Editorial: Future Fund tinkering carries serious risk

Seven treasurers — both Labor and Liberal — have held control over Australia’s Future Fund since its inception in 2006.

Six of those treasurers, from Peter Costello to Josh Frydenberg, have resisted the sizeable temptation to tinker with the sovereign wealth fund’s guiding principles which direct it to invest in whatever is going to get taxpayers the greatest return.

They all acknowledged that to achieve its goal of providing Australia with the cash reserves to deal with the budgetary implications of an ageing population, the fund needed to operate at arm’s length from government.

Not so the seventh.

Jim Chalmers wants to overhaul the fund’s investment mandate, directing it to prioritise projects which align with Labor’s political agenda — affordable housing, green energy projects and critical infrastructure.

The result would be a sudden injection of cash for the Government’s pet projects, without the Government having to redirect funding from elsewhere in the Budget.

Ever since Mr Costello squirrelled away $60 billion in anticipation of a rainy day a few decades into the future, the fund has well outperformed the market. Last year, it did 9.1 per cent, taking its 10-year return to 8.3 per cent. Today, the fund is valued at $230 billion.

Part of its strength is drawn from its investment agnosticism.

In its 18 years of operation, the fund has been free to direct money to whatever it saw fit, so long as it avoided taking on undue risk, bringing the government into disrepute or triggering takeover laws.

That’s resulted in an eclectic collection of investments, from fossil fuels to pharmaceuticals, Qantas to Coca Cola.

Dr Chalmers’ change to the mandate is fiddling with a formula that has been proven to work.

He has been keen to downplay the significance of the shift, framing the direction to prioritise certain projects as a polite request rather than an order.

Dr Chalmers said the fund’s principal consideration when examining investment opportunities would remain on maximising returns. The benchmark return rate will remain between 4 and 5 per cent above CPI. He has also tried to head off attacks by pledging not to draw down on the fund until at least 2032.

The Opposition however, says it represents a seismic shift away from its original parameters and will result in lower returns for taxpayers.

The obvious argument is that if these investments into the energy transition, housing and infrastructure stacked up as Dr Chalmers says they do, the Future Fund would invest anyway, making the new mandate redundant.

There’s no doubt that the priority areas Dr Chalmers has directed investment towards are critically important, particularly as our population continues to expand at pace.

But so too is the challenge of paying for our ageing population, which Mr Costello so presciently foresaw two decades ago.

Any mortgage on our country’s economic future is fraught with risk.