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Australia’s Future Fund head warns of financial risk if wealth fund is depleted

Costello said pressure to raise taxes and borrow debt will increase if wealth fund’s money is gone
By Goh Thean Eu   
November 15, 2023

Australia’s Future Fund’s outgoing Chairman Peter Costello warned that the country’s financial position will be jeopardised if the sovereign wealth fund is depleted, potentially leading to higher taxes and borrowing.

He noted that some countries set up a wealth fund to invest the proceeds of a depleting asset such as oil to keep one generation from spending it all, while others invest their assets overseas to maintain the value of their currencies and stay competitive.

The Future Fund, he pointed out, was set up to “smooth the effects of the ageing of the population”.

“We foresaw that a larger proportion of aged people in the population would put pressure on spending programmes and reduce the proportion of prime age people in the workforce to pay for them. This pressure will only intensify in coming decades,” Costello said in speech at a conference in Sydney on November 13.

He said the Future Fund was a good start to address the issue, and rued that the government couldn’t maintain budget surpluses and contributions into the fund. “We could have done better.”

Established in 2004, the wealth fund had A$200 billion (US$127 billion) of assets under management as of end-March.

Costello anticipates more plans to spend down the fund for political reasons as the government’s financial position deteriorates.

“It would be a way of favouring current voters over future voters - the ones who are not voting yet. But remember this: once it is spent it is gone,” he warned, pointing out that there will be pressure to raise taxes and borrow more to offset growing debt liabilities and unfunded pensions.

According to Costello, it was a “great achievement, against the odds” to establish and invest in a “mature, well run, successful and respected” wealth fund like the Future Fund.

“If it is spent it will never be replaced, Australia will be more exposed, and our financial position will become more precarious,” he said.

Costello is stepping down in February after two terms as the wealth fund’s chairman. His replacement is expected to be appointed by then.