Opinion
Do the changes to Australia’s $230 billion giant mean anything?
Clancy Yeates
Deputy business editorThere’s a certain tension in federal Treasurer Jim Chalmers’ recent move to require the taxpayer-owned Future Fund to consider “national priorities” in its investment decisions, while also suggesting that in many areas, not much will really change.
The government says recent changes to the fund’s mandate – which will now include references to building more housing, supporting the green energy transition and improving infrastructure – will lead to “more investment where we need it most”. Fair enough.
Built on a pile of Australian taxpayer money, the Future Fund recently announced changes to its mandate. Credit: Kate Geraghty
Yet at the same time, it’s easy to form the view that this is not really a major shift at all. The $230 billion fund will remain independent of government, it will still be commercially focused, its investment return targets won’t change, and it’s not being asked to take any more risk.
It makes you wonder: if the new mandate’s not going to make that much difference, why go to the effort of making changes?
Before we get into possible answers to this question, here’s a refresher. The Future Fund describes itself as Australia’s single largest financial asset – it’s a pile of taxpayer money that was initially set up to help fund future retirement benefits of public servants.
In case you missed it, last week Chalmers tweaked the fund’s mandate in a few ways, the most controversial of which was to require the fund to “consider national priorities” in its investment decisions where possible, and where that was consistent with strong investment returns.
These changes might appear innocuous, but they’ve been hugely divisive.
There was outrage about politicising the fund from the opposition and former Future Fund chairman Peter Costello, who set up the fund while treasurer in 2006 and was until recently chairman of this masthead’s owner, Nine. Costello and other critics, including former Fund chairman David Murray, said it was a slippery slope and risked the fund putting its cash into political projects.
Others, however, played down how much difference the changes would make. They pointed out, as did Chalmers, that the government wasn’t changing the fund’s core objective: to make 4 per cent more than inflation through its investments.
In truth, it’s hard to know how much change the new mandate will trigger.
The government says the changes will mean we get “more investment where we need it most but not at the expense of returns” – but others argue convincingly that there won’t be much real difference at all.
That’s because, if the housing or renewable energy investment opportunities are attractive, there’s every chance the fund would have backed them regardless.
But one question arose repeatedly when I was speaking to economists and other experts for this article: If these changes won’t make a big difference to how the fund operates, then why make them?
The most persuasive answer came from independent economist Saul Eslake, who said he was “not a great fan” of the Future Fund mandate change, but also not hugely worked up about it.
Eslake compared the Future Fund change to a different policy that also involves a fund, the $10 billion Housing Australia Future Fund. This is a pool of money that disburses a minimum $500 million annually to support new social homes and affordable homes.
Eslake says that, in practice, there’s not much difference between simply paying that sum from the budget each year and setting up a fund, except that a $10 billion fund sounds much more impressive.
“In the same way, perhaps … I interpret it as this government being able to say to a particular cohort of voters: ‘Hey, look, you know, we’re telling the Future Fund to invest more in social housing and renewable energy and infrastructure’.
“Whether they actually do or not is something that voters aren’t really going to know about.”
Eslake suggested the Future Fund mandate change even had some similarities to “virtue signalling” – although that phrase is usually used differently: to describe the act of showing your moral values.
Independent economist Chris Richardson also argued that the change wouldn’t make much difference to what the Future Fund invested in – it was about “the announceable”.
“I don’t think it’s going to massively change what the Future Fund does,” Richardson said.
As an example, he and Eslake both pointed out that asking the Future Fund to invest more in housing would do very little to address the country’s housing woes. This is partly because housing is not particularly attractive to institutional investors, and partly because a lack of investment is not the main problem with housing in this country.
Of course, this is hardly the first time a government has sought to convey the impression that it’s taking action on tricky problems that are hard to resolve.
So, what got the critics so worked up about this particular change?
Economist Saul Eslake said he was “not a great fan” of the Future Fund mandate change, but also not hugely worked up about it.Credit: Amy Brown
Well, there’s the politics: the Future Fund was formed by a Coalition government with funds from budget surpluses.
Aside from the politics, another concern is that this new mandate muddies the waters about the fund’s main goals.
Even if the fund’s “primary objective” is to continue maximising returns with a benchmark of between 4 and 5 per cent above the rate of inflation, asking the fund also to consider the national interest makes its objectives a bit less clear. And it sets a precedent that might tempt other governments in the future.
These changes might appear innocuous, but they’ve been hugely divisive.
Labor’s asked the fund to consider financing housing, renewable energy and infrastructure, which are all pretty sensible areas to invest in. But what if a future government were to nudge it towards more dubious investments such as inland rail?
As University of NSW economics professor Richard Holden puts it: “Once it becomes a political football, I worry a lot about what that means.”
None of this is to suggest governments shouldn’t back “nation building” projects where the benefits of the projects stack up against the costs.
But I can’t help but think these latest changes to the Future Fund are more about symbolism than substance. It’s not clear to me how these tweaks in the wording will lead to more nation-building projects, or how we’ll ever know if they’ve really made much difference.
Ross Gittins is on leave.
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