Thursday, November 26, 2009

We've freed the Future Fund

The $64 billion Future Fund will continue to be free to invest through tax havens such as the Cayman Islands and will also freed from a raft of restrictions relating to pay scales, freedom of information laws and the use of its $4.3 billion Telstra shareholding under reforms unveiled by Finance Minister Lindsay Tanner in the presence of the Fund Chairman David Murray.

Mr Tanner told the National Press Club Speaking at the National Press Club that given the structure of the industry and complexity of international tax law, investing asset managers domiciled in the Cayman Islands was "a common practice and often difficult to avoid".

"And the Cayman Islands is changing," the Finance Minister said. "It is negotiating a tax information treaty with Australia...
and joined the OECD list of jurisdictions that have substantially implemented the internationally agreed tax standard."

The Fund's annual report revealed that in the past year it had opened five subsidiaries in the Caribbean tax haven at a time when the Prime Minister had been part of the global push to crack down on the use of tax shelters.

Mr Tanner said instead the Fund would act in accordance with the so-called Santiago Principles covering governance, transparency and accountability for sovereign wealth funds drawn up by the International Forum of Sovereign Wealth Funds which was chaired by Mr Murray.

Mr Murray would be advising the Papua New Guinea Government on the creation of a sovereign wealth fund to handle some of the expected $35 billion it was expected to receive from the PNG LNG project.

But Australia itself would stop short of setting up such a fund to handle the proceeds of its next mining boom.

"A resumption of mining boom tax revenues is by no means certain," Mr Tanner said. "Any windfall increases in revenue will need to be dedicated to returning the Budget to surplus and paying down debt."

"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," he said.

The reforms will remove from the remit of the Freedom of Information Act 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 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," the Minister said.

Removing the Fund from coverage of the Public Service Act would enhance its independence from Government and make it easier to recruit specialised fund managers. The Fund will continue to report the size of the pay packages for its top executives, but would be freed from the threat of ministerial intervention over pay rates.

The Fund will also no longer face the threat of ministerial direction over the use of its 10 per cnet shareholding in Telstra.

Mr Tanner said the Australian Government had no involvement in its decision earlier this year to see part of tis shareholding ahead of the annoucnement of the National Broadband Network.

"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," he said.


. Use of tax havens permitted

. Investment decisions not subject to FOI

. Staff not subject to Public Service Act

. Telstra shareholding free from ministerial direction

Lindsay Tanner, National Press Club, The Future Fund: Delivering for Australia, October 25 2009

Published in today's SMH and Age

Graphic: James Fox

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