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Monday, 20 October 2008
Page: 9523


Ms RISHWORTH (2:23 PM) —My question is to the Minister for Finance and Deregulation. Will the minister update the House on the performance of the Future Fund?


Mr TANNER (Minister for Finance and Deregulation) —I thank the member for Kingston for her question. I am pleased to advise the House that the Future Fund is in good shape. I am particularly pleased to be able to table the Future Fund annual report 2007-08. There has been a degree of speculation about the state of the Future Fund in the course of the last six or eight months, given the extraordinary volatility that we have seen in share markets. I am pleased to be able to advise the House that, notwithstanding these pressures, the Future Fund has been performing well. Notwithstanding the extreme volatility in markets globally, the fund has generated a positive return of 1.5 per cent for the 2007-08 financial year. It is today announcing its interim estimate of returns for the September quarter. Those returns are slightly negative, so the net value of the Future Fund as at the end of September is fractionally lower than it was when it first began its full operations at the beginning of July last year. When I say fractionally, it is in the order of 0.2 per cent.

This is a very significant and very positive result in the circumstances that the Future Fund has been dealing with, given the huge drops in share prices not only in Australian markets but also internationally—because a significant proportion of the Future Fund’s investments is in international equities, not just Australian equities. There is every hope, of course, that these share price reductions will be corrected in the medium term. Given that the Future Fund is a long-term investment for the Australian people, it is important to note that it has in effect maintained its value in extraordinary circumstances. That value is, as at 30 September 2008, $63.4 billion, which includes approximately $8.2 billion in Telstra shares.

The fund’s equity exposures to stressed and failed financial institutions through its broad based, index related investments are about 0.1 per cent of its total portfolio. Exposure to failed institutions, such as Lehman Brothers and Washington Mutual, total less than $100,000 out of that $63 billion as at the end of September 2008. The fund has no credit or equity derivative exposure to any financial institution, and the fund’s investments in debt markets have been focused on debt securities issued by financial institutions and high-quality Australian residential mortgage backed securities. The majority of the Future Fund portfolio remains in cash. It is worth noting that, late last year, the board of the Future Fund made a very sound decision that it would proceed slowly into the equities market, given that in its assessment at the time the equities market was very fully priced. That proved to be a very sound decision. It is worth noting, finally, that Australians generally can draw upon the fact that the details of the Future Fund are broadly bipartisanly supported by both the opposition, the former government, and the government—


Mr Hockey —We set it up.


Mr TANNER —I notice that the opposition are desperate to claim credit for anything that they can manage. After they claimed credit for recent interest rate reductions, I am waiting for them to claim credit for the NAB interest rate reduction that was announced yesterday. No doubt they will get around to that shortly.

Opposition members interjecting—


The SPEAKER —The minister has the call. The House will come to order.


Mr Pyne interjecting


Mr TANNER —It is only Monday. You are very touchy. I was about to make the point that, notwithstanding the extraordinary international financial circumstances that are buffeting Australia and causing great difficulty for our economy and notwithstanding the fact that the government and the opposition have many disagreements on many important issues with respect to the state of the economy, it is important to note that one very fundamental part of the government’s balance sheet, which was created by the former government with the support of the then opposition, remains in good shape.


Mr Costello —You didn’t support the Telstra shares.


Mr TANNER —We voted for the legislation, Member for Higgins. You may not recall that but we actually voted for the legislation. Notwithstanding the inability of the opposition to maintain bipartisanship on virtually anything that it purports to be bipartisan on, it is a good thing for the Australian people that the Future Fund board and management, whose appointment I might add was welcomed by me as shadow finance minister at the time, has done a good job to date. I welcome the contents of its annual report. I welcome the performance of the Future Fund to date. The fact that it has held its value in extremely difficult circumstances is to the great credit of the people managing the fund and to the board of the fund.