17/05/2012 - 14:49

Future Fund gets $1.1bn seed funding

17/05/2012 - 14:49


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Regional Development Minister Brendon Grylls has endorsed plans to put Royalties for Regions money into a Future Fund.

The state government has announced plans to put $1.1 billion of Royalties for Regions money into a Future Fund, despite pressure from business groups, which argued the government should focus on the state's immediate needs.

The money will be transferred over the next four years, and will be set aside until the years 2032, when the income from the fund will be available for future infrastructure investment.

The fund is projected to grow to $4.7 billion after 20 years, afer adding in further contributions from mining royalties and interest earnings.

The seed capital will come from two sources.

First, a three per cent efficiency dividend applied to the Royalties for Regions Fund between 2009-10 and 2013-14, totalling $223 million.

Second, 25 per cent of the revenue achieved through the removal of the concessional royalty rate for iron ore ‘fines’. This is estimated at $820 million by 2015-16.

Treasurer Christian Porter said that Nationals leader Brendon Grylls had previously agreed this money would not be spent but quarantined in the Royalties for Regions Fund for debt reduction purposes.

Once the seed capital is in place in 2016-17, the Fund will receive at least one per cent of the state’s annual royalty revenue, estimated at $65 to $70 million per year.

In addition, the interest earnings on the principal will also be diverted back into the Future Fund each year.

Mr Grylls said the Fund was not an extravagance, because the government was also able to deliver a budget surplus, a record capital spending program, and cap the growth in the state's net debt.

Mr Porter said the proposed Future Fund Act “will be structured to make it very hard to break into before 2032”.

He argued that if the money was not locked away, it could be used for “improvident promises”.

The money will be invested conservatively in government bonds via WA Treasury Corporation. Mr Porter claimed the fund would not have sufficient scale to pursue more diversified investment options.

Mr Grylls also announced today that, by coincidence, $1.1 billion was also the amount the government planned to spend on Royalties for Regions programs next years.

It would be split across the Pilbara Cities scheme, the Ord irrigation project, and health, housing and education projects, among others.






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