Australian Government Future Fund
Encyclopedia
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; this figure would free up A$7 billion in superannuation payments each year from the federal budget.
In March 2007 the opposition Labor party announced it would withdraw A$2.7 billion from the future fund to finance a broadband initiative across Australia if it won the 2007 election; this proposal prompted government ministers to proclaim that Labor intended to "raid" the future fund for their own means.
The ALP later indicated that the use of any funds from the future fund towards a national high speed broadband network will have to comply and meet all requirements of any commercial investment. This will include producing a commercial rate of return
on the invested funds, with all profits being returned back into the Future Fund allowing further investment.
In the 2008/9 Australian Government Budget, it was announced that the Future Fund Board of Guardians will be managing the three new funds announced by the Government:
The Future Fund is overseen by an independent Board of Guardians selected on the basis of their expertise in investment management and corporate governance. The Chairman of the Board is David Murray
. Other members are Peter Costello
, Jeffrey Browne, Susan Doyle, John Mulcahy
, John Paterson
, Trevor Rowe and Brian Watson.
Australian Public Service
The Australian Public Service is the Australian federal civil service, the group of people employed by federal departments, agencies and courts under the Government of Australia, to administer the working of the public administration of the Commonwealth of Australia...
. The fund's investment decisions are made at arm's length from the executive.
The stated aim of the fund is to hold A$
Australian dollar
The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
140 billion by 2020; this figure would free up A$7 billion in superannuation payments each year from the federal budget.
Purpose
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.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.
The ALP 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 will include producing a commercial rate of return
Rate of return
In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or...
on the invested funds, with all profits being returned back into the Future Fund allowing further investment.
In the 2008/9 Australian Government Budget, it was announced that the Future Fund Board of Guardians will be managing the three new funds announced by the Government:
- Building Australia Fund - An infrastructure fund to improve and create major infrastructure projects (including road, rail, ports and broadband) with an initial allocation of $20 billion. At 30 September 2011, it was valued at A$7.9 billion, an increase of $2.5 billion on the previous's value.
- Health and Hospitals Fund - A health infrastructure fund to provide increased spending on hospitals, medical equipments etc. with an initial allocation of $10 billion. At 30 September 2011, it was valued at A$4.31 billion.
- Education Investment Fund - A fund to provide capital investment in higher education and vocational education and training, with an initial allocation of around $11 billion; including $6 billion from the Higher Education Endowment Fund, of which it absorbs. At 30 September 2011, it was valued at A$4.89 billion.
Governance
David Murray (CEO)
David Murray AO is an Australian businessman who was the Chief Executive Officer of the Commonwealth Bank for 13 years until his resignation in 2005...
. Other members are Peter Costello
Peter Costello
Peter Howard Costello AC is an Australian politician and lawyer who served as the Treasurer in the Australian government from 1996 to 2007. He is the longest-serving Treasurer in Australian history. Costello was a Member of the Australian House of Representatives from 1990 to 2009, representing...
, Jeffrey Browne, Susan Doyle, John Mulcahy
John Mulcahy (businessman)
Dr John Mulcahy was previously the Chief Executive Officer and Managing Director of Suncorp-Metway Ltd, the largest general insurance group and fifth largest bank in Australia - Career :...
, John Paterson
John Paterson
John Paterson sometimes Patterson was born in New Britain, Connecticut and graduated from Yale in 1762. After graduation John practiced law, and was a justice of the peace at New Britain until 1774 when he moved to Lenox, Massachusetts. He married Elizabeth Lee and had at least one son and one...
, Trevor Rowe and Brian Watson.
Timeline
- 11 September 2004
- The Future Fund is announced by Treasurer Peter CostelloPeter CostelloPeter Howard Costello AC is an Australian politician and lawyer who served as the Treasurer in the Australian government from 1996 to 2007. He is the longest-serving Treasurer in Australian history. Costello was a Member of the Australian House of Representatives from 1990 to 2009, representing...
in the lead up to the 2004 federal election.
- 23 March 2006
- The Future Fund Act 2006 receives Royal AssentRoyal AssentThe granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
.
- 5 May 2006
- A$18 billion in seed capital, derived from government surpluses and income from the sale of a third of TelstraTelstraTelstra Corporation Limited is an Australian telecommunications and media company, building and operating telecommunications networks and marketing voice, mobile, internet access and pay television products and services....
in its ongoing privatisation, was deposited into the fund.
- 28 February 2007
- The Australian Government transferred their remaining 17% stake in TelstraTelstraTelstra Corporation Limited is an Australian telecommunications and media company, building and operating telecommunications networks and marketing voice, mobile, internet access and pay television products and services....
, valued at A$8.9 billion, into the fund. This contribution, combined with other transfers, will push the fund to over A$Australian dollarThe Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
50 billion by the end of the 2006-2007 financial year.
- 22 May 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 A$Australian dollarThe Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
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. Northern TrustNorthern TrustNorthern Trust Corporation is an international financial services company headquartered in Chicago, Illinois, USA. It provides investment management, asset and fund administration, fiduciary and banking services through a network of 85 offices in 18 U.S. states and 12 international offices in North...
, as a result, stands 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.
- May 2007
- The fund manager Northern TrustNorthern TrustNorthern Trust Corporation is an international financial services company headquartered in Chicago, Illinois, USA. It provides investment management, asset and fund administration, fiduciary and banking services through a network of 85 offices in 18 U.S. states and 12 international offices in North...
, was linked to the Enron scandalEnron scandalThe Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
. 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".
- May 2008
- There was a budget deficit of $27 and $57 billion in 20082008 Australian federal budgetThe 2008 to 2009 budget was released on 13 May 2008, with a particular emphasis on family welfare and capital investment funds, the Federal Treasurer Wayne Swan selling it to the House of Representatives as "a A$55 billion Working Families Support Package" that "strengthens...
and 20092009 Australian federal budgetThe 2009 to 2010 Australian federal budget was released on 12 May 2009 by the Treasurer of Australia, Wayne Swan. Swan has commented that the budget will be tougher than in previous years...
respectively, yet during these years the Australian Government added a further A$41 billion into the fund. The 2008 federal budget created a $20 billion Building Australia Fund to invest in roads, rail, ports and broadband, an $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 on behalf of the government.
- May 2011
- The Future Fund is criticized on the front page of The Age newspaper for investing $135.4 million in 15 foreign-owned companies involved in the manufacture of nuclear weapons for the United States, Britain, France and India. Information about the investments was obtained through a freedom of information request by the International Campaign to Abolish Nuclear WeaponsInternational Campaign to Abolish Nuclear WeaponsThe International Campaign to Abolish Nuclear Weapons is a civil society campaign with the goal of eliminating nuclear weapons through a legally binding nuclear weapons convention. It was launched internationally in Vienna in 2007 at a meeting of parties to the Treaty on the Non-Proliferation of...
.
| Date | Total funds (billions) |
|---|---|
| Dec 2008 | $66.1 |
| Dec 2009 | $87.23 |
| Sept 2010 | $89.03 |
| Dec 2010 | $90.51 |
| May 2011 | $93.15 |
| Sept 2011 | $90.28 |