Working Papers

The Future Fund

The May Federal Budget should contain details of the government’s ‘Future Fund,’ which is meant to serve as a repository for the proceeds from the privatisation of the rest of Telstra and for the government’s budget surpluses, now that there is precious little Commonwealth government debt to retire.

The government is rationalising the Fund in part by arguing that it needs to provide for currently unfunded liabilities in relation to public service superannuation.  If the government were serious about this logic, then it would start provisioning for all of its unfunded contingent liabilities.  New Zealand is also attempting something similar with its inter-generational fund, although this is more a reflection of the fact that NZ actually takes public sector accounting principles seriously.

In reality, the Future Fund is just a form of revenue hoarding by a government that has more money than it knows what to do with.  Alan Wood notes that the Prime Minister’s recent comments on the Fund suggest it will be little different in practice from consolidated revenue.  Even if the government had the right intentions now, the Fund would be subject to a time inconsistency problem, by which the temptation to abuse the fund would grow in line with its assets.

If the government were serious about reducing future demands on Commonwealth government spending, it could simply take the proceeds from the privatisation of Telstra and its budget surpluses and make one-off contributions to the private superannuation accounts that every working Australian already owns, where these funds would steadily and safely compound until retirement.  By economically empowering individuals, we would reduce their future dependence on the state and protect these funds from abuse by the current or future governments.  This would also prevent the many problems that are bound to arise from the Commonwealth government managing a very large asset portfolio.

posted on 28 April 2005 by skirchner in Economics

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how about a tax cut.

super-annuation to me smacks of the same problems as the savings and loan scandal in the US.

government forced saving gives me little control of what i want to put my money in, or whether i just want to enjoy it now.

Posted by .(JavaScript must be enabled to view this email address)  on  04/28  at  07:23 PM

c8to: a one-off tax rebate might be an option, but an asset sale doesn’t provide a basis for an on-going tax cut.

I would agree that the taxation of super has its own dynamic inconsistency issues.

Posted by skirchner  on  04/29  at  07:59 AM

also, there seems to be something fundamentally wrong with the selling of public assets in this way.

if they want to privatise telstra, they should simply mail every australian citizen their share and then these assets can be freely traded and go to those who can do the best with those assets.

as it stands, sucessive governments have built telstra with taxation dollars (and profits reinvested when it is profitable), the current government now sells it to the highest bidders, and then sits on the money from an asset which was built out of tax dollars.

this type of privatisation is actually symptomatic of big government instead of small.

Posted by .(JavaScript must be enabled to view this email address)  on  04/29  at  09:48 AM

What I am proposing is very similar to a lottery.  Unfortunately, governments are typically motivated by revenue-maximisation in the privatisation process, which in turn motivates bad decision-making in relation to regulatory and industry structure issues.  Using the proceeds from asset sales to retire debt is fair enough, but using them to acquire an equity portfolio is just nationalising the equity capital of other firms.

Posted by skirchner  on  04/29  at  02:13 PM

exactly, they get no points for privatisation by swapping state ownership of telstra for ownership of other companies through stock investment.

in fact the case can be made that its worse than full public ownership of the base telstra.

Posted by .(JavaScript must be enabled to view this email address)  on  04/29  at  02:21 PM

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