Wednesday, 14 March 2012

Peter Costello’s Future not at the Fund

There is a list as long as your arm to show why any sensible person would never consider Peter Costello as a candidate to head up the Future Fund.

One important item on that list is his judgment.

The head of the Future Fund takes responsibility for investment decisions and the asset allocation of the $73 billion portfolio. 

Based on Mr Costello’s recent comments, he would no doubt convert his words to actions and sell a large proportion of the Fund’s current holdings of Australian assets.  

Consider what Mr Costello said in January:

  • Australia will end up in the same economic position as Europe if the government doesn't start to curb spending, says former Liberal treasurer Peter Costello.   "Europe at the moment is suffering under a mountain of debt that it can't service," he told Macquarie Radio on Tuesday.  Australia's longest-serving treasurer warned Labor to heed the lessons implicit in Europe's demise, saying the government could only spend money it doesn't have "for a while" before it will end up using all of its income to service its debt.  "This is what I have been warning about here in Australia for some time," he said.
  • "If the journey keeps continuing at the rate in the years ahead that it did in the last three or four years it won't be too long before we start experiencing European-type problems."

With that view, of Australia about to experience "European-type problems", any fund manager including the Future Fund, should massively downsize its Australian denominated assets.  But would it be wise for the Australian sovereign wealth fund to be selling its Australian assets in such a way?

If it did, it would create unimaginable ructions in Australian financial markets and go against what just about every other fund manager in the world is thinking right now with a massive overweight position in Australia.  And if that view is wrong, it would cost the Fund and hence the tax payer a huge amount of wealth.

I am also reminded of Paul Keating's assessment of Peter Costello when goodie two-shoes Prime Minister Rudd had a warped good samaritan experience and appointed Costello to the Future Fund's Board of Guardians:

Keating said in late 2009:
  • Mr Keating accused Mr Costello of presiding over the growth of Australian debt abroad from $129 billion in 1996, to $705 billion in 2007.
  • ‘‘The Future Fund is all about national savings, yet, during Costello’s period as treasurer, national savings were so depleted,’’ he said.
  • ‘‘Costello was a policy bum of the first order who squandered 11 years of economic opportunity.’’
That may be a slight exaggeration, but the sentiment is spot on.  


  1. Stephen,

    With Clive Palmer announcing intent to challenge the constitutional legitimacy of the carbon tax, do you think a similar challenge is likely for the RSPT?

    I find it surprising that of all the media coverage and opinion pieces regarding the tax, there is very little discussion regarding its constitutional legitimacy especially given that the issue has been raised by the WA premier and top legal firms.

    Clayton Utz, "As with the RSPT, there is a still a question of whether the MRRT is constitutionally valid":

    Barnett, "If there was a constitutional challenge from a mining company then the State Government would probably join that challenge":


  2. This is a silly and petty post. It's fair enough to say that the longer Australia continued BER-type spending, the lower our living standards would be in the long term. And quoting Paul Keating as an authority on anything is a joke. For one thing, John Pitchford said 20 years ago that the CAD doesn't matter if it's driven by high private investment. It's government spending that tends to be wasteful. You should know this Stephen. For another thing, Labor in opposition opposed every productivity-boosting reform it could. Costello did alright under the circumstances.

  3. It was Costello who decided to flog off our gold reserves for peanuts:

    All his surpluses were from the sales of assets.

    1. So how much would those assets be worth now, and how much is in the future fund because of their sale? I think he did alright overall.

  4. Our Former Treasurer initiated what was the biggest reform to Australia's Tax System - the GST. An acronym which expanded is "Goods and Services Tax". It's good for the Australian economy but it fundamentally means you pay some tax for your cheese and sandwich which you bought from the supermarket. Look, you don't get something for nothing, the ATO collects tax not because it's fun to do so but because Australia badly needs more infrastucture and investement by the Government.