Today’s announcement by the current Labor Government that it will change the investment mandate of the Future Fund:

• breaks nearly 20 years of bi-partisan agreement that the Fund should not be directed at specific investments or specific sectors;
• undermines the independence of the Fund as the Government nominates its designated areas for investment;
• opens the door for future Governments to direct Fund assets into their priorities according to the whim of the day;
• lessens the respect the Fund will enjoy internationally now that its independence has been clipped;
• opens the door for off-budget subsidies to be provided to pet projects through concessional debt or equity instruments owned by the Future Fund.

Now that Labor is directing the Future Fund to spend on its “national priorities” there is no reason Superannuation Funds should not also be directed.

When Governments direct savings to particular areas they usually end in political decisions that lose money.

Back in 2007, when Labor was in opposition, it toyed with using the Future Fund to finance its proposed NBN. If that had transpired, the Future Fund would have lost multiple billions. Labor changed its position before it came to office and thereafter guaranteed the independence of the Future Fund. Indeed, in 2009 Prime Minister Rudd appointed me to the Board of the Fund to show it would have strict independence from the Government of the day and not be used as a political honey pot.

I retired from the Board after 10 years as Chair in February this year. Labor never raised this proposal with me. If they had I would not have agreed to it. The Government already has its Funds to “invest” in Clean Energy- the Clean Energy Finance Corporation, they have their “Infrastructure Funds” and their “Reconstruction Funds”. None of them do very well. Because it has been such a success they are now eyeing the Future Fund.

The Future Fund has had no capital injection since I allocated the original funds of $60.5 Billion 18 years ago. It has grown to $230 Billion on earnings alone. It is the only real financial asset the Australian Government has left. It buttresses the Sovereign Credit rating.

A key reason why it has done so well is because of its independence from Government.

Those proposing a new mandate claim this will not change the current 4-5% return focus. If that is the case, why have a new mandate? You only change things to make them different. You don’t change things to keep them the same.

Under the current mandate if an investment stacks up to make a real return of 4-5% then the Board can invest in it whether it be renewable energy, infrastructure or anything else. In fact, it does already invest in these areas. The only purpose of requiring the Board to consider “national priorities” is to get a whole lot of projects that wouldn’t come in under the sole 4-5% return mandate into consideration. It will ultimately lower returns and that will cost taxpayers money.

This is not a small ‘modernisation” In fact there is nothing “modern” about this at all. This belongs to a very old tradition in politics: – interfering with market investment for political purposes.

The current Treasurer calls it the “fourth economy”. There is an old name for it- “dirigiste”. In the end it means low growth, poor productivity, falling per capita disposable incomes. In fact, the kind of conditions we now have in Australia.

With $230 billion to come into play, expect a long line of rent-seekers to form a queue outside the Future Fund.

This is a very bad proposal. I do not say this out of partisanship. I say this because the Future Fund (and I introduced the legislation in 2005) was never set up to be a political slush fund to finance the whims of the Government of the day.

When we set it up, we recognised the danger that a future Government might try to take it in that direction, so we tried to build a bi-partisan consensus around non-intervention to protect its independence. Like we did with the Reserve Bank. That consensus has been broken and that independence seriously undermined.

The Future Fund is something that makes Australia different from, and better than, comparable countries- something Australia was able to do exceptionally well. Unfortunately, the age of Australian exceptionalism is coming to an end.