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Costello urges against ‘foolhardy schemes’ to spend Future Fund

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The outgoing chairman of the Future Fund has spoken about the importance of maintaining and defending Australia’s sovereign wealth fund.

Peter Costello has spoken out against “foolhardy schemes” to spend the Future Fund and has again stressed that the sovereign wealth fund can only be spent once.

Speaking at the UBS Australasia Conference this week, the outgoing Future Fund chairman warned the federal government against tapping into the $205 billion fund.

“Because the Future Fund is a sovereign wealth fund, the sovereign can spend it as it sees fit subject to securing the necessary legislation through Parliament,” Mr Costello noted.

“As the government’s financial position declines, I expect we will see more plans to spend it. It would be a way of favouring current voters over future voters – the ones who are not voting yet. But remember this: once it is spent, it is gone.”

While the federal budget was in surplus by $22.1 billion in 2022–23, the intergenerational report released in August predicted that the budget will be in deficit for the next 40 years.

Mr Costello noted that the Future Fund is by far the largest asset on the commonwealth balance sheet. He said that without the sovereign fund, the government’s finances would be “considerably weaker” and the balance sheet would be only a “liability sheet”.

“Once it is spent, there is no significant asset on the government’s balance sheet. Once it is spent, there is nothing to offset the growing liabilities of debt, of unfunded pensions and unfunded military injury claims,” he said.

“Once it is gone, the pressure to raise taxes and borrow debt will accelerate.”

In recent months, a number of suggestions on how to spend the Future Fund have emerged.

The Centre for Independent Studies has called for the fund to be liquidated to pay down government debt. Meanwhile, former Labor minister Craig Emerson has suggested that part of the liquidated proceeds be put towards renewable energy and public housing.

“Saving money is the hard part of politics. Spending it is easy. It was a great achievement, against the odds, to tuck away some savings and invest it into a mature, well run, successful and respected sovereign wealth fund,” Mr Costello said.

“If it is spent, it will never be replaced, Australia will be more exposed, and our financial position will become more precarious.”

Mr Costello’s 14 years on the Future Fund board of guardians, including a decade as chairman, will come to an end in February next year. A formal merit-based recruitment process is currently underway to find his replacement.

“The people who manage the Future Fund are called guardians. The name was chosen for a reason. Their duty is to guard this legacy against foolhardy schemes to spend it. These schemes come from all sorts of sources, the public, self-styled ‘experts’, members of Parliament, even some in the government,” said Mr Costello.

“So, it is important that the guardians have the strength and stature to defend the fund and a clear focus on the long-term benefit of future Australians.”

According to Mr Costello, intergenerational wealth transfer is the purpose of the Future Fund. The fund received an initial contribution of $60.5 billion in 2006, including $51.3 billion from budget surpluses in 2004, 2005, and 2006 and $9.2 billion worth of Telstra shares.

“We foresaw that a larger proportion of aged people in the population would put pressure on spending programs and reduce the proportion of prime age people in the workforce to pay for them,” Mr Costello recalled.

“This pressure will only intensify in coming decades. The Future Fund was a good start at addressing this issue. It is a pity that we couldn’t maintain budget surpluses and capital contributions into the fund. We could have done better.”

As at 30 September, the Future Fund had $205.2 billion in funds under management, down from $206.1 billion three months earlier.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.