Australia’s Sovereign Wealth Fund Debate: Experts Weigh Returns Vs New Priorities

Two roofers position a piece of insulation on a roof in Albany, Western Australia, on Aug. 23, 2024. Susan Mortimer/The Epoch Times

The Albanese government’s move to steer the Future Fund towards housing, infrastructure, and renewable energy has sparked debate among experts, who warn against deviating from its primary goal of delivering strong financial returns.

On Nov. 21, by Treasurer Jim Chalmers announced the initiative to address Australia’s housing crisis and climate commitments while maintaining the fund’s profitability mandate.

The $230 billion (US$150 billion) Future Fund, established to finance the government’s superannuation obligations, will now refrain from withdrawals until 2032–33, ensuring medium-term stability.

Government assures the investments in housing, infrastructure, and the green transition will only be pursued if they align with the Fund’s profit goals.

Graham Young, executive director of the Australian Institute for Progress think tank, expressed concerns over the announcement, raising an existential question about why the government felt the need to direct the Future Fund towards housing or green energy.

“It is because the funds are not available from commercial sources. That means investors have decided either the return, or the risk, or both, are unacceptable,” he told The Epoch Times.

Renewables and Infrastructure: Familiar Territory

Meanwhile Saul Eslake, a renowned economist, appeared in consensus with the government’s decision, noting that it aligns with the Future Fund’s existing strategy.

“The Future Fund already has 9.9 percent of its assets in infrastructure,” Eslake told The Epoch Times.

He added that renewables and infrastructure are widely seen as growth areas for the Australian economy, particularly under the nation’s net-zero emissions commitments.

According to Eslake, the fund has earned an 11.9 percent return over the 12 months to Sept. 30, even while considering renewable energy investments.

“Many superannuation and long-term investment funds are considering renewable energy and transmission investments,” he said, indicating that these sectors are already compatible with the Fund’s goals.

Meanwhile Young argued that government initiatives like the Clean Energy Fund and National Reconstruction Fund already exist to tackle such priorities.

Housing: A Complex Challenge

While infrastructure and renewables are within the Fund’s comfort zone, housing investments pose a trickier issue.

Eslake outlined several challenges, particularly around affordable housing, which implies below-market rents.

“The way states levy land tax at progressive rates on large landholdings is a major disincentive for institutional investment in rental housing,” he said.

This tax structure, combined with the need for subsidies to bridge the gap between market and below-market rents, complicates the Future Fund’s ability to commit to affordable housing without significant reforms.

Eslake clarified that the government’s directive does not force the Future Fund to invest in affordable housing but merely asks it to “consider” such projects.

“If the government were to direct the Future Fund to invest a specified proportion of its assets into affordable housing despite these obstacles, then I’d be concerned. But they’re not doing that,” he said.

Young echoed Eslake’s concerns, adding that large investors are generally ill-suited to rental housing, which is typically dominated by private landlords.

He did, however, acknowledge potential returns in green investments due to government support.