Having just returned from the UK and Ireland, the ongoing narrative in this country about “debt” and it’s impact on this economy seems as foolish as the US Government’s” stoush over debt ceilings this week.
Lets remind ourselves. While the previous Liberal government was swimming in it thanks to a perfect storm of positive local and global factors what did it do? It correctly paid down national debt yet encouraged the rest of us to gorge ourselves on private debt. So we did. While it sold assets and invested with no apparent strategic logic in mind, we needed no encouragement to lumber ourselves with Assets – though a tax system which encouraged negative gearing and the like in order to “minimise tax” helped those with some regular income and spare cash no end.
That government has been followed by one which lost it’s backbone early on. And which feels the need to align with prevailing sentiment that Government debt is bad. This is no doubt due to the impacts of the GFC & the uncertain times since plus their fear of challenging the demands of the three year election cycle (or weekly if you watched the polls).
You might recall the spare cash which the then Liberal Government got from selling off the rest of one its most valuable assets was put into a piggy bank called the Future Fund. When it was created, the Australian Government was rolling in tax revenues and couldn’t barrel enough pork in their marginal electorates to spend all the goodies which came from the sale. So they gave it to a banker to take care of.
David Murray is the head of the Australian Future Fund. David of course as a former head of Australia’s most loved bank knows plenty about money and how to make it. In the 5 years since he has taken on the job he has been adequately rewarded by the public purse, though the amount he is paid is unclear from the most recent annual report (note 6).
Today on ABC Radio, Mr. Murray as a respected expert on financial markets, gave a wide ranging interview on the current investment environment in light of global events. While the headlines were exaggerated, much of what he said made sense, especially they parts about Government investment decisions being political and us needing to be careful about our own where they may be affected by changes in Government. On the other hand I found his linking of Australian Private and Public Debt together and calling it “too high” without context and comparison with similar countries annoyed me intensely.
What David Murray failed to mention when bundling Australian Public and private debt together was how Australian Public debt as a percentage of GDP is one of the lowest in the world.
Even the Wall Street Journal advises Australia that we could quite easily increase the Debt to GDP ratio to invest in our Economy! If, as the narrative goes, and which Mr. Murray failed to use a opportunity to correct, we are struggling then someone better tell the Japanese, Spanish, British, Americans and Italians to surrender to their collective fates.
According to the World Economic Forum’s Global Competitiveness report, “Access to Financing” is the number one challenge for executives doing business in Australia. Align that to the Number 4 item of Inadequate supply of Infrastructure and that the quality of our Ports, Electricity Supply and Air Transport are ranked extremely poorly – all privately owned and run assets – seems to point to a pretty obvious set of investment priorities for those $8 Billion in cash or even some of the $25 Bn in Equities currently held.
Thankfully for us, David, as Chairman of the Board of Trustees of an organisation which at last report had $67 Billion in Assets under its management is going to invest that taxpayers money for us so that, you know, we have Infrastructure and an Innovative Economy that will power out of any possible upcoming downturn. But if they do, it’ll be a change. As of June 2010 the future fund had a grand total of 4.5% invested in Infrastructure. Up from 2.2% in 2009 at least. A whopping $1 Billion more. In a year where they reduced Cash on hand by $14 Billion, around $10 Billion went into equities. Of those Infrastructure Investments, just 39% is in Australian assets. No doubt once we see the 2011 report, that mix will change. But by much? There’s nothing to point to that.
David and his fellows might tell you the Building Australia Fund is where the funds for investing in Australian Infrastructure mainly comes from, and they’d be right – if we are talking about Public Investments. However, what’s to stop David Murray, the Board of the Future Fund and it’s investment managers from deciding that in 2011/12, as long as they don’t compromise their Legally Bound Investment Mandate from Investing in Commercial entities who wish to invest in creating and improving Australian commercial Assets?
While Murray gives us advice to be careful in this volatility, I say he should be doing the opposite. I believe now is the Future and its time for the money which was taken from citizens – both directly in the form of taxation and indirectly by selling off assets – to be invested in Australia by David Murray and the Future Fund. Our Future and that of our children might just depend on it.