Cautious optimism for Labour's Future Fund, though some question lack of detail

Labour's policy of a 'Future Fund' is being greeted with cautious optimism from some, but the lack of detail is prompting further questions.

The party unveiled the fund - its first policy for next year's election - on Monday afternoon, talking up its potential to boost productivity while keeping wealth and growth onshore.

Independent economist Cameron Bagrie said the policy "looks okay".

"One of the things I really like about this is that it's the potential ring-fencing of a whole lot of easy money that the government used to take out of SOEs (state-owned enterprises) and plug into general operating expenditure ... it's a long-term game as opposed to a short-term game."

But if the fund was to get good returns, it would need to be making some risky investments.

"The expected return will have a bit of a correlation with the volatility ... the two tend to go hand in hand, you know - higher expected return? Expect to take the odd knock on the chin as things go pear-shaped."

And there were a lot of questions that still needed to be answered.

"How this is ring fenced? What's the governance structure around it? What's the management, what's the oversight? ... "

Bagrie said the fund would need to remain free from political interference, and suggested the best approach to ensure that independence was to borrow from the models used for the Reserve Bank or the NZ Super Fund.

"If this thing works and it gets up and running, you would hope that will be bipartisan agreement across the political system ... the test of time will come down to the delivery and details will be essential here."

Some details would be revealed as Labour rolled out election policies, but questions around which state-owned enterprises would feed into the fund may not be answered unless the party reclaimed power. Bagrie did not, however, expect that to be much of a problem for Labour.

"When you're in opposition, you can come up with ideas, you conceptualise where you want to go - but you don't really have that operational policy grunt to work out the necessary details of how to make this thing actually work."

Infrastructure NZ's chief executive Nick Leggett said the policy was a "really positive step".

"Labour are saying 'look we've got to cast our mind into the future - how are we going to fund critical infrastructure in the medium to long term? ... This is about creating a fund that really can be independently administered, which is very important."

He said governments talking up the infrastructure pipeline was "irrelevant" without having funding attached to particular projects, and the fund had the potential to "break that cycle of boom-bust that we have in infrastructure when things get cancelled and there isn't assurance around how you're going to fund things".

"I think the Future Fund is a really positive policy idea, and I hope that all parties in Parliament and the public give this consideration."

He warned it would take time to build up significant funds, and while future governments could use the fund in different ways, it should be allowed to accumulate that capital.

"This will require some patience. It will require some discipline ... I mean, KiwiSaver funds are now beginning to say 'well, let's think about some infrastructure' some of them, but it takes time to accumulate the sort of capital that then can realistically and meaningfully invest in large infrastructure projects."

He said NZ First's announcement the previous year had been a strong one, and political parties including National should be looking at those similarities and aiming for consensus.

"What kills us in this country is the on-off switch that gets applied when a government changes and infrastructure - suddenly, projects get cancelled on one hand and then other projects get ramped up. That lack of certainty costs us money."

Commercial lending business Prospa NZ's managing director Adrienne Begbie said SMEs (small-to-medium enterprises) were the backbone of the New Zealand economy, so it was good to see a policy focused on helping them get access to capital and reduce reliance on foreign investment or offshore funding.

But it was also missing some key details.

"The policy's come out, but not any key things to say what it is or what the amount is, [or] eligibility.

"But once we know the details, hopefully the practical things are that it helps people to be able to invest in their businesses, to get access to local onshore funding, to get government support, hopefully also tax reductions roll through for businesses."

Whether the fund could raise significant revenue would depend on the process and how much was being invested.

"For the small businesses, they could benefit from this or they might be crowded out if they're looking [more at] bigger businesses."

Business NZ and the Employers and Manufacturers Association both declined to comment, saying there was too little detail.

Political rivals unimpressed

The evaluation from governing parties was predictably withering.

Prime Minister Christopher Luxon said the policy was "totally underwhelming".

"Pretty classic Labour, isn't it? No detail, no costings. I think three of the 12 pages I saw were pictures and just a whole bunch of buzz words and jargon and no detail on it.

"Can't list the companies for commerical reasons apparently - market-sensitive reasons, what a load of rubbish - honestly, no detail, no costings and frankly if we'd dished something up like that we'd have been crucified for that."

He said the dividends from state-owned enterprises had totalled between $600 million and $800m in the last three years - and that funding was currently going into health and education.

"So where's that going to come from? Where is the costing for that? What is the implication on that on the delivery of the deficit, for example? Where is the thinking behind it all? There is no detail, there is no costings - it's just classic Labour."

It was unclear just how much of the dividends would be reinvested into the Future Fund.

In a statement, ACT leader David Seymour likened it to KiwiBuild and the Green Investment Fund, calling the fund "Solar Zero 2.0".

"Take the Green Investment Fund, which went boots and all into Solar Zero. It's now in tatters - letting down customers as well as the investors who are carrying the can for it. If the last Labour government had just put the Green Investment Fund in Kiwisaver, we'd all be better off today."

"Kiwibuild was another expensive Labour Disaster. The 'path to prosperity', in that case home ownership, was supposedly for the Government to make more decisions about who built what where. In practice, no politician invests other people's money as well as the person would invest it themselves."

He said Labour saying how much would be invested "would be too honest" and it would only end up with bureaucrats picking winners "based on what's fashionable, not based on what can actually turn a profit".

"What New Zealand needs is a government with firm discipline, staying in its lane and sticking to its knitting," he said.

New Zealand First leader Winston Peters was overseas, but on social media pointed to his own much more expensive Future Fund policy announced more than a year before Labour's, whose leader he labelled "Temu" Hipkins.

"... the best he can come up with is a try-hard Temu mail-order rip-off of a policy that NZFirst announced details of last year ... they say imitation is the most sincere form of flattery but this is just getting ridiculous."

'Active investor'

Labour leader Chris Hipkins said the proposed Future Fund would probably have lower returns than the New Zealand Superannuation Fund, but it had different objectives.

"It won't be like the New Zealand Superannuation Fund whose sole job is to make money for the country. They do that largely by investing offshore rather than here in New Zealand," he told Morning Report on Tuesday.

"The Future Fund will invest in New Zealand, and that means that probably initially it will have a lower rate of return than the NZ Super Fund, because it will be investing in local businesses that create local jobs.

"It won't just be about generating a profit, it will be about generating wider benefits for New Zealand."

He said those benefits could include more jobs, better investments and long-term growth.

One option could be investing in power infrastructure through dividends from power companies which are majority state-owned, though he said it was not necessarily a part of the Fund's plans.

"The government has been happy for a long period of time, and over multiple governments, to take those dividends without investing in new generation. The result of that is that power prices have gone up. We could do things differently; instead of taking those dividends we could reinvest in new generation, reinvesting in renewable energy. That would result, potentially, in lower prices."

Hipkins said government needed to be an active investor. "Everywhere I have been they have been talking about we have a very shallow pool of capital for new and emerging businesses trying to get off the ground."

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