ALP Under Fire Over Fund Plan

TAKING income from the Future Fund to pay for infrastructure projects is risky and could mean the fund will not have enough earnings to meet unfunded superannuation liabilities, economists have warned.

The Federal Government has attacked Labor over its plan to draw $2.7 billion from the Future Fund to pay for its national high-speed broadband network, and for saying it will use profits from the fund for future infrastructure projects.

Labor shadow treasurer Wayne Swan has said this can be done without touching capital and jeopardising the funds aim to generate $140 billion by 2020 to pay off unfunded public-sector superannuation liabilities.

UBS Investment Research carried out in February suggested the fund could hit $220 billion by as early as 2011, giving the Government $7 billion a year of additional revenue.

UBS chief economist Scott Haslem said this depended on earnings being reinvested, adding while there was a "middle ground" of about $10 billion where you could draw earnings and still achieve your objective, an amount more than that would cause the fund to miss its target.

"Broadband is a good investment, but the issue the Government is having a go at them (Labor) for is that this is the tip of the iceberg, not one particular plan," Mr Haslem said.

"If you use profits, your capital is not going to grow unless you put more money in."

Commonwealth Bank chief economist Michael Blythe said Labor was not wrong to want to invest in infrastructure, but implied it might be better to use money from elsewhere.

"A classic rule of economics here is that you can only use one instrument to achieve one target," he said.

"If you set up a Future Fund with the idea of dealing with longer-term super liabilities and you start fiddling around with that, you do start complicating the process."

Federal Treasurer Peter Costello said Opposition Leader Kevin Rudds broadband plan would rob future generations for short-term political advantage.

"The projects will get worse and worse and the irresponsible members of the Opposition will find this intoxicating and addictive," he said. "Future generations of Australians will pay for their shameless economic irresponsibility."

But shadow treasury spokesman Wayne Swan said there was a "gold economic argument for … investing in the future of people to lift living standards and improve productivity".

"We wont be making any decision which will impede the (funds) target to meet superannuation liabilities by 2020," he said.

Treasury secretary Ken Henry has previously raised questions about the fund, saying government investment in economic infrastructure may offer better returns.

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