Australian Government, 2008‑09 Budget

Asset management

Based on current assumptions, the Government's financial assets are expected to increase by around $100 billion over the budget year and forward estimates to $284 billion. This is largely due to strong budget surpluses over the forward estimates, as well as growth in Future Fund assets. Subject to final budget outcomes, the Government intends to make initial contributions to three new nation building funds from the 2007‑08 and 2008‑09 Budget surpluses.

Investment funds

The Government is meeting its commitment to Australia's future by drawing on current and future surpluses to invest in three nation building funds. The Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund will be established to finance infrastructure investment in the transport, communications, education and health sectors. The Government will initially allocate around $40 billion to these funds in 2007‑08 and 2008‑09, subject to final budget outcomes, and make further contributions from future surpluses as appropriate. Where funds are used to finance state and territory projects, they will be channelled through a new Council of Australian Governments (COAG) Reform Fund. The COAG Reform Fund will also channel funding provided in future budgets to the States for recurrent expenditure in areas of COAG national reforms through National Partnership payments.

The new funds will all be established by January 2009 and will be managed by the Future Fund Board of Guardians. The capital and earnings of these funds will be available over time to finance appropriate projects. All projects will need to satisfy rigorous evaluation criteria. These arrangements will ensure substantial funding will be available for capital investment in each of the three national priority areas over the years ahead.

Building Australia Fund

The Government will create the Building Australia Fund (BAF) to help finance the current shortfall in critical economic infrastructure in transport and communications such as road, rail, ports and broadband, particularly where infrastructure requirements in these areas are not provided by the State and Territory governments or by the private sector. Subject to final budget outcomes, the Government will commit funds to the BAF from the 2007‑08 and 2008‑09 Budget surpluses. With the inclusion of communications priorities within the scope of the BAF, the Government will close the Communications Fund and transfer its assets (currently valued at around $2.4 billion) to the BAF. The BAF will also receive $2.7 billion from the Telstra 3 sale process.

The BAF will meet the Government's commitment to invest in a National Broadband Network, with disbursements dependent on the final outcome of the recently commenced Request for Proposals process and the Government's consideration of the Glasson Review. On current projections, the initial Government contributions to the BAF from the above sources will be in the order of $20 billion.

Education Investment Fund

To ensure that Australia's education and training systems deliver the skills the economy and individuals need to continue to prosper, the Government will establish the Education Investment Fund (EIF). The EIF, which will subsume the Higher Education Endowment Fund (HEEF), will provide financing for capital investment in higher education and vocational training. Subject to final budget outcomes, the Government will make an initial contribution to the fund of around $11 billion, comprising around $6.2 billion that is currently invested in the HEEF, and a further contribution of around $5 billion from the 2007‑08 and 2008‑09 Budget surpluses.

In the future, the EIF could be extended to include schools infrastructure as further finances are added to the Fund.

Health and Hospitals Fund

The Government will establish the Health and Hospitals Fund (HHF) for capital investment in health facilities, including renewal and refurbishment of hospitals, medical technology equipment and major medical research facilities and projects. Subject to final budget outcomes, the Government will make an initial contribution of around $10 billion from the 2007‑08 and 2008‑09 Budget surpluses.

Future Fund

In addition to creating new funds, the Government will ensure that the Future Fund has sufficient resources to meets its objectives. The Future Fund was established to finance the Government's unfunded public sector superannuation liability. With a further contribution of $3.9 billion from the $6.6 billion that is to be received from the Telstra 3 sale process (due in May 2008), the Future Fund will now be on track to fully fund superannuation liabilities for Australian Government employees by the target date of 2020.

Overall, earnings generated from fund assets contribute to the growth in net financial worth. The Future Fund in particular is expected to make a substantial contribution to net financial worth over the forward estimates due to its projected strong investment earnings and the retention of those earnings. The contribution of other investment funds to net financial worth will depend on their earnings rate and the rate at which funds are drawn down.

Term deposits

Term deposits are held at the Reserve Bank of Australia and are estimated to amount to around $24 billion for 2007‑08. Term deposits are projected to rise to around $50 billion by 2011‑12 reflecting the strength of expected budget surpluses over the forward estimates (assuming these surpluses are not otherwise invested). This increase in term deposits will improve net financial worth.

Higher Education Loan Programme

The Higher Education Loan Programme (HELP) comprises concessional loans to students that enable them to meet their education costs prior to earning an income.

The value of HELP is estimated to be around $13 billion as at 30 June 2008 and is estimated to grow to around $16 billion by 2011‑12. The steady rise in outstanding loans represents a higher uptake by eligible students and an increase in the number of university placements over the forward estimates.

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