NO.055

Joint Press Release

Treasurer and Minister for Finance and Administration

FUTURE FUND

The Australian Government announced during the 2004 federal election that it

would establish a Future Fund to meet unfunded superannuation liabilities, contribute

to national savings and increase net worth. Unfunded superannuation liabilities

are the Australian Government’s largest liability, currently amounting

to more than $91billion and are expected to grow to around $140 billion by

2020.

Legislation to establish the Future Fund, an independent statutory board and

a new statutory agency to support the management of the Fund, will be introduced

into Parliament later this year.

By establishing the Future Fund now, the Government will strengthen its medium

term fiscal policy to ensure we are better able to meet the challenges of the

future. Saving now to meet payments in the future will help to ensure the sustainability

of the Budget. Future Governments should not have to cut services or raise taxes

in order to meet growing demographic pressures in areas like health and aged

care. The Future Fund will also ensure that liabilities currently incurred will

not be passed on to future generations, freeing up resources from the budget

that would otherwise not have been available.

The Fund aims to accumulate financial assets to offset the Government’s

unfunded superannuation liabilities by 2020. Achieving this aim will require

significant investment by the Government and the continuation of good fiscal

management. The amount of the Government’s initial investment in the Fund

will be finalised once the 2004-05 Final Budget Outcome is known. On current

projections, the initial transfer (including from existing deposits held at

the Reserve Bank) will be around $16 billion.

To grow the Future Fund the Government will reinvest all of the Fund’s

earnings. Funds will accumulate until the level of assets is sufficient to offset

the liability. The Future Fund will be quarantined from the rest of the Budget

through legislation.

The Fund will be managed by an independent statutory board, the Future Fund

Management Board, which will make investments in accordance with a broad investment

mandate issued by the Treasurer and the Minister for Finance and Administration.

Board members will be selected by the Government for their expertise in investment

and corporate governance and the Board will set the investment strategy and

the strategic asset allocation for theFund.

The Government will provide $31.2million over four years from 2005-06, including

$1 million in capital funding, to establish the Future Fund Management Agency.

In addition, the Government will provide funding of $0.9million in 2005-06

to the Treasury to facilitate implementation of the Fund.

The Agency, to be established in the Finance and Administration portfolio,

will provide executive support and investment advice to the Board. While actual

investment management will be contracted out to private sector funds managers,

the Board with the assistance of the Agency will be responsible to the Government

for the performance and management of the Fund’s assets.

The cost of contracting out investment activities to fund managers, and the

remuneration of Board members, will be met from the Fund.

Legislation is expected to pass later this year at which time the Government

will appoint a Board and issue an investment mandate, setting the broad parameters

for investment of the initial capital.

CANBERRA

10 May 2005