Australian Government Future Fund

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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 public servants. The fund's investment decisions are made at arm's length from the executive.

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

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[edit] Purpose

The premise of which the fund was established is to fully fund the future superannuation payments of public servants, which currently come from the federal budget.

In March 2007 the opposition Labor party announced it would withdraw AUD $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 intented to "raid" the future fund for their own means.[2]

However the ALP 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 will include producing a commercial rate of return on the invested funds, with all profits being returned back into the Future Fund allowing further investment.

[edit] Governance

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 Chairman of the Board of Guardians is David Murray. Other members are; Jeffrey Browne, Susan Doyle, John Mulcahy, Trevor Rowe and Brian Watson.

[edit] Timeline

  • September 11, 2004
The Future Fund is announced by Treasurer Peter Costello in the lead up to the 2004 federal election.[3]
  • March 23, 2006
The 'Future Fund Act 2006' receives Royal Assent.
  • May 5, 2006
AUD $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.[4]
  • February 28, 2007
The Australian Government transferred their remaining 17% stake in Telstra, valued at AUD $8.9 billion, into the fund.[5] This contribution, combined with other transfers, will push the fund to over AUD $50 billion by the end of the 2006-2007 financial year.
  • May 22, 2007
It has been revealed that earlier in May 2007, the Chicago-based Northern Trust Corporation had won a competitive tender process to manage the AUD $51 billion Future Fund. President and Chief Operating Officer of Northern Trust Rick Waddell indicated that Australian companies did not have the expertise to manage the Future Fund [6]. Northern Trust, as a result, stands to collect AUD $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.[7]
  • May 2007
The fund manager Northern Trust, was linked to the Enron scandal[8]. 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"[9].
  • May 2008
The The Australian Government adds the 2008 and 2009 budget surplus's into the fund, valued at AUD $41 billion, into the fund[10]. The 2008 federal budget created a $20 billion Building Australia Fund to invest in roads, rail, ports and broadband, a $11 billion Education Investment Fund, which absorbs a similar $6 billion fund set up by the previous government, and a $10 billion health and hospital fund. These new funds will be administered by the Australian Government Future Fund, bringing the total value of the Australian Government Future Fund assets to AUD $106.6 billion by the end of 2009-2010 financial year .

[edit] References

  1. ^ Future Fund gets time-out on Telstra stock, News.com.au January 23rd, 2007.
  2. ^ Labor seizes on Lib's Future Fund backing, theage.com.au March 28th, 2007.
  3. ^ ELECTION 2004 New fund for future super bills, newstext.com.au September 11th, 2004.
  4. ^ Future Fund FAQs
  5. ^ $9bn Telstra shares in Future Fund, News.com.au February 28th, 2007.
  6. ^ The World Today - Northern Trust defends Enron connection
  7. ^ Foreign bank to manage $51b Future Fund - Australian Broadcasting Corporation
  8. ^ The World Today - Northern Trust defends Enron connection
  9. ^ Future Fund unfazed by Enron link - Breaking News - National - Breaking News
  10. ^ [http://www.theaustralian.news.com.au/story/0,24897,23700919-601,00.html We won't raid $44bn fund pool, says PM Kevin Rudd

[edit] External links