Labor gambles with nation’s future for political points

A day after Energy Minister Chris Bowen’s ideologically driven political move to “outlaw’’ Australia’s longstanding and deep involvement in next-generation nuclear research with our closest AUKUS allies, Jim Chalmers is ready to gamble with the nation’s economic future by politicising the $230bn Future Fund. According to the Treasurer’s spin, the government will “modernise’’ the highly successful sovereign wealth fund – one of the best legacies of the Howard-Costello government – “to ensure it can play an enduring and prominent role in our economy’’. Yet altering the mandate of what the fund’s founder and former chairman Peter Costello described last year as a “once-in-a-century asset’’ should set alarm bells ringing.

Dr Chalmers’ statement was laced with qualifiers, caveats and contradictions. The fund would retain its independence and commercial focus, he said, and its primary objective “will continue to be to maximise returns, the benchmark return rate will remain at between 4 per cent and 5 per cent above CPI per annum over the long term, and there will be no change to the expected risk profile’’.

But while providing “the same strong returns to the government’s balance sheet”, he also insisted the fund would support “national priorities where it can’’. It would do so by “complementing the significant investments made by our specialist investment vehicles, including the Clean Energy Finance Corporation, the National Reconstruction Fund, and Housing Australia’’. Experience shows investment in green energy and housing, especially by governments, is not risk-free. Government-backed investment entities inevitably have elements of “picking winners’’. Such policies are grounded in a belief, not always correct, that a planned economy can deliver. By 2032-33, when drawdowns will start, the fund is expected to be worth $380bn. Given the size of the taxpayer-funded investments involved, and the size of the fund, there is no room for failure on the projects to be backed.

That is why it would be naive not to be concerned that Dr Chalmers’ overturning of almost 20 years of established practice will create an unacceptable risk for the fund. It was established in 2006, as Dr Chalmers recounted, to strengthen the commonwealth’s long-term financial position and to cover unfunded superannuation liabilities. As Mr Costello, who served on the fund’s board for 14 years and chaired it for 10, said before he stepped down last year, politicians should keep their “sticky fingers” away. He urged his successor to argue against proposals to change its investment mandates.

“As the government’s financial position declines, I expect we will see more plans to spend it,’’ Mr Costello predicted. The fund’s first chair, former Commonwealth Bank chief executive David Murray, warned earlier this year that the fund would inevitably become a “tempting target for politicisation”. In a paper for the Centre for Independent Studies, Mr Murray said “political freeloaders” risked raiding the investment vehicle for their own pet projects. “Ongoing calls for superannuation funds to invest in ‘nation-building’ assets could easily be echoed for the Future Fund,” he wrote. “This would undoubtedly distort the optimum asset allocation, resulting in lower returns, as the private sector would not invest on the same terms.”

Dr Chalmers’ move to steer the fund to invest in renewable energy and housing – “pet projects’’ of the Albanese government – is part of Labor’s ideological drive to increase the footprint of government in the economy. As we reported in September, almost two-thirds of the jobs ­created under Labor have been funded by the taxpayer, either as public servants or workers in the “care economy’’.

In its productivity analysis this week, the Business Council of Australia noted that approach was no solution for the economy’s productivity woes, which are contributing to inflation and elevated interest rates.

Dr Chalmers’ preference for trusting in government ahead of private enterprise was clear in his essay, Capitalism after the crisis, published in The Monthly in February 2023. It focused, in part, on the place of values and optimism in rethinking capitalism.

He envisioned a new paradigm of shared investment by business and the state to achieve predetermined social ends. “We want to change the dynamics of politics towards a system where Australians and businesses are clear and active participants in shaping a better society,’’ Dr Chalmers wrote. Some economists were sceptical, however, that his approach would draw rent-seeking crony capitalists, resulting in misallocation of capital to less-productive endeavours than would otherwise happen.

As Mr Costello said while still Future Fund chair: “If people start thinking they can take this money and direct it to various purposes of their own, the game would be up, there wouldn’t be any point in continuing to have an investment fund. We invest for return. That’s what we’re here for”.

Dr Chalmers has no good reason to announce a great national asset will be used in a way that will fund Labor’s political agenda at the risk of watering down the Future Fund’s pure focus on investing for return and harming the nation’s economic future.