Beneath the heat of current public debate there is little light being shed on some important policy issues.
This week the story broke that the Federal Government would be raiding the Future Fund. The story was quickly denied -- but there is probably more to this than meets the eye.
The Future Fund is a complex beast because it combines two ideas, one good and one bad. Some form of compulsory savings vehicle is, on balance, a good idea. Not because bureaucrats know better than private individuals how their own money should be spent, but because it reduces the temptation to operate Ponzi schemes -- this is the situation where old investors are paid from contributions by new investors. This sort of scheme is common in public finances around the world and will become an ever-increasing burden on future taxpayers.
But the Future Fund is a sovereign wealth fund. On balance this is a bad idea. True, many countries have such things and appear to prosper. Yet they create temptation for governments to engage in wasteful spending. Government has a ''have money will spend'' approach to public finance. We have seen this in Australia since the early 2000s and more so since 2007.
The Future Fund was established by the Howard government to provide for superannuation for Commonwealth bureaucrats. The Commonwealth, like the states and territories, had been an irresponsible employer. It had provided its employees with super entitlements, but had not funded those entitlements. In other words, it had been running a Ponzi scheme.
By making provision for Commonwealth superannuation liabilities before the burden became too large the then federal government was being responsible. Yet, at the same time, it set up a huge pot of money that could be raided by future governments and to that extent was being irresponsible. Perhaps it should rather have cut taxes. So the Future Fund is a mixed blessing depending on which aspects you want to emphasise.
Irrespective of whether the Future Fund was or wasn't a good idea, it does have a significant impact on the budget bottom line. Despite the fact that the Fund will be used for superannuation, the Fund itself belongs to the Federal Government. Earnings from the fund impact the budget bottom line each year. Strictly speaking earnings from the Fund are excluded from the underlying cash balance but not the fiscal balance.
But what if the Fund sells assets and holds cash? Would that be accounted for as an earning or as a cash holding? Depending on the accounting treatment the act of transforming assets into cash could impact the budget bottom line. So the Government wouldn't need to raid the Future Fund per se, all it need do is rebalance the portfolio between assets and cash.
Whether or not this will happen or can happen is an argument for the accountants. No doubt this issue will be thoroughly canvassed in the Senate Estimates process and some sort of understanding will emerge.
It would be very disappointing if the Government isn't able to balance its budget without resorting to accounting tricks. It would tend to suggest that the current Government isn't able or willing to make the tough economic choices that are necessary for sound fiscal policy.
What we shouldn't overlook, however, is the position Australia is in compared to most other OECD countries. We have fewer Ponzi schemes in our public finances than they do. Superannuation is a privatised pension scheme where people more or less save for their own retirement. The Commonwealth superannuation scheme is now funded. We are, more or less, paying our way and not placing a burden on future generations of taxpayers to finance our lifestyle choices. Generally this is good policy -- but it would be all too easy to slip back into bad practices.
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