NO.110

JOINT PRESS RELEASE

TREASURER

MINISTER FOR FINANCE

FUTURE FUND LEGISLATION INTRODUCED

The Government today introduced the Future Fund Bill 2005 into the Parliament,

to establish the Future Fund as an arm’s length asset investment fund,

to help provide for Australia’s future.

The creation of the Future Fund gives effect to the Coalition’s 2004

election commitment to create a new fund to make provision for the Australian

Government’s unfunded superannuation liability. As at 30 June 2005, unfunded

public sector superannuation liabilities stood at around $90 billion, and are

forecast to grow to around $140 billion by 2020.

The initial deposit into the Fund will be $18 billion sourced from previous

years’ surpluses. Future contributions will come from realised budget

surpluses and the proceeds of any asset sales. The annual earnings of the Fund

will be reinvested.

The legislation protects the money invested in the Future Fund from being raided

by future governments. The Bill stipulates that no money can be drawn from the

Fund until 2020 or until an independent actuary determines that the Fund’s

assets are sufficient to offset the Government’s unfunded superannuation

liability. Ultimately, money from the Fund can only be used to meet the Government’s

superannuation obligations or to meet the expenses of the Fund itself.

The legislation establishes an independent Board of Guardians, consisting of

a Chairman and 6 other members. The Board will be given substantial autonomy

to determine an investment strategy, asset allocation and investment management

arrangements.

Mr David Murray will be the Chairman of the Board of Guardians. The other Guardians

will be appointed once the enabling legislation has been enacted.

The Board will be subject only to minimal legislative restrictions in investing

the Fund. The Board:

• will not be able to take a controlling stake in companies where a controlling

  stake is defined by reference to the takeover provisions of the Corporations

  Act;

• will not be permitted to borrow money except for short-term settlement

  of transactions; and

• will be prohibited from using derivatives for leverage or speculation.

The Board will also be restricted to investing in financial assets, thus precluding

direct investment in infrastructure projects or property. However, the Board

will be able to gain exposure to these asset classes through pooled investment

vehicles.

The Government retains the power to issue a broad investment mandate to establish

a desired target rate of return and tolerance for risk. The Board must be consulted

on the investment mandate.

The Government’s proposed investment mandate will seek a long-term benchmark

for real returns of between 4.5% and 5.5%. The Government accepts that pursuing

a long term strategy will involve a degree of short-term volatility.

The Future Fund may not achieve the long term benchmark in all years, and may

make negative returns in some years. However, subject to the target returns,

the Board will be required to minimise the probability of losses.

The proposed investment mandate will also request the Board to have regard

to the impact of their activities on the Government’s reputation in domestic

and international markets.

The Bill also establishes the Future Fund Management Agency to support the

Board of Guardians.

The Fund respresents a sensible financial policy now for the benefit of future

generations. The Fund will be needed in the future because we know that future

generations will have the costs of the ageing of the population on their hands

within twenty years time. The fact that the current generation is funding its

liabilities, and also funding liabilities accrued in the past, will give future

taxpayers a much better chance to cope with these challenges.

A copy of the Future Fund Bill 2005 and Explanatory Memorandum are available

at www.aph.gov.au.

CANBERRA

7 December 2005

Contact:

David Alexander Treasurer’s Office 02 6277 7340

Matthew Doman Finance Minister’s Office 02 6277 7400