Bill protects Future Fund from Government incursions
Forthcoming governments will be prevented from raiding the Future Fund under legislation introduced to Federal Parliament defining the parameters within which the new fund will operate.
The Future Fund Bill 2005 does not allow any money to be drawn from the fund until 2020 unless the fund has an adequate asset level to satisfy the Government’s unfunded superannuation liability as determined by an independent actuary.
In effect, the legislation means money in the fund is to be used specifically to pay off the Government’s superannuation commitments and the expenses incurred by the fund.
Other details contained in the bill includes the creation of the seven-member Board of Guardians, headed by former Commonwealth Bank chief David Murray, to preside over the assets allocation and investment strategy for the fund and the restrictions they must observe in doing so.
To this end, the bill stipulates the board cannot take a controlling stake in companies as defined by the Corporations Act, can only borrow money for short-term settlement of transactions, and cannot use derivatives for leverage or speculation. In addition, the board will only be able to invest in infrastructure projects through pooled investment vehicles.
While the board must be consulted regarding the funds investment mandate, the Government still has the authority to issue the mandate and set the target rate of return for the fund along with the acceptable level of risk. It is anticipated the fund will be expected to deliver real long-term returns of between 4.5 per cent and 5.5 per cent.
Previous year’s budget surpluses will be used to provide the fund’s initial deposit of $18 billion and future surpluses along with the proceeds from the sale of Government assets will constitute the source of future contributions. The fund will also reinvest its annual earnings.
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