Investing for the future

What is the Future Fund?

Having reduced net debt to historically low levels, the Government announced during the 2004 federal election that it would establish a Future Fund to meet unfunded superannuation liabilities, currently estimated at $91 billion.

Why is it needed?

The Government pays out billions of dollars a year for superannuation liabilities accrued in the past. By establishing the Fund today the Government will strengthen Australia’s long-term financial position without passing yesterday’s liabilities to future generations to pay as they fall due.

How will it operate?

The policy aims to grow financial assets in the Fund sufficient to offset unfunded superannuation liabilities by around 2020.

Seed capital for the Fund will be determined once the 2004-05 surplus is realised. On current estimates this will be in the order of $16 billion. To grow the Fund the Government will reinvest its earnings as well as investing future surpluses.

The Fund will be governed by a statutory Board. The Government will set out an investment mandate to guide the board in managing the Fund. Draw-downs from the Fund will not be allowed until such time as it has accumulated assets sufficient to offset the liabilities.

What does this mean for the budget?

The Fund will be quarantined from the rest of the budget, effectively pre-committing these funds to meet superannuation payments in the future.

As a consequence, Fund earnings will be excluded from the underlying cash balance, recognising that they are not available to meet current payments. This ensures the Fund will grow so that future Governments can maintain services without raising taxes.