BHP is vital to nation’s future

THE federal government has made two important decisions that are very much in the national interest, writes Terry McCrann.

Peter Costello set up the Future Fund to protect the Budget surpluses.

THE federal government has made two important decisions that are very much in the national interest.

They should be endorsed by the Opposition to make it absolutely clear they will continue to apply into the long term, whichever side is in government.

The decisions can broadly be stated as a commitment to keep BHP Billiton as “The Big Australian”; and to give the Future Fund a long-term future.

First, Treasurer Scott Morrison went on the public record to state that the opportunistic Wall St investor, Elliott Partners — or indeed, the directors of BHPB if they suddenly lost their collective minds — would not be allowed to steal the company away from Australia and move it to London.

Then secondly, Morrison announced the government would postpone the first drawdowns of money from the Future Fund from 2020 to 2026. This might seem fairly technical or marginal, it is actually — very positively — huge.

The FF was set up by Peter Costello when he was treasurer to protect the Budget surpluses — back in the all-but forgotten days when the Budget was in surplus.

The bigger purpose was to build up a separate balance that could be used to fund the payment of public sector superannuation which until then, and indeed to this day — and the immediate future — is just paid out of the Budget annually.

Treasurer Costello put in $60 billion and the combination of lucky timing — it basically got the money just before the global financial crisis, which sent global share markets plunging and enabled the FF to buy in very cheaply — and then good investment decisions after that have seen it grow to nearly $130 billion.

Even so, that would still not be enough to fund all the super payments over the next 20 to 30 years and indeed longer. If the FF started paying out in 2020, it could easily be down to zero by 2030.

By delaying payments until 2026, the FF can build its cash to a level that it would then either fund or go co close to funding all future super.

But it does mean the government will have to borrow for the super payments until then — assuming it doesn’t get the Budget back into the black and can use that surplus. Why it makes sense is that right now the government can borrow at 2.8 per cent. The FF is earning around 7 per cent on its $130 billion. It’s a net plus for the government (and so, indirectly, if sometimes it seems very indirectly, for you) which will grow into the billions of dollars a year.

Indeed, if you could be assured of that ratio — the FF earning 7 per cent, the government being able to borrow around 3 per cent — you’d be wise the keep the fund alive and flush with money permanently.

But we can’t be — you should all know those warning signs around super and investments that “past performance is no guarantee of future performance”.

The BHPB move is less obviously a financial win for Australia, but it is. Critically, it keeps control of the one company outside the four big banks that is absolutely fundamental to our future, right here in Australia.

The resources industry remains the core of our economy into the immediate future.

Services like tourism and education are very significant and will grow. But resource exports are the big export earner.

Further, it is in resources that we clearly have a global advantage. BHPB is the world’s biggest and best resources group.

If we allowed BHPB to go to London, we would run the risk of losing control of that future. We would be “subcontracting” our most important global financial and economic relationship — with China — to a board of directors in London and foreign investors.

Morrison has said that the rules set — again, by a treasurer named Costello back in 2002 when he allowed BHP to merge with the British-South Africa Billiton — would remain. That BHPB had to be an Australian company with its board in Australia, along with its corporate headquarters and top management.

Since that merger, BHP would have paid close to $80 billion in taxes and royalties in Australia and generated hundreds of billions of dollars of export income.

Now, as I wrote, these two decisions are so clearly in the national interest, the Opposition must make it completely bipartisan.

Opposition Leader Bill Shorten has effectively done that with BHPB.

Indeed he called for exactly this sort of move more than two weeks ago, although the call didn’t get much airplay.

The only reason for drawing money out of the FF early is to dress up the Budget figures as the drawdowns would cut the deficit.

That would not just be shortsighted; it would be fiscally criminal.

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Originally published as BHP is vital to nation’s future