Dimitri Burshstein from the Centre for Independent Studies estimates that the ‘opportunity cost’ of maintaining the Future Fund and its subsidiaries is about $10 billion a year.
The sovereign wealth fund has assets totalling $203 billion, while its subsidiaries have $47 billion.
Burshstein contends that maintaining the Future Fund makes no sense at a time when the federal government’s net debt is positive. He has instead proposed closing the Future Fund and using its assets to reduce debt.
“All six current Future Funds are essentially funded by borrowings meaning that for the Commonwealth to just break even on a cash basis, the Future Funds need to generate returns greater than the cost of borrowing”, Burshtein said.
“Put another way, the Future Funds need to generate 4.1% returns after costs to just break even, and to break even on a cash basis only”.
“The economic risks posed to Australians because of the Commonwealth effectively operating a leveraged investment fund with taxpayer funds are significant”, he said.
The Future Fund was established by former treasurer Peter Costello, who argues that it is the Commonwealth’s only substantial financial asset. Costello is also chairman of the Future Fund.
“The Future Fund is the Commonwealth’s largest financial asset. In fact, it is the Commonwealth’s only substantial financial asset”, Costello said.
“If the fund were wound up the Commonwealth would have no substantial financial assets which would leave its balance sheet exposed totally to debt”.
“This is an intergenerational fund for the long-term. Fortunately, people in government were thinking long-term two decades ago”, he said.
Whether the Future Fund is closed or not wouldn’t make much difference to taxpayers, since they would effectively hold the same sum of net assets and debt.
That said, taxpayers could save some staffing overhead by winding the Future Fund up and consolidating it within the Australian Office of Financial Management (AOFM), which currently manages the federal budget debt financing.
The bigger issue is that Australia has not taxed the resources industry adequately and has deprived itself of hundreds of billions of dollars worth of revenue.
By way of comparison, the Norwegian Government last year collected $137 billion from their oil industry courtesy of their well-designed super profits tax.
In turn, Norway’s Sovereign Wealth Fund soared to around $1.8 trillion – shared among only 5.3 million people.
Thus, Norway’s Sovereign Wealth Fund is now worth around $340,000 per resident.
By comparison, Australia’s Future Fund is only worth just under $10,000 per resident.
Australia Institute chief economist, Richard Denniss, summarised the stupidity of Australia’s tax arrangements last year:
“Despite being the world’s third largest exporter of fossil fuels, people are struggling with high prices for petrol, gas and electricity (the vast majority of which is still produced from burning our own coal and gas)”.
“The idea that an energy exporter like Australia is having a tough time when the prices of our energy exports are sky high shows just how broken and detached from reality our political debate has become”.
“The Norwegians, by taxing their oil and gas industry, have accumulated $1.8tn in their sovereign wealth fund. But in Australia, which exports far more fossil fuels than Norway, we have just $200bn in our future fund, most of which came from the privatisation of Telstra”.
“To put it another way, the value of our wealth fund is only a little bigger than one year’s worth of Norway’s oil tax revenue, even though Norway’s economy is a quarter of the size of ours”.
We wouldn’t have had to worry about federal budget debt if policy makers had simply taxed our resources properly, as Norway does.
