Working Papers

The Future Fund and the Statism of the Commentariat

There is something about the Future Fund that brings out the latent statism of the commentariat.  Here’s Alan Kohler, praising the growing amount of revenue being hoarded by the Australian government:

Sometime next year Australia will have its own $US100 billion sovereign wealth fund (SWF) and the Government will have a positive net worth for the first time.

…it finally puts Australia on the right side of global decoupling, as one of the world’s resource rich nations building wealth for the future. It’s been that for a while, except the proceeds have been frittered over the past few years.

We still have the Anglo-Saxon west’s propensity for lots of personal and household debt, but at least the Government will be entirely debt-free (including [sic] pension obligations) and building real wealth.

What Kohler doesn’t seem to understand is that the Future Fund and its sister funds announced in this week’s Budget are simply holding vehicles for future government spending.  If the government were spending all of these funds today, Kohler would likely deem it irresponsible.  But it makes no difference whether future government spending is paid for out of current or future taxes (the investment returns on the Fund are simply compensation for the opportunity cost of not spending the money today).  It is far more likely that these funds will be ‘frittered away’ by government than by taxpayers.  All the Future Fund does is ensure that current taxpayers are now paying for the government frittering of the future, as well as the present.

The ‘real wealth’ being ‘built’ in the Future Fund is no such thing.  It comes entirely at the expense of the current wealth-generating capabilities of the private sector.

posted on 15 May 2008 by skirchner in Economics, Financial Markets

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I don’t buy the “we’re building wealth for the future” stuff, but I’d rather have Australia’s big fat surplus than America’s massive deficit when the next downturn comes.  Hasn’t GWB left America with a fabulous legacy?

The future fund will almost certainly get raided, but I think we’ll need it to rebuild a lot of transportation infrastructure in coming decades (you know, all that peak oil stuff that you say the invisible hand will magically provide solutions for).

Posted by .(JavaScript must be enabled to view this email address)  on  05/15  at  10:39 AM

Good to see your gig on Business Spectator hasn’t biased your blog Stephen!

Posted by .(JavaScript must be enabled to view this email address)  on  05/15  at  03:37 PM

Any thoughts on Brendan’s reply, especially his idiotic proposal to cut the fuel excise by 5c/L?  Is this not diluting a price signal coming from the oil markets?

Also, Glenn Stevens seems to think our huge budget surplus is a great thing…

RBA chief says Australian fiscal position envy of most of world

“But there would be very few countries, if any, which would not envy Australia’s fiscal position,” Mr Stevens said.

“The capacity to respond, if need be, to developments in the future is virtually without peer.

How will Australia respond to “future developments” if we’ve handed back the entire surplus as tax cuts?

Posted by .(JavaScript must be enabled to view this email address)  on  05/16  at  08:34 AM

If the probability distribution for “future developments” is symmetrical, then you could make an equally good case for running deficits on the grounds the future might also be better than expected.  The best way to handle future contingencies is to ensure we are as rich as possible today.

Posted by skirchner  on  05/16  at  11:41 AM

Sure, but if the budget was balanced now and there was a downturn later this year, we’d almost certainly go into deficit as unemployment benefits rose and government attempted some kind of stimulus.  Surely the ideal is to have the budget wobble around the break even point over time—have a bit in the kitty towards the end of an expansionary phase so the deficit doesn’t blow out too much when there’s a downturn.

Seems to me the current mega surplus is more a reflection of the long boom than anything else, and you know what they say about booms, the bigger the boom the bigger the…

Would you honestly like to see Australia in the same position as the US, attempting to stimulate the economy while you have a massive deficit?

P.S. No thoughts on Brendan’s stroke of genius to cut the fuel excise?  Poor old Malcolm, he looked thoroughly unconvincing last night.

Posted by .(JavaScript must be enabled to view this email address)  on  05/16  at  12:01 PM

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