Australian Government Future Fund

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Future Fund
Type Government-owned corporation
Industry Investments
Founded 2006
Headquarters Melbourne, Victoria, Australia
Revenue Increase A$12,564m (FY 2013)
Net income Increase A$11,858m (FY 2013)
Total assets Increase A$94,894m (FY 2013)
Total equity Increase A$88,804m (FY 2013)
Website www.futurefund.gov.au/

The Australian Government Future Fund is an independently managed investment fund into which the Australian Government deposits its budget surplus. The purpose of the fund is to meet the government's future liabilities for the payment of superannuation to retired civil servants of the Australian Public Service. The fund's investment decisions are made at arm's length from the executive.

The stated aim of the fund is to hold A$140 billion by 2020;[1] this figure would free up A$7 billion in superannuation payments each year from the federal budget.

Purpose[edit]

The purpose of the Australian Government Future Fund is to fully fund the future superannuation payments of public servants, which currently come from the federal budget.

Some economists have questioned that Government can save money this way and have likened it to saving one's own IOUs. [2]

In March 2007 the opposition Labor Party announced it would withdraw A$2.7 billion from the Future Fund to finance a broadband initiative across Australia if it won the 2007 election; this proposal prompted government ministers to proclaim that Labor intended to "raid" the Future Fund for their own means.[3]

Labor later indicated that the use of any funds from the Future Fund towards a national high speed broadband network will have to comply and meet all requirements of any commercial investment. This included producing a commercial rate of return on the invested funds, with all profits being returned into the Future Fund allowing further investment.

In the 2008–2009 Australian Government Budget, the Treasurer, Wayne Swan announced that the Future Fund would manage three new funds established by the Government:[4]

  • Building Australia Fund – An infrastructure fund to improve and create major infrastructure projects (including road, rail, ports and broadband) with an initial allocation of A$20 billion. At 31 December 2013, it was valued at A$4.28 billion.
  • Health and Hospitals Fund – A health infrastructure fund to provide increased spending on hospitals, medical equipment etc. with an initial allocation of A$10 billion. At 31 December 2013, it was valued at A$2.61 billion.
  • Education Investment Fund – A fund to provide capital investment in higher education and vocational education and training, with an initial allocation of around A$11 billion; including A$6 billion from the Higher Education Endowment Fund, of which it absorbs. At 31 December 2013, it was valued at A$3.91 billion.

In May 2013 legislation was passed through the parliament which provided for the establishment of the DisabilityCare Australia Fund. The Fund is to be managed by the Future Fund Board of Guardians and is for the purpose of funding the National Disability Insurance Scheme. The Fund is to receive contributions from the increase in the medicare levy by 0.5% to a total of 2% from 1 July 2014.

Governance[edit]

Inaugural Chairman of the Board of Guardians, David Murray AO, pictured in 2008.

The Future Fund is overseen by an independent Board of Guardians selected on the basis of their expertise in investment management and corporate governance. The current Board composition is:[5]

Position Name Term commenced Term expires Term served
Chair Hon. Peter Costello AC 4 February 2014 a 4 February 2019 0 years, 206 days
Guardian Carol Austin 3 April 2011 3 April 2016 3 years, 148 days
Susan Doyle 3 April 2006 b 3 April 2015 8 years, 148 days
Stephen Fitzgerald 3 April 2011 3 April 2016 3 years, 148 days
Steven Harker 3 April 2012 3 April 2017 2 years, 148 days
Dr John Mulcahy 3 April 2006 c 3 April 2015 8 years, 148 days
John Poynton AM 4 February 2014 4 February 2019 0 years, 206 days
^a Hon. Costello was initially appointed as a Guardian on 18 December 2009 for a term of five years and appointed as Chair with effect from 4 February 2014 for a term of five years
^b Ms Doyle was initially appointed on 3 April 2006 for a term of three years and reappointed with effect from 3 April 2009 for a term of four years and reappointed with effect from 3 April 2013 for a term of two years
^c Dr Mulcahy was initially appointed on 3 April 2006 for a term of five years and reappointed with effect from 3 April 2011 for a term of four years

The Board was Chaired by David Murray AO between 2006 and 2012. Amidst some controversy it was announced that David Gonski would succeed Murray as independent non-executive Chairman when Murray's term expired on 3 April 2012.[6][7][8][9] At the same time, Steve Harker, an investment banker from Morgan Stanley in Australia, replaced Brian Watson as a Guardian. David Gonski chaired the Board until January 2014 when it was announced that he would leave to chair the Australia and New Zealand Banking Group. Costello was appointed the interim Chair until the announcement of his permanent chairmanship in February 2014.

History[edit]

On 11 September 2004, the Federal Treasurer, Peter Costello, announces that the Future Fund will be established following the 2004 federal election.[10] The Future Fund Act, 2006 (Cth) received Royal Assent on 23 March 2006 and on 5 May, A$18 billion in seed capital, derived from government surpluses and income from the sale of a third of Telstra in its ongoing privatisation, was deposited into the fund.[11] The Australian Government transferred their remaining 17% stake in Telstra, valued at A$8.9 billion, into the fund on 28 February 2007.[12] This contribution, combined with other transfers, will push the fund to over A$50 billion by the end of the 2006-2007 financial year.

During May 2007, it was revealed that the Chicago-based Northern Trust Corporation had won a competitive tender process to manage the A$51 billion Future Fund. Rick Waddell, President and Chief Operating Officer of Northern Trust indicated that Australian companies did not have the expertise to manage the Future Fund.[13] Northern Trust stood to collect A$30 million in annual fees. Controversies arose when it was realised that the fund will be managed by a foreign bank with no base in Australia. National secretary of the Finance Sector Union Paul Schroder estimated that around 100 jobs will be lost when the US company starts managing the fund from Singapore using staff from India.[14] Northern Trust was linked to the Enron scandal.[13] General Manager of the Future Fund Management Agency, Paul Costello told a Senate estimates committee hearing that "We were not concerned that this represented a risk to us in terms of the arrangements that we were seeking to put in place with Northern Trust".[15]

In the 2008 and 2009 federal budgets, there was a deficit of A$27 and A$57 billion respectively, yet during these years the Australian Government added a further A$41 billion into the Fund.[16] The 2008 federal budget created a A$20 billion Building Australia Fund to invest in roads, rail, ports and broadband; an $11 billion Education Investment Fund, which absorbed a similar $6 billion fund set up by the previous government; and a A$10 billion Health and Hospital Fund. These new funds were established and administration placed in the hands of the Future Fund, on behalf of the government.

Investments in nuclear weapons and tobacco industries[edit]

In May 2011 the Future Fund was criticized by The Age newspaper for investing A$135.4 million in 15 foreign-owned companies involved in the manufacture of nuclear weapons for the United States, Britain, France and India.[17] Information about the investments was obtained through a freedom of information request by the International Campaign to Abolish Nuclear Weapons.[18]

In February 2013 the Future Fund announced it would exclude primary tobacco producers from its investment portfolios.

Funds held under management[edit]

Below are the total funds held under management, as at 31 December annually; inclusive of funds held in the Building Australia Fund, the Health and Hospitals Fund, and the Education Investment Fund.

Date Total funds
(billions)
Notes
2008 Increase A$59.62 [19]
2009 Increase A$87.23 [20]
2010 Increase A$90.51 [21]
2011 Decrease A$89.39 [22]
2012 Increase A$94.96 [23]
2013 Increase A$107.36 [24]

See also[edit]

References[edit]

  1. ^ Marris, Sid; Korporaal, Glenda (23 January 2007). "Future Fund gets time-out on Telstra stock". The Australian. Retrieved 16 March 2012. 
  2. ^ Prof Bill Mitchell The Future Fund Scandal http://bilbo.economicoutlook.net/blog/?p=1570
  3. ^ Murphy, Katharine (28 March 2007). "Labor seizes on Lib's Future Fund backing". The Age (Australia). Retrieved 18 March 2012. 
  4. ^ Wayne Swan (13 May 2008). Budget Speech 2008‑09 (Speech). Parliament House, Canberra. Retrieved 17 March 2012. 
  5. ^ "Board Member Profiles". About us. Future Fund Board of Guardians. 3 April 2012. Retrieved 8 April 2012. 
  6. ^ Evans, Michael (13 March 2012). "Sydney bigwig to head Future Fund". The Sydney Morning Herald. Retrieved 16 March 2012. 
  7. ^ Wright, Jessica; Yeates, Clancy (16 March 2012). "Murray wades into Future Fund fight over Costello". National Times. Retrieved 16 March 2012. 
  8. ^ Packham, Ben; Massola, James (15 March 2012). "Labor refuses to release report showing Future Fund board wanted Costello, not Gonski". The Australian. Retrieved 16 March 2012. 
  9. ^ Griffiths, Emma (16 March 2012). "Minchin backs Gonski over Future Fund 'shemozzle'". ABC News (Australia). Retrieved 16 March 2012. 
  10. ^ ELECTION 2004 New fund for future super bills, newstext.com.au 11 September 2004.
  11. ^ "FAQs". Future Fund. 9 May 2011. Retrieved 16 March 2012. 
  12. ^ "$9bn Telstra shares in Future Fund". news.com.au. 28 February 2007. [dead link][dead link]
  13. ^ a b Ryan, Peter (24 May 2007). "Northern Trust defends Enron connection". The World Today, ABC News (Australia). Retrieved 16 March 2012. 
  14. ^ Alberici, Emma (22 May 2007). "Foreign bank to manage $51b Future Fund". ABC News (Australia). Retrieved 16 March 2012. 
  15. ^ "Future Fund unfazed by Enron link". The Age (Australia). AAP. 23 May 2007. Retrieved 16 March 2012. 
  16. ^ "We won't raid $44bn fund pool, says PM Kevin Rudd". The Australian. 15 May 2008. [dead link][dead link]
  17. ^ Oakes, Dan (26 May 2011). "Australia investing in nuclear arms". The Age (Australia). Retrieved 16 March 2012. 
  18. ^ Wright, Tim (May 2011). "Nuclear weapons and Australia's Future Fund" (PDF) (Press release). International Campaign to Abolish Nuclear Weapons. Retrieved 16 March 2012. 
  19. ^ "Portfolio update at 31 December 2008" (PDF). Future Fund. 30 January 2009. Retrieved 16 March 2012. 
  20. ^ "Portfolio update at 31 December 2009" (PDF). Future Fund. 29 January 2010. Retrieved 16 March 2012. 
  21. ^ "Portfolio update at 31 December 2010" (PDF). Future Fund. 28 January 2011. Retrieved 16 March 2012. 
  22. ^ "Portfolio update at 31 December 2011" (PDF). Future Fund. 30 January 2012. Retrieved 16 March 2012. 
  23. ^ "Portfolio update at 31 December 2012" (PDF). Future Fund. 5 February 2013. Retrieved 17 March 2013. 
  24. ^ "Portfolio update at 31 December 2013" (PDF). Future Fund. 3 February 2014. Retrieved 3 March 2014. 

External links[edit]