The subject of the Future Fund came up in a conversation about superannuation the other day. There’s a perception that the Australian Future Fund is like the Norwegian Sovereign Wealth Fund, but nothing could be further from the truth.
The reasoning behind the Future Fund when it was set up in 2006 was that it was necessary to ensure that the nation could afford the bill for federal public service superannuation as it fell due. Peter Costello – who was Treasurer at the time – was nothing if not rat-cunning in this. It allowed an argument to develop that the federal public service itself was getting too large, and needed to be given a savage haircut, and at the same time provided cover for the coalition government to sell off publicly owned assets, allowing them to claim bigger and bigger fiscal surpluses as testimony of their superior economic management.
From the macroeconomic perspective, we have been completely taken for fools. The Future Fund is an example of a perfect shitstorm of crony capitalism.
The Future Fund itself is a total boondoggle, the handiwork of a Treasurer who either had no idea how the macroeconomy worked, or who did and deliberately chose to lie to the public, loot national assets and flog them off to mates. I’m not sure which is worse.
The idea that federal public servant superannuation is unfunded is complete horseshit. The federal government can never be forced to default on payments in $A, since it is the only entity allowed to issue them, and has a bottomless pit from which to draw them.
If Alan Joyce came out and said that Qantas couldn’t issue any more frequent flyer points or they might run out and not have any for next year’s customers, you’d rightly think he had gone mad. The relationship between Qantas and the Frequent Flyer point is identical to that between the federal government and the dollar. They issue them as they please, from nothing, to whomever they choose. Every dollar the government spends is issued into existence by the act of spending it. Flogging Telstra and putting the money raised into the Future Fund is the equivalent of Qantas selling an Airbus 380 to Tiger Airways for Frequent Flyer points. Madness or embezzlement: you be the judge.
It doesn’t matter a tinker’s cuss how many dollars are issued on superannuation, pensions or any other form of social security. What matters is that the economy has the means to produce all the real goods and services that the population requires at the time it needs them.
Further reading I recommend: Bill Mitchell’s excellent piece “The Future Fund Scandal“, and Michael Hudson’s “Norway’s Sovereign Wealth Vortex“.