power to direct the board is general in the legislation and goes beyond maximising long-term returns and extends to—and I quote from the bill—‘such other matters as the responsible ministers consider relevant’. This exposes the fund to a higher level of ministerial interference than would be the case if the board’s functions were limited to maximising the return on the fund across a balanced investment portfolio. This legislation, as it currently stands, empowers the ministers concerned to dismiss board members for ‘inadequate performance’. This extraordinary broad and ill-defined power adds to the risk of undue political interference in investment decisions of the fund.

What we have seen, as always with the government, is that their rhetoric in the 2005 budget statement, the rhetoric of the sell of the proposal of the Future Fund, does not meet the reality of delivery when we see the fine print of the legislation. I remind senators that our additional concerns were particularly around the role of the Board of Guardians and the fact that they do not have the same legal protections afforded to those serving on Commonwealth superannuation boards. They are at the beck and call of the political whim of the two ministers concerned. Indeed, to see this you only have to consider clause 18(2) of the bill, which says that the powers of the minister include—and I will say yet again—‘such other matters as the responsible ministers consider relevant’, which is a pretty broadly and ill-defined term.

So much for the independence of the board of the Future Fund. It is, indeed, open to political direction. You cannot go much further along the road to undermine independence as to include a provision in a piece of legislation that covers all other matters that the relevant ministers consider relevant—it is a pretty sweeping statement. Where does that begin or end? How far can the ministers go in forcing the board to consider such other matters as they consider relevant? It is this kind of open-ended provision within the legislation that allows for the worst kind of interference, not the locked box that we were seeking with the Future Fund. If that is not bad enough, you only have to consider that the legislation as it stands also allows the ministers to dismiss board members for inadequate performance, but we have no definition of that in the bill either. So that is another open-ended and ill-defined provision that could give rise to political interference in the investment decisions of the fund.

Debate interrupted.