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National Press Club -

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The Future Fund: Delivering for Australia


Thank you for having me here to speak today, the third time I have addressed the Press Club since
the election of the Rudd Labor Government two years ago.

Looking back, the vastly different economic circumstances in which I have delivered each of these
three speeches are quite remarkable.

At the time of my first address, in February 2008, inflation was well outside the RBA's target

The RBA increased interest rates by a quarter of a percentage point on the day of my address, and
increased them a further quarter of a percentage point a month later to their peak of 7.25 per

Just over one year later, in March this year, I addressed you one week after the ABS reported that
the Australian economy had contracted 0.6 per cent in the December quarter.

Today I stand before you with Australian having avoided a recession, due in part to the success of
the Government's stimulus policies.

While dangers to the economy still remain, we can now start to look forward to calmer economic
times ahead.

The Treasurer plans to release the third intergenerational report before the Budget in May.

This report is likely to show that the ageing of the population continues to present significant
pressures to the Budget, with rising health, pension and aged care costs the main drivers.

It was in this context that the previous Liberal Government established the Future Fund in 2006,
with the purpose of meeting public sector unfunded superannuation liabilities.

Unfunded superannuation liabilities are forecast to reach $162 billion by 2020, hitting the budget
bottom line to the tune of $7.1 billion each year.

The Future Fund acts as an insurance policy to offset the impact of these rising costs.

The Future Fund will ensure that our children will not have to worry about paying the bill for
public sector superannuants.

Through our saving and investment today, we are relieving them of a future fiscal burden.

The Future Fund is still very new. It's hardly surprising that it sometimes attracts ill-informed

Kenneth Davidson recently suggested that the Future Fund was financed by the sale of all
Commonwealth property, except the War Memorial and Parliament House.

While the Commonwealth sold a number of office buildings in the late 1990s and early 2000s, none of
the proceeds from those sales went into the Future Fund.

And the Commonwealth continues to own many substantial property assets, including the buildings
occupied by the Department of Finance and Department of Treasury here in Canberra.

The total Commonwealth property and land portfolio is valued at around $28 billion.

The Future Fund has also been criticised for investing overseas through asset managers domiciled in
the Cayman Islands.

Given the structure of the industry and complexity of international tax law, this is common
practice and often difficult to avoid.

And the Cayman Islands is changing: it's negotiating a tax information treaty with Australian, and
joined the OECD list of jurisdictions that have substantially implemented the internationally
agreed tax standard.

The Government's decision to appoint former Treasurer Peter Costello to the Future Fund Board has
also been criticised.

It's understandable that partisan Labor supporters disapprove, but the Future Fund is too important
to be a political battleground.

Mr Costello is uniquely well positioned to contribute to the Board, both as the creator of the
Future Fund and as a repository of extensive knowledge regarding the Australian and global economy.

Australia was able to establish a sovereign wealth fund as a result of the surge in revenue from
the mining boom.

This is not unusual.

Many of the sovereign wealth funds established around the world owe their origins to large surges
in revenue from resources, particularly oil.

Australia's future depends on our ability to invest wisely.

We have been blessed with unprecedented income flows arising from global demand for our resources.

While that demand will fluctuate, many believe Australia's good fortune will continue.

That means it's vital we save much of any proceeds that eventuate, and invest them wisely.

In early stages of the mining boom, there was much debate about the nature of investment we

Should we invest in upgrading infrastructure, to allow higher economic growth?

Or should we invest more widely and indirectly to help offset mounting budget liabilities?

The answer is that we must do both.

The Howard Government failed to actively invest in infrastructure, and the Rudd Government is now
working hard to restore the balance.

The former Government did make the right call when it created the Future Fund.

The decision had bipartisan support when it was made, and the Rudd Government has not altered any
of the fundamental features of the Future Fund during its time in office.

Responsible governments around the world have taken the view that the nature of windfalls from
resources booms means they should be invested in future prosperity, not squandered on short term

In spite of creating the Future Fund, which was largely financed by the sale of Telstra, the Howard
Government squandered much of the proceeds of the mining boom.

The Rudd Government is determined not to make the same mistake.

In its first Budget the Government established three nation building funds to be managed by the
Future Fund.

While meeting unfunded superannuation liabilities is an important goal, we also need to invest in
infrastructure to increase long term productive capacity in the economy.

The Future Fund now manages a total of $85.68 billion on behalf of the Government.

That is almost $4000 for every man, woman and child in Australia.

The prospect of a new mining boom is already generating suggestions of another sovereign wealth
fund to hold offshore assets and dampen the distorting impact of the boom on the Australian

Such speculation is entirely premature.

A resumption of mining boom tax revenues is by no means certain.

Any windfall increases in revenue will need to be dedicated to returning the Budget to surplus and
paying down debt.

With the Future Fund now fully operational, future Australian governments are well placed to pursue
an offshore fund option should they choose too.

Any such choice will not present for some years, if at all.

When I became the responsible Minister in December 2007 the Future Fund was still very much in its
establishment phase.

During the past two years it has diversified its investments, and taken over management of the
three nation building funds.

The tumultuous two years on the financial markets have presented significant challenges and
opportunities as the Future Fund has built its portfolio.

In 2008-09 the Future Fund recorded an operating loss, excluding the Fund's holding of Telstra
shares, of $2.4 billion.

This translates into a nominal return of minus 4.2 per cent.

When compared to the dramatic declines of world markets and the losses of domestic and
international superannuation funds, the Future Fund has performed relatively well.

It is also in some ways fortuitous that the Future Fund has been in the process of acquiring
financial assets and establishing its portfolio during a period when prices were not inflated by
the effects of an asset bubble.

This bodes well for the returns from the Fund in future.

The performance of the Future Fund in the first quarter of 2009-10 reflects the improving market

The return for the quarter ending 30 September 2009 (ex Telstra) was 5.6 per cent.

This is good news, as the Fund moves out of its establishment phase.

The transition out of the establishment phase is also a good time to evaluate some of the policy
settings affecting the Future Fund.

While the Government continues to support the framework put in place by the previous Government it
is appropriate to reconsider some specific aspects of that framework.

The Freedom of Information Act 1982 (FOI Act) applies to the Future Fund.

The Future Fund is of the view that some of its information, which if made publicly available,
would place at risk the return that could be earned for the Funds or limit the range of investments
the Board can access.

The possibility of disclosure of sensitive information under the FOI Act has created some
uncertainty for other entities entering into arrangements with the Future Fund.

The Government has therefore decided to grant an exclusion under Schedule 2 of the FOI Act for
Future Fund Board documents in respect of acquiring, realising or managing investment of the Future
Fund Board.

This exclusion is not dissimilar to the exclusion granted to the Reserve Bank, including for its
open market operations, and to a number of Commonwealth agencies for their commercial operations.

I understand that announcing the removal of certain activities from FOI laws at the Press Club is
akin to announcing a reduction in judicial discretion at a meeting of lawyers, but I would assure
you that this will not impinge, in any significant way, upon the documents that the Future Fund
will continue to release under FOI Act.

Sensitive documents regarding specific investment decisions would almost invariably be granted
exemption under the current FOI Act, at least until the sensitivities attached no longer did so.

The purpose of the exclusion is to provide certainty to the Board and its investment partners
through knowing that those documents are automatically excluded.

FOI applications may still be lodged and applicants will be able to seek a review of any exclusion
decision to satisfy themselves that the documents in question were properly excluded.

The Board's activities will continue to be subject to transparency and scrutiny through a number of
means, including Senate hearings, publication of its investment policies and performance, and
annual reports.

The Government's expectation is that sensitive documents will be disclosed, including under FOI,
once the sensitivities attached to those documents no longer apply.

These arrangements provide an appropriate balance between maximising returns and the transparency
and accountability required of a Government investment fund.

When I first meet with David Murray, the Chair of the Future Fund, the day after I was sworn in as
a Minister in December 2007, I was conscious of the importance of establishing a culture of
independence for the Fund.

When a Government agency is responsible for investing tens of billions of dollars of taxpayer's
funds, there is always a temptation for the Government to intervene in individual investment

This would be a mistake, not just in terms of the negative impact on the market of such
intervention but also for taxpayers.

Earnings from a fund subject to heavy Government intervention will invariably be lower than a fund
that is allowed to independently invest in the best financial interests of taxpayers.

When commentators or members of the public raise the spectre of the Government directing the Future
Fund to invest in a particular asset or a large infrastructure project, it is important to
reiterate the independence of the Board in making investment decisions.

It is in this spirit that today the Government is announcing that we will be working with the
Future Fund to examine options for an alternative employment framework, which could allow Future
Fund employees to be removed from coverage of the Public Service Act.

Such an employment framework would aim to reinforce the independence of the Board, but still
provide values and standards for the Agency, particular with respect to its responsibilities
relating to public money.

The Government's decision to examine these options reflects a greater understanding of the nature
of the Future Fund.

Like the Reserve Bank, it is substantially different from other Public Service entities.

Being primarily responsible for investment management, the Agency operates within financial markets
in a largely commercial environment.

Removing the Fund from the Public Service Act would enhance its independence from Government and
make it easier to recruit specialised fund managers.

The importance of the Future Fund's operational independence is crucial in the context of the
Government's current negotiations with Telstra.

The Future Fund owns 10 per cent of Telstra, and is its largest single shareholder.

When the previous Government transferred its remaining 17 per cent stake in Telstra to the Future
Fund in 2007, it issued a Ministerial Direction stating that the shares would be subject to an
escrow period until November 2008.

This meant the Board was unable to sell the shares during this period.

In the first transaction following the expiration of the escrow period, the Future Fund sold part
of its shareholding worth $2.37 billion in August this year.

The Australian Government had no involvement in this decision.

Nor did the Future Fund have any prior access to or knowledge of Government plans in relation to
Telstra or the national broadband network.

The Government's negotiations with Telstra on structural separation mean that the Future Fund's
activities must be absolutely independent of the Government.

The existence of a power of ministerial direction regarding the Future Fund's Telstra shares casts
doubt over this independence.

With this is in mind, today I want to make it absolutely clear that the Government will not be
directing the Board in relation to its Telstra shareholdings as is allowed under the Future Fund
Act, including the exercising of its voting rights in relation to any shareholder vote on
structural separation.

Nor will the Government discuss with the Board its intentions in relation to the use of its voting

The Future Fund will make its decisions with only one issue in mind: shareholder value.

The Government's strong commitment to the independence of the Future Fund ensures that we are
acting in accordance with the Santiago Principles, which provide a framework of governance,
transparency and accountability for sovereign wealth funds.

Through the efforts of Future Fund Chairman, David Murray AO, Australia has been at the forefront
of the development of the Santiago Principles and the establishment of the International Forum of
Sovereign Wealth Funds.

The Santiago Principles can be seen to be both a catalyst and a guidepost for all sovereign wealth
funds to consider whether their structure and operations meet best practice.

The purpose of the International Forum of Sovereign Wealth Funds is to exchange views on issues of
common interest, and encourage an understanding and adherence to the Santiago Principles and
sovereign wealth fund activities.

Mr Murray was elected Chair of the IFSWF, recognising his commitment to developing and improving
the international investment environment for sovereign wealth funds.

This is also a reflection of the regard with which Australia and the Future Fund are held among
sovereign wealth funds around the world.

I am pleased to announce that the Future Fund, along with the Australian Government, will be
hosting the second meeting of the IFSWF in May 2010.

I look forward to working with Mr Murray in delivering a successful meeting and in further raising
the profile of the IFSWF, and in turn of Australia and the Future Fund.

The expertise that both the Future Fund and the Department of Finance and Deregulation have
developed is now allowing Australia to reach out to other countries in our region and assist in
their establishment of sovereign wealth funds.

For example, the Papua New Guinea Government is exploring the creation of a sovereign wealth fund
to receive some of the expected $35 billion in revenue flowing from the PNG LNG project.

The Australian Government is committed to helping the PNG Government, should it commit to
establishing its own sovereign wealth fund, by sharing our experience on the structure and
operation of sovereign wealth funds and technical advice on the application of the Santiago

PNG has begun discussions with my Department, along with DFAT and AUSAID, on options for

With Australia's experience, and our strong commitment to assist Papua New Guinea to develop its
economy, I am confident we will provide advice and assistance of great value.

The Future Fund has come a long way since its establishment three years ago.

Under the excellent leadership of its Chair, David Murray, and its General Manager, Paul Costello,
the Fund has developed the culture, expertise and reputation which make it a vital asset for

The reforms announced today will put the Future Fund on a stronger footing, and help the Fund deal
with the challenges and opportunities ahead.

They will strengthen its independence, and ensure that it can deliver maximum returns on the
investment of Australia's wealth.

SPEAKER: Thank you, Minister, as usual we have a period of questions, starting today with David

DAVID UREN: David Uren, from The Australian. The Reserve Bank, which is currently excluded from the
public sector guidelines, and I assume that's the kind of model you're thinking around for the
Future Fund, is almost unique amongst Australian major organisations, in not publishing any kind of
breakdown of the salaries to its leading executives, whereas in any ordinary company, you can get a
sense of what the top 20 positions are by salary band, the Reserve Bank alone does not provide that
information, but just provides a sort of a global number for the top dozen or so positions.

Last year that number went up by about 20 per cent, with no explanation. Would you envisage that
under the Future Fund and the exclusion from any kind of public sector control, that the salaries
of senior executives would also, similar to the RBA, be concealed from public view, and would your
exclusion from FOI, mean that the media had no opportunity to find that information by other means?

LINDSAY TANNER: Certainly I have no intention of changing the existing disclosure arrangements,
you'll probably be aware that the most recent explanation of Future Fund salaries did indicate that
the highest earner, and of course we're talking about highly specialised, and very much in demand
people, were still earning less than $1 million a year, which is frankly, given the size of the
fund and the nature of the people in competitive markets, a good outcome.

The question with respect to the FOI change is very definitely no, that would not change the FOI
arrangements with respect to organisational matters of the fund, they would continue in their
current form. The purpose of the FOI changes is very narrowly specific to the individual investment
proposals or decisions, so matters that are about the Future Fund as an organisation would be
unaffected, they would simply be dealt with in accordance with the existing FOI arrangements, that
doesn't automatically mean they get disclosed, because of course there are rules governing freedom
of information that apply generally, which mandate disclosure in some cases, and non-disclosure in
others, so with respect to those matters, there would be no change.

SPEAKER: Thank you. The next question's from Peter Martin.

PETER MARTIN: G'day, Peter Martin, the Sydney Morning Herald, and Age. You've ruled out setting up
a macro stabilisation fund for now, you want to pay off debt first, return to surplus first, what
are your views about that idea though, down the track?

LINDSAY TANNER: It is possible to paint a picture of the future perhaps in 10 years time, where
that kind of proposal might be appropriate, but I think the variables that are involved are such
that I wouldn't care to speculate on the merits of it, Peter.

There's been quite a lot of academic debate about this, and I think probably the main thing I'd say
is that were we to get to a point where Australia would have a genuine choice of this kind, we
would be celebrating, because not only would we have both returned the budget to surplus, not only
would we have paid off all Commonwealth Government debt, but we would have such strong inflows of
money arising from a renewed mining boom, that we would then be in the very happy position of
having to ask, what are we going to do with this money, in a way that doesn't generate an
inflationary boom, within our domestic economy.

None of those circumstances appears likely to eventuate in the foreseeable future, I can understand
the academic debate about these issues, but I wouldn't speculate about when or if any of these
things should occur. Given the events of the last two years, I think it is a very sober lesson to
all of us, that we shouldn't count our chickens before they're hatched.

SPEAKER: Sophie Morris?

SOPHIE MORRIS: Sophie Morris, from the Australian Financial Review. You've said recently minister,
that tough decisions will need to be made in the lead-up to the next budget, how do you reconcile
that with the fact that your Government announced yesterday it was prepared to throw billions of
dollars more at big polluters, and do you think what was outlined yesterday is in fact a better
ETS, or were you more - or is it just what was needed to try and get the Coalition over the line?

LINDSAY TANNER: The first point in response to your question, Sophie, is that the net impact on the
budget as a result of the revised arrangements to the carbon pollution reduction scheme that we
negotiated with the Opposition, is about $770 million over a 10 year period, so the negative impact
on the budget, spread over 10 years, and it's not $77 million a year, it moves up and down, that is
a very modest impact in the context of a scheme that involves literally billions and billions of

I made the commitment some time ago that our intention was to ensure that any changes were as close
to revenue-neutral as humanly possibly, you can form your own opinion as to what your definition of
humanly possible is. When you're dealing with the Senate, I can tell you that there are some
constraints on the meaning of the words humanly possible, that was a reality we had to deal with,
but in my view that is a price worth paying to fulfil our commitment to the Australian people, and
indeed our international obligations to tackle the challenge of climate change.

I'd also just caution people about too liberally and freely using the term, big polluters. Yes,
they are, but who's actually doing the polluting? The answer is all of us, we are the ones buying
the electricity, for example, we are the ones driving the cars, so although the pointy end of the
carbon pollution process of emissions process, is sometimes concentrated in particular companies
and particular sectors, the truth is that they are all creatures of us, they only exist because we
consume electricity, for example.

And although it's a kind of cute, glib line for certain political parties to play up, and some
newspapers significantly less responsible than yours, of course, to make use of, the truth is that
by pretending that there are these other people who we call big polluters, and it's all their
fault, and if we just beat them up, it'll solve the problem, is facile.

The truth is, we are all the problem, and that's why you need an all-encompassing structure and a
scheme, to gradually modify how we, as a nation, deal with energy, deal with various other things,
that are the key sources of carbon emissions.

Now that's a very challenging thing, and of course these negotiations, as I'm sure you'd
appreciate, have been very, very challenging, but the circumstances are, that to have any prospect
of getting a scheme, an arrangement, a proposal through the Senate, that will enable us to tackle
the challenges of climate change in this country, and to contribute to what we expect and hope will
be a genuine international effort to do that, then we had to make these calls.

The fact that there has been such turmoil on the other side, and such bitter division about what we
feel are very worthwhile changes that we have been prepared to accept, that they have put to us,
just indicates how tough that process has been for the Government.

SPEAKER: Minister, I'd like to ask you a couple of questions, the first one's this, Sovereign
Wealth Funds around the world have often attracted some controversy because of their investments in
private sector assets, which bring with them voting power in companies, and some of that
controversy's been seen in Australia, indeed. What will be the policy on the exercise of voting
power such as that, will it be influenced by Australia's international relations, and possibly the
Department of Foreign Affairs' view of its effect on relations with other countries, or is it
purely a matter for the guardians of the fund?

LINDSAY TANNER: With respect to decisions by the Future Fund, particularly given that David Murray,
representing the Future Fund, has played such a key role in developing the San Diego principles,
then we would expect that having signed up to those principles, the Future Fund would adhere to
them, but the Government would not seek to interfere in any decisions the Future Fund makes with
respect to international investments.

There is of course a cap on investments, the Future Fund is prohibited from acquiring anything more
than 20 per cent of any given company or organisation, so there is by definition, no prospect of
the Future Fund actually taking control of an international company, for example. So, there is, by
definition, no prospect of the Future Fund actually taking control of an international company, for

Not all Sovereign Wealth Funds are in that same position. There are some who wholly own or ver... or
majority own companies in other jurisdictions. But the nature of the limitation on the Future
Fund's investments both here and internationally means that it's precluded from being in that
position. And that's, I think, very important. Because the intention is for the Future Fund to be
an investor in what is typically seen as the passive sense, just seeking returns, not to become a
dominator of companies, not to become a controller of companies and therefore potentially to
introduce distortions into the Australian market, but also possibly in the international market.

QUESTION: The other quick thing I was going to ask you, were - which is quite separate and away
from that sort of policy, is; is them(*) likely to consider broadening the application of the
returns and the funds from the Future Fund? For example, the comparable organisation in Denmark
which is based on its returns from North Sea oil, spends quite a lot of money developing its skills
base by funding students at the - some of its best students at some of the best universities around
the world. The - since we've got schools' problems, is that a prospect?

LINDSAY TANNER: In short, no, it's not.

The key reason that - apart from the fact that we've, of course, made no decision nor would I
expect we would make any decision to vary the focus of the Future Fund - that decision is not in
prospect given the fact that those prospective liabilities for - hinting(*) at 20/20, that's been
the reference point that the previous Government used and we continue to use - are so large that
just meeting that target will be a big enough challenge in itself. It is theoretically possible
that a long way into the future, well beyond any prospect of me being still a minister in any
government, it is theoretically possible that those kind of choices you referred to may confront a
future government. But as you can imagine, the impact of the global financial crisis on the Future
Fund's performance at a very early stage in its development has managed to put it back a little bit
in terms of that pursuit of that target. Now, I have every expectation that we will recover that
lost ground. Over what period of time, I'm not in a position to predict. But clearly, there's no
base on which we could predict pursuing a target for financing some other purpose beyond the
financing of public sector superannuation in the current circumstances. It would be nice if, at
some point in the future, a future government is able to ask that question, but in the world that
we currently inhabit and I expect we will for some time, it's going to be tough enough for the fund
to actually manage to achieve its explicit purpose that the previous Government gave it and which
we continue to be committed to, without asking; what else could it do?

SPEAKER: Thank you. Next question's from Laurie Wilson.

QUESTION: Laurie Wilson. I've got a couple of questions from APEC. I've got a couple of questions
as well.

My first one relates to the capacity to review and [indistinct] a decision. I'm just wondering if
you'd tell us a bit more about that review process.

And will there be any oversight testing, checking process in relation to that, an audit process? I
mean, for instance, in terms of government agencies subject to the FMA Act at the moment you have
the so-called Murray Motion which means you're subject to audit by the Auditor-General. Will there
be some sort of checking process or do we just have to wait until someone says; well, I'd like to
review that decision?

LINDSAY TANNER: Well, treating the question the wrong way around, the Future Fund will continue to
be an organisation under the FMA Act. For those who don't know the FMA Act, it's the Financial
Management and Accountability Act. In fact, some of these changes are really driven by the fact
that it's[sic] doesn't fit neatly within either side of the divide that we currently operate under,
where you have bodies that are, in a sense, direct creatures of government where you typically
don't have boards and you have direct ministerial control under the Financial Management
Accountability Act and therefore much more directly connected to decision making powers of
government. And on the other hand, the Commonwealth Authorities and Companies Act, known
colloquially to its friends as the CAC Act - so, we have the FMA Act and the CAC Act - which
applies to government business enterprises like Australia Post, for example, where clearly you
don't want ministers and the Government basically dealing with day to day decisions; you have an
arms length board and you have the Government as a shareholder, and a very different arrangement.
The thing that's unusual about the Future Fund is that it kind of sits between those two
situations, that you do want it operating independently and at arms length, but because it is
managing vast amounts of Federal Government money, of taxpayers' money, there are other elements
which mean that you do want it very close to the decision making structure. That's one of the
reasons why these refinements are being pursued.

You may be aware that my Cabinet colleague, the Cabinet Secretary and Special Minister of State,
Senator Joseph Ludwig, has just announced a range of general reforms to the FOI Act, and part of
that is the creation of an information commissioner with an explicit internal review and Ombudsman
kind of role with respect to the FOI legislation. So the answer is yes, there is an internal review
process that is now being substantially enhanced by those reforms, that is independent of the
specific change that we're pursuing with respect to the Future Fund, but would obviously cover
those changes. So yes, there are and there will be strengthened internal review processes. He's
also made some very significant changes with respect to fees for the FOI legislation. So, you no
longer have to pay a fee for applying. Currently that fee, I think, is $30. And the arrangements,
with respect to fees for the FOI process have been made, shall we say, somewhat more reasonable.
So, they are less onerous or less automatically onerous than, in some cases, they have been. So,
these are quite significant reforms that are across the board reforms with respect to FOI. The
change that I've indicated today is very - just one very specific and quite small reform that
applies only to the Future Fund.

SPEAKER: Laurie?

QUESTION: My second question goes to the point you mentioned before about salaries. Now, a salary
of nearly a million dollars sound very appealing, I have to say. But [laughs] I would make the
point, as you did, that, of course, it's a very competitive industry out there and many of the
salaries are significant multiples of that. Does it - I'm - and I'm assuming that the decision
around salaries is a board decision, but does it concern you that the ability of the fund to
attract the best and brightest might be constrained by those levels of salary?

LINDSAY TANNER: I'd have to say that there is no evidence of that occurring as yet, and it is a
very tricky area. As you say, even something that is a bit below a million dollars, in most people
terms, an awful lot of money. It's quite a lot more than I get paid. In fact, it's quite a lot more
than the Prime Minister gets paid. The unfortunate thing, though, of course, is that the expertise
and the experience that's involved with these processes; handling and making decisions about
billions of dollars of money in investments where significant risk is involved, is very specialised
and where the people who are conducting the same kinds of things, both in Australia and overseas,
are paying salaries for their top operators that are well beyond, you know, that $900,000 or

And therefore it is very important for taxpayers that we get people who know what they're doing and
are top class in making those decisions. Otherwise, the risk is that money could be lost or
investment outcomes could be substantially inferior, involving not millions of dollars but billions
of dollars. So, there is a dilemma here, but in my view the board has handled this problem with
great finesse and thus far I have all - every confidence in the way the board has managed those
dilemmas. And I would not anticipate that the changes that we're proposing to create a customised
structure for the Future Fund for employing its staff and removing it from the Public Service Act
would have any implications for the way it deals with these issues in either direction.

So, it's not intended that this would, any such change - and I stress that we have got to go
through the process of examining all of the detail and make sure that before we move from what
we've got, that we have got a clear agreement and understanding about where we're heading to. It is
not intended or anticipated that that would change any decisions with respect to its remuneration.

SPEAKER: Thank you.

QUESTION: Malcolm Collis, freelance journalist.

Minister, my question also relates to next year's Budget. The Government has started to condition
the electorate to be prepared for an austerity budget next year. My question is directed to you and
your capacity as a Minister for cutting spending. Bearing in mind the fact that, by then, home loan
mortgage rates may well have gone up by at least - gone up at least four times, and the fact that
the Budget next year will be the last one before the next election, the first election for this
Government, is that a proposition that we should be taking seriously at this time?

LINDSAY TANNER: Well, yes it is, Malcolm, and I don't back away from the fact that this is a very
challenging set of circumstances for the Government. It's hardly a great secret that governments
tend to like to go to elections off the back of generous Budgets and, of course, over the past
decade there's been numerous examples of that, which I'm sure you're all aware of.

The thing that we can't ignore, however, is that the economic circumstances and the budget
circumstances that we have been presented with as a result of the global financial crisis, simply
make that kind of situation untenable. That the, kind of, loosen the purse strings, lots of
giveaways, kind of Budget that in popular mythology tends to be associated with election years is
just simply not feasible and, frankly, I think were we to head down that path we would suffer
politically, because I think most Australians understand the reality of those circumstances too.

That means we do face some very difficult choices and some very great challenges because we have
got to get the Budget back into surplus as quickly as possible. The figures that were published in
the Mid-Year Economic and Fiscal Outlook papers only a matter of weeks ago have indicated that the
task is looking somewhat less daunting than it did in May, with the Budget. And the revisions mean
that we are expecting debt to peak at significantly lower level than was previously the case, but
nonetheless, the task is still huge. And we do not have the luxury of saying manana. We do not have
the luxury of saying, well, we'll be tough on spending maybe next year or the year after and we're
going to have a big splash now. That simply is not feasible.

Now, you're quite right that that is going to generate some challenging political circumstances for
the Government, but I would point out that it is going to generate even more challenging
circumstances for the Opposition. Now, of course - in fact somebody may be able to tell me, but we
don't know whether Malcolm Turnbull is going to continue to be leader of the Opposition, but he
certainly has made very strong statements that the Liberal Opposition would have smaller Budget
deficits and a lower of level of debt than is currently projected by the Government. What that
means is, that however tough we are, they're promising to be tougher. Now, you can rest assured
that when we get close to the election, I'll be casting a very close eye on whether he's living up
to that rhetoric and whether the Liberal Party and the National Party are living up to that
rhetoric, because they should be held to account for all of the inflammatory statements that they
have made over the course of the last twelve months, which may well be reflected in their election
commitments next year, but frankly I'll be a little surprised.

SPEAKER: David Uren.

QUESTION: Minister, following on from that question, you have - the Government has placed on itself
a discipline of only funding new spending to the extent that offsetting savings are made elsewhere.
Do you think that that discipline will be enough to enable you to meet your two per cent cap on
real growth once the economy returns to trend, given the things like rising pension costs and
health costs and defence costs all going at much faster rates.

LINDSAY TANNER: The commitment we've made is to essentially have two mechanisms to ensure that we
return the budget to surplus. The current prediction in the budget papers is for that return to
surplus to occur in 2015 / 16, and those two mechanisms are the ones you've mentioned, David, which
are of course, offsetting any new spending with savings, so that you get a neutral outcome as a
result of any new spending. And, secondly, ensuring that once normal levels of growth have resumed,
and at this stage that looks like that's about a year or so away, but that of course cannot be
absolutely specified, that we will ensure that Government spending does not increase by any more
than two per cent in real terms until the budget returns to surplus.

The answer is that, almost by definition, the off-setting of new spending with savings will not do
the job by itself, that's why we need the two per cent target. It is theoretically possible that
circumstances might intervene in a way that means that we don't need to make spending cuts in order
to ensure that the two per cent target is honoured. I think in practice, that's very unlikely and
that we will need more discipline over the course of that period of time, either us or whoever is
in government, assuming they honour these commitments, than just offsetting new spending.

The ageing of the population is a key element in that, because within the next year or two you
start to see the very early signs of the Budget numbers being just gradually eroded by the impact
of the ageing of the population. Of course, as the years unfold that effect intensifies. And the
other factor that complicates all of this is that we can't assume, even if we get a resumption of
economic growth of the kind we had a couple of years ago, and of a mining boom and all of those
kind of things, we can't assume that will lead to a resumption, in full, of the torrent of tax
revenues that the previous Government had at its disposal in that, kind of, 2004, 5, 6 and into
2007 period. And in particular, of course, with the dramatic drop in asset values, that complicates
patterns of capital gains tax and all kinds of technical, complicated things that I won't bore you
with. So, the answer is almost certainly, in my view, yes we will have to do more than just offset
new commitments. But to what extent, and in what financial years, and over what period? All of that
of course, we will only know as we're approaching those choices, because, although we've got
projections for anticipated growth, anticipated spending, anticipated tax revenue, of course, as
you know, they get revised every six months and global circumstances push them up, push them down,
push them sideways and so, they're only projections.

SPEAKER: Thank you. The final question from Peter Martin.

QUESTION: You've spoken about the politics of austerity for political parties, and indeed, you
think this is going to put the Opposition in a very difficult situation.

What about the politics of austerity for voters? That is to say, what do you think the Australian
public - or do you think the Australian public is ready for an election where neither side makes
big promises? What's your, sort of, reading of - your electorate in Melbourne's probably not
typical - but what's you reading of the Australian public and whether they could take a situation
like that? What do you think ordinary Australians think about such a series of elections?

LINDSAY TANNER: I think, as with most things, Peter, the answer is mixed and that there are some
people who would like to reduce Government spending no matter what the circumstances, there are
some who'd like to increase it no matter what the circumstances, so you've got obviously a wide
variety of views. But I would say this. In the 2007 election campaign, I believe - well, my own
response to the dynamics of that campaign was that when Kevin Rudd stood up at his campaign launch
and said the spending spree has got to stop and the commitments I make tonight will only - will be
less than 25 per cent of the commitments that, in dollar terms, that Mr Howard made at his launch a
couple of days ago. I felt then, and I still feel it, that was the time when we won that election,
because that amounted to a statement to the Australian people that in circumstances where the
pressure was really on us and the temptation to come out with even more big spending promises and
commitments than had been the case from the other side, that that's really when you find out
whether people have got wherewithal to withstand those pressures and say, no we can't afford it.

So, people will debate these things. I'm sure that some of my caucus colleagues when they're
confronted with the prospect of whether or not a particular project or program should be financed
in their electorate, will give you slightly different views, varying of course from individual to
individual. But I believe that in a general sense, the bulk of the Australian community understand
that this is not free money and, although there are circumstances and there are projects and
programs where spending is entirely justified, in particular to sustain jobs in the wake of a
global downturn, I think there's been clear public support for that strategy, but the idea of
electoral bribes, I think, is something that if not past it's used-by date is at least to a point
where it is nowhere near as potent as some in the past have argued it is. And I think, provided
that we approach our task in an intelligent and compassionate way, we will get more credit for
making tough decisions and ensuring that the economy and employment and business activity are
sustained rather than falling for the temptation of cheap, easy giveaways to win short-term
applause and short-term political support.

Time will tell. That's obviously a biased perspective given that it's my job to think like that in
the first place, but it's also a view that I have happened to have held for sometime. I think,
basically, when it all boils down to it, the people of this country want good government. They want
a government that's in charge, that's competent and they understand that you can't just endlessly
hand out money. That there is a call to account, underneath all of this, and although there things
that governments have to finance and there are important projects and programs that have to be
supported, I think people are well and truly tired of the kind of auctions and giveaways and naked
pandering for votes that we've seen in elections in recent decades.

SPEAKER: Thank you very much.