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Tag Archives: future fund

The Coalition money shuffle

One of Joe Hockey’s first acts as Treasurer in 2013 was to gift the RBA $8.8 billion. The main reason for this was to make Labor’s deficit look bigger. As a side bonus, it allowed the RBA to invest in the forex market, banking on the Australian dollar losing value as the mining boom subsided.

And that is exactly what happened allowing the government to draw…wait for it…$8.8 billion in dividends over the last six years. That’s all very well (if we ignore how the Coalition screamed like stuck pigs when Labor took a one-off dividend of $500 million in 2013) except Hockey borrowed the $8.8 billion so we are still paying interest on it.

We have also paid a fortune in “fees for banking services” as investment banks have raked in hundreds of millions in trading fees.

Had Hockey not engaged in this political chicanery, we would be billions of dollars better off.

And then there are the six Future Funds which contained $198.8 billion as at June 30 this year.

The direct cost of managing these funds was over $1 billion for the last three years alone.

The DisabilityCare Australia Fund had $16.4 billion sitting in it, which must be aggravating to the many people still waiting to access services or those who have had their services reduced.

The Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILS Fund) was established in February 2019 with a capital contribution of $2 billion transferred from the Aboriginal and Torres Strait Islander Land Account.

The purpose of the Indigenous Land and Sea Corporation, to whom the fund will make payments apparently at the discretion of the Minister if the investment mandate targets have been met, is to acquire and manage land, water and water-related rights so as to attain economic, environmental, social or cultural benefits. One wonders how much will actually be handed over for that purpose now that Peter Costello has his hands on it. I am sure the mining companies would prefer that money to be tied up rather than used.

In July, the government deposited another $7.8 billion into the Medical Research Future Fund. As we were still in deficit, this was a pretty amazing feat which must have come at the cost of other research cuts and/or interest costs for the borrowed money. It’s interesting how they can find a lazy $8 billion when they want to.

The Education Investment Fund, originally intended for new facilities in the higher education sector, had payments frozen in 2013 and it has been accumulating funds since. These have now been taken to create the government’s new $4 billion Emergency Response Fund.

Then, on 1 September 2019, the assets of the Building Australia Fund were transferred to the newly created Future Drought Fund.

The original Future Fund was established in 2006, funded in part from budget surpluses but mainly from the sale of Telstra. As at June 30, there was $162.6 billion sitting in it.

Kevin Rudd, as Opposition leader, suggested using $2.7 billion of it to invest in a National Broadband Network with profits being returned to the Future Fund. The Howard government screamed blue murder, claiming that Labor intended to “raid” the Future Fund for their own means. Gee, that has worked out well for us hasn’t it.

While legislation permits drawdowns from the Future Fund from 1 July 2020, the Government announced in the 2017-18 budget that it will refrain from making withdrawals until at least 2026-27.

What on earth is the point of sitting on that pile of money when only 20% of it is invested in Australia?

The ten year return has been 10.4% for the Future Fund which might sound good until you look at Infrastructure Australia’s High Priority Project list where every project has a cost benefit ratio of better than that.

We could be employing people in productivity enhancing infrastructure construction. We could be increasing primary healthcare and reducing hospital waiting times to save money and improve quality of life. We could be investing in research and education, both of which bring a far greater return than 10%.

But the Coalition are obsessed with accumulating cash and apparently have zero understanding of the value of actually using the money for the benefit of our economy and our citizens.

 

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Actions speak louder than words

Joe Hockey has been making noise about tax avoidance.

“They’re stealing from us and our community,” he told the Nine Network on Friday, labelling tax cheats as “thieves.”

Tony Abbott told us we should judge the Coalition on their actions rather than their words – sound advice considering their words bear no resemblance to what they actually do – so it would be timely to consider what they have done to address this growing problem.

While other countries are closing their tax minimisation loopholes, the Abbott government has spent the past year opening them up.

One of Treasurer Joe Hockey’s first acts in office was to roll back Labor’s measures to tackle profit shifting and improving tax transparency – effectively handing back $1.1 billion to big global firms.

As it pushes for a G20 summit agreement this weekend to crack down on corporate tax evasion, the Abbott government has set a timetable for action that is about one year behind the biggest European economies including Britain, France and Germany.

The “early adopters” in the global program will begin exchanging information in September 2017, however, the exchange of information with Australian authorities will not take place until September 2018.

In March this year, the ATO announced an amnesty for offshore tax cheats. For those who come forward before the end of the calendar year, there is a guarantee of no prosecution and only four years of offshore income is assessed with a maximum shortfall penalty of 10 per cent.

“For lots of people, their forebearers came from war-torn Europe”, tax lawyer Mark Leibler told the ABC’s AM program. “They wanted to keep nest eggs overseas, not primarily in order to avoid or evade tax, but just as a measure of security.”

So these people and their families have been avoiding tax since they arrived here after the war but let’s not worry about that.

Around $150 million worth of assets is the most declared by one person so far. The money has come from 40 countries including Switzerland, the UK, Hong Kong, Israel and Singapore.

Australian Tax Office deputy commissioner, Greg Williams, said new migrants with limited knowledge of Australia’s tax system and people that have deliberately sent money offshore are also among those coming forward.

“You’ve got that whole gamut from old money, new money, recent migrants and people sending the money offshore,” he said.

These ‘people’ include our own government.

Australia’s Future Fund has revealed it has invested more than $20 billion through offshore tax shelters, including the Cayman Islands, warning of lower returns if it does not minimise its tax bill.

The $77bn fund for federal public-servant pensions has revealed that 14.4 per cent of its assets, worth about $11bn, are invested in subsidiaries based in the Cayman Islands (a tax haven in the Caribbean) and a further 1.3 per cent is in its subsidiaries in the British Virgin Islands and Jersey.

On top of this, the fund has tipped 12.6 per cent of assets, about $9.6bn, into private market vehicles based in these tax shelters and a small fraction is invested in a vehicle based in Luxembourg.

Answers to a Senate inquiry revealed that, at June 30, the fund held stakes in 15 tobacco manufacturers including a $55.4 million stake in British American Tobacco in Britain, $44.5m in Lorillard and a $44.9m investment in Philip Morris in the US.

Individuals within the government also embrace the benefits of tax “minimisation”.

In July, it was disclosed that Malcolm Turnbull, Australia’s second-richest parliamentarian, has invested in a ”vulture fund” based in the tax haven Cayman Islands.

Mr Turnbull, who has divested himself of shares and switched his investments to managed funds and hedge funds since being elected, updated the register of members’ interests on June 18.

The IPA, not surprisingly, is against any moves to tighten up the laws.

“Inspired by the sensationalist headlines, the emerging policy agenda for a clamp down on tax avoidance should be seen for what it truly is: a ploy by indebted countries, with overgrown public sectors, to hoover up more cash from productive people and enterprises, stifling tax competition in the process.”

You have to give them credit for never letting morality or ethics interfere. They were no doubt impressed when their much-loved patron, Rupert Murdoch, single-handedly blew an almost billion dollar hole in our budget when the ATO chose not to appeal a court ruling condoning Murdoch’s tax avoidance practices.

In a 1989 meeting, four News Corp Australia executives exchanged cheques and share transfers between local and overseas subsidiaries that moved through several currencies.

They were paper transactions; no funds actually moved. In 2000 and 2001 the loans were unwound. With the Australian dollar riding high, News Corp’s Australian subsidiaries recorded a $2 billion loss, while other subsidiaries in tax havens recorded a $2 billion gain.

By last July that paper “loss”, booked against News Corp’s Australian newspaper operations, had become an $882 million cash payout.

Under a legal arrangement when the company was spun off last June, News was forced to pass all of the tax payout to Mr Murdoch’s 21st Century Fox.

News Corp said it had retained $A81 million because it faced income tax charges on the interest payments by the Tax Office. However it seems unlikely to actually pay these funds: News Corp Australia carried another $1.5 billion in tax deductions from a separate paper shuffle that it made when News reincorporated in the US.

The Australian Taxation Office says its $882 million loss to Rupert Murdoch’s News Corporation may just be the tip of the iceberg.

Tax Commissioner Chris Jordan and deputy Neil Olesen told a parliamentary inquiry the Tax Office has recently lost even more valuable cases against individual taxpayers.

“There are others bigger than this one,” Mr Olesen told a parliamentary hearing in March. “There were significant amounts at stake that we were also unsuccessful with through the courts.”

In a current case, Australian tax authorities allege multinational oil giant Chevron used a series of loans and related party payments worth billions of dollars to slash its tax bill by up to $258 million. The claim is now being heard before the Federal Court of NSW.

Despite growing pressure to crack down on multinationals reaping massive profits in Australia each year and paying little tax, the ATO has been scaling back its technical ability to force the “transnationals” to pay up.

After cuts of $189 million in the May budget, the ATO announced that they had to cut staff by 2,100 people by the end of October.

Community and Public Sector Union (CPSU) deputy national president Alistair Waters said “The tax office has provided evidence to the Senate that for every $1 spent on resources by the tax office, that collects $6 in tax revenue. Obviously if you are pulling resources out of the tax office that makes it easier for people who might want to avoid paying their tax.”

Public servants with hundreds of years of combined technical know-how have left the ATO’s “Internationals’ Group” in recent years, with the process accelerated by the present massive cuts to the agency.

Private advisors hired by “transnationals” to minimise their tax payments know too much about internal workings of the ATO and are using their insider knowledge to profit their clients.

Case deadlines of 90 days imposed on audit teams by ATO bosses eager to increase the number of cases covered have allowed transnationals to simply “wait out” the Taxation Office or to have low-ball settlements accepted.

Swedish furniture giant IKEA paid just $7.7 million in tax in Australia in 2013-2014, despite banking an operating profit of $92 million for its Australian activities that year.

Even the government’s domestic decisions belie their stated willingness to crack down on tax rorting.

Repealing the legislation regarding novated car leases and FBT cost us $1.8 billion in revenue and the only people to benefit are those who fraudulently claim business usage of their car, and the salary-packaging industry that has sprung up to service this perk.

But what can you expect from a Prime Minister who keeps caucus waiting for an hour – his excuse being “he had to schedule an early morning visit to a cancer research centre in Melbourne on Tuesday so that he could justify billing taxpayers to be in the city for a “private function” the night before”.

Or a Treasurer who defended “his practice of claiming a $270-a-night taxpayer-funded travelling allowance to stay in a Canberra house majority-owned by his wife” as did the Communications Minister who “rented a house from his wife Lucy when in Canberra.”

In Canberra, MPs are not required to show a receipt to prove they stayed in a hotel because the blanket $270 rate applies whether you stay in a hotel or a house owned by yourself or another person.

Because of the rules, many MPs purchase property in Canberra to provide a base during parliamentary sittings and use their travel allowance to pay off their mortgage.

We also have our Prime Minister, Attorney-General, Foreign Minister and Agriculture Minister defending their practice to claim travel and accommodation costs to attend weddings whilst grudgingly refunding the money only after it was exposed in the press. Attendance at sporting events apparently still constitutes official business.

Tony Abbott had promised to lead an honest government that would respect taxpayers’ money and end the age of entitlement.

Joe Hockey has “vowed to give the Tax Office whatever laws it needs” and is “determined to use all available resources to close tax loopholes.”

Sorry boys – your actions make me doubt your sincerity.

Our Future

I do not profess to being an investment whiz or understanding all the nuances of government finance, but I am good at managing a budget and I have a few queries about our current strategy.

Let’s start with the Future Fund.

The Future Fund was established by the Future Fund Act 2006 to assist future Australian governments meet the cost of public sector superannuation liabilities. Investment of the Future Fund is the responsibility of the Future Fund Board of Guardians with the support of the Future Fund Management Agency. The Board and Agency also invest the assets of the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund which were established by the Nation-building Funds Act 2008.

The 2013 budget stated that:

“the portfolio of assets has performed well, given the extent of uncertainty and volatility in financial markets over the past five years. Since the effective start of the investment program on 1 July 2007, the Future Fund has generated a nominal return of 5.6 per cent. Since the first contribution to the Future Fund on 5 May 2006, the return has been 5.7 per cent per annum.

At 31 March 2013, the Future Fund’s return for the financial year to date was 10.6 per cent.”

A press release on 13 June 2014 further stated that:

“The Future Fund has generated a return of 7.0% per annum since its establishment, adding around $40 billion to the portfolio which now has a value of $100 billion.”

It is interesting to note that the underlying cash balance in the budget (ie the deficit) does not include net Future Fund earnings, so we are actually better off than they let on.

As at 31 March 2014, these funds contained:

$97.57 billion Future Fund assets

$3.87 billion Education Investment Fund assets

$4.09 billion Building Australia Fund assets

$2.47 billion Health and Hospitals Fund assets

The 2014 budget informed us that the Health and Hospitals Fund will be dismantled and replaced with a medical research fund paid for by GP co-payments and increased PBS co-payments.

Further, the Government has committed $5 billion to provide financial incentives over five years to the States and Territories to sell assets and reinvest the sale proceeds into additional productive infrastructure. The Asset Recycling Fund will be set up on 1 July 2014 to facilitate the Government’s investment in new infrastructure. It will include unspent funds from the Building Australia Fund and Education Investment Fund, and proceeds of the sale of Medibank Private and other possible privatisations.

“The Government has announced the sale of Medibank. It will continue selling assets where no compelling reason for government ownership exists with scoping studies to be undertaken into the ownership of Australian Hearing, Defence Housing Australia, the Australian Securities and Investment Commission Registry function and the Royal Australian Mint. The proceeds from future privatisations will be reinvested into the Asset Recycling Fund for new productive infrastructure.”

This money is being committed to an expansive road building program.

Projects getting the green light include:

• Fast-tracking $2 billion to accelerate stage two of Westconnex linking Sydney’s west and south-west with the CBD, Sydney Airport and Port Botany

• Roads for second Sydney airport, $3.5 billion

• Extra $1.5 billion on top of the existing $1.5 billion commitment for the East West link in Melbourne, with an anticipated 6000 jobs created.

• $944 million for Adelaide’s North-South corridor

• Perth – $1.6 billion freight-link package in partnership with the private sector

• Brisbane’s gateway motorway, no figures provided

• Northern Territory – Tiger Brennan Drive $70 million and $523 million in NT road improvement

• Tasmania – $400 million investment in the Midland Highway.

The splurge continues over the next decade to include duplicating the Pacific Highway between Newcastle and Queensland and an upgrade of the Port Botany Line in Sydney, but there are no figures.

A further $550 million is being committed for the Roads to Recovery and Black Spot Programmes, on top of the $2.5 billion previously committed.

Many of these projects are going ahead with dubious or no published cost benefit analyses, inadequate environmental impact and productivity surveys, and little consideration for the coming peak oil crisis. The business case for Westconnex, for example, states:

“While the prospect of peak oil is emerging, vehicle technologies are rapidly progressing with vehicles powered by alternative energy predicted to reach mass market production in the foreseeable future. While this may shift demand away from fossil fuels, it is unlikely that the demand for travel will reduce sufficiently as consumers adapt to alternatives and hence travel demand on our major road network is likely to remain.”

They give little evidence to back up this claim.

So this brings me to my question.

The current government bond rate is between 2.57 and 3.8% depending on the term (2 to 15 years). If the future fund has generated a return of 7.0% per annum since its establishment, and 10.6% in 2012, why aren’t we borrowing and investing more? Why are we taking money out of the Health, Education and Building Australia Funds, which are earning us a good return, and selling off profitable assets, to build roads? It seems to me that investing would bring us a greater return which could then be spent on the things we need.

If we are so worried about our interest payments, why not use some of the future fund to pay for guaranteed productivity enhancers like the NBN instead of borrowing the money?

And as far as future superannuation liability for public servants is concerned, this can be fairly accurately predicted and we can always issue more bonds should we need to.

Building roads may employ a few people in the short term, but if it is at the cost of investment in health, education, the environment, public transport, renewable energy, and the sale of assets, one has to question the advisability of such a move. Couple that with heavy expansion of coal mining and we could end up with a whole heap of roads to nowhere creating heat islands in the suburbs, and stranded assets as the world moves away from fossil fuels.

In June 2013, the Greens started a new campaign to push the Future Fund to stop investing in coal companies. Greens leader Christine Milne says up to $3 billion of the, at that time, $83 billion fund is invested in coal, which she describes as a “risky investment”.

In February last year, a Senate Committee was told that the Future Fund also had investment in cigarette and tobacco companies worth $221 million. Under pressure from the Greens and health groups, the fund decided to get rid of its investment in tobacco companies.

Joe Hockey was right when he told the Kiwis that our economy is in good shape and that we have no debt or deficit emergency, but it seems to me our investment strategy and asset management could do with a rethink. It’s our Future Fund and it should be used for our future.

 

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Joe Hockey; wealthy complacency

If there was any stand-out from Joe Hockey’s performance on Q&A it would have been his ability to permeate the studio with an overwhelming odor of wealthy complacency, with weasel words thrown in for good measure.

It was with considerable smugness that Joe Hockey admitted that the GP co-payment, “. . .is a new tax – or a rabbit.”

We didn’t say we wouldn’t raise any taxes. That’s absurd because we went to the last election promising to introduce a levy for the paid parental leave scheme“, Mr Hockey said.

Tony Abbott’s original argument was that this addition to upper class welfare, and ‘signature policy’, was the insistence that the PPL was not a tax; it was a levy. However, and currently in vogue and up until Hockey’s appearance on Q&A, all was but a mere levy and not a tax. The consequences of Hockey’s statement, is that according to himself, both he and Prime Minister Abbott made deliberately misleading statements, and on numerous occasions.

That is, “We did say we wouldn’t raise any taxes…”, (because) the PPL levy is in fact a tax.

It seems that the words ‘tax’ and ‘levy’ are bandied about by the Liberal Party, changed at whim and to which ever circumstances suit. Those who voted Liberal on the premise that Abbott would get rid of Labor’s “great big new tax” must be bitterly disappointed as we now have an even bigger, great big new tax … or series of them.

However, should we care to address the practicalities of this issue, there is a world of difference between a PPL with a proposal that this be paid by “a 1.5% levy on the biggest companies” and a $7 GP co-payment taxed on GP visits, pathology and X-rays, and which would further distort access to medical treatment for those on the lowest incomes. This is akin to stating that the economic impact of the cost of two beers to an old age pensioner has an equivalent impact as on a business entity, and an extraordinarily wealthy one at that. Abbott and Hockey’s insistence that they be ‘right’ – and all of the time, often leaves logic in its wake.

In Abbott and Hockey-world, business being business and poor people being poor people, it will of course be business who will be compensated for the PPL tax/levy by receiving an equivalent tax cut of 1.5%. Might there be any equivalent breaks for those having to fork out for Hockey’s other tax – the GP co-payment? No of course not. Hockey’s proposition that the PPL tax/levy is therefore equivalent to the GP co-payment therefore falls so flat as to not only be just an illusion, but could be counted as a blatant attempt at deception.

On the debt levy, will the the richest 3%’s contribution/levy likewise put unreasonable pressure on anyone’s ability to feed, clothe and house themselves? Doubtful, unto too ridiculous to contemplate. The Liberals have gone to great lengths to ensure the wealthiest that this is a very temporary tax hike. And what would it matter anyway? . . . this cigar and Moët et Chandon tax will be easily be absorbed through multifarious untaxed lurks – “superannuation concessions, dividend imputation, negative gearing and family trusts.” Tony Abbott and Joe Hockey have now successfully reinforced the image that to themselves and most of the front bench, that the obscenely wealthy remain as they always have been, The Untouchables.

You can be assured that these changes (with the exception of the debt tax) are not just for a couple of years, but forever. Along with this decimation lurks in the background cuts to science, Aboriginal health and education, with extreme pressure on the states to privatise almost everything. And all the while the reaction from both Abbott and Hockey is smirking disregard. Abbott “Dismisses concerns”, the headlines read and this is apart from the lewd wink aimed at a pensioner forced into working on a sex-line as the only thing available to her. Any empathy? Any sympathy?

However, most perplexing was the ‘carrot’ offered by Hockey in the form of medical research. That is, suffer now and one day if we splash enough cash at the problem so that ‘we’, and where all other countries have failed, will by some act of divine providence cure the world of all of it’s ailments.

Today (17th December, 2013), Treasurer Joe Hockey cut:

• $100 million in funding for Westmead Hospital
• $10 million from the Children’s Medical Research Institute and $12 million from the Millennium Institute – one of the largest medical research institutes in Australia working on cancer and leukaemia research, heart disease, eye and brain disease and heart and respiratory disorders.
• $15.1 million from the life-saving Cancer Care Coordinators program. Despite knowing that Australians in regional areas have a lower life expectancy and find it more difficult to access life-saving treatment the Government has decided to cut this funding.
• $6 million for Medical Resonance Imaging service at Mt Druitt, the cutting of the $10 million life-saving Queensland Cancer Package, $15 million from the Flinders Neo-Natal Unit, the $10 million Western Australia cancer team, and the $50 million stroke package.
• $3.5 million from the Biala Health Service, the only free sexual-health clinic in Brisbane.
• The Coalition will scrap the $100 million committed for the redevelopment of the Victorian Eye and Ear Hospital.

It seems that the Abbott Government taketh with one hand to return ‘who knows what’ at some unspecified time in the future. Why would anyone cut funding from medical research into things such as cancer and childhood leukaemia, only to siphon it off to be paid to ‘who knows who’ at some non-specific time in the future? The cynic in me asks the question, who is set to gain from this? Which multi-national benefactor might it be? I believe that there are certain hints and clues provided by certain photos of Tony Abbott and his ‘sponsor’.

The Liberal Party’s own website provides that the projected $20 billion will not be achieved until around 2024-2025. “To establish the Fund, approximately $1 billion in uncommitted funds from the existing Health and Hospitals Fund will be transferred into the Fund at its inception”, which is supposed to be 2015-2016. But wait a moment; hasn’t the Abbott Government already cut an (estimated) half billion dollars from existing medical research and services? Hockey’s gushing at the government’s beneficence and commitment to human-kind suddenly loses it’s rosy bloom.

But don’t worry, there is some good news contained in Joe Hockey’s attempt at a budget: there will be more roads – well, in the cities at least.

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