Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
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Labour Party Leader Chris Hipkins joins Herald NOW to answer questions on the Future Fund Policy and inflation. Video / Herald NOW
THE FACTS
Labour’s Future Fund policy aims to invest in local companies and infrastructure using dividends from crown assets.
Critics argue it’s risky and could divert funds from other areas like health and education.
The policy targets infrastructure and tech start-ups, raising concerns about balancing risk and finding viable investments.
Whatever political success or failure Labour has with its new Future Fund policy, I hope it kickstarts some serious discussion and debate about wealth creation in this country.
Because, my goodness, New Zealand has been bad at it.
There is a branch of economics that remains vehemently opposed to governments getting involved in this kind of investment.
Even if you put to one side the ideological opposition to state investment funds, there are still fish hooks in Labour’s plan.
It’s risky. The Super Fund has a mandate to maximise financial returns, so it invests all over the world.
It can target anything that makes commercial sense, other than weapons, tobacco, recreational cannabis and (surprisingly for the need to even mention) whale meat processing.
But despite a purely commercial focus, the NZ Super Fund is already weighted quite heavily towards local investments.
As its chief executive, Jo Townsend, told me in an interview earlier this year: “New Zealand is just a small country in a financial sense and only represents 0.12% of the global pool of potential investments.
“By contrast, we have 11% of our investments here in New Zealand.”
There’s no question the Super Fund has a great track record. It also has a highly qualified Risk Committee and an Investment Committee.
It is rigorous and professional in a way politicians (in my view) aren’t always.
National has naturally picked holes in the Future Fund policy.
It pointed out that if you invest SOE dividends in growing local businesses, you don’t have them for funding other things – like health and education.
That’s true, but it’s also a typical fiscal sleight of hand in New Zealand politics.
Both major parties have been guilty of this kind of phoney ring-fencing of consolidated funds. Does anyone remember those tax cuts last year that definitely weren’t debt-funded?
Labour would presumably borrow to fund the shortfall and would be betting on the fund delivering a better return than the cost of that borrowing.
The same logic applies to continuing to put (debt-funded) money into the Super Fund – something Labour does and National doesn’t.
The biggest criticism of Labour’s plan was that it was short on detail.
After two years of policy silence, it was a bit underwhelming.
But I wonder if that was by design.
First of all, for better or worse, it’s a policy about wealth creation.
Leading with that may have something to do with heading off perceptions that the upcoming tax policy is simply a wealth redistribution policy or a revenue grab.
This policy also makes it clear that Labour won’t be selling state assets – a deliberate juxtaposition with National (even though it’s not clear how far Luxon and co actually want to go with that strategy).
Ironically, though, I think it might make asset sales easier for future centre-right governments.
If the Future Fund manages state-owned assets and receives their dividends, then presumably a government that was so inclined could just change the mandate.
That could allow the Future Fund to sell down (or buy up) those assets based on a less nationalistic investment case.
It might be easier than trying to organise an outright sale of assets in their current ownership framework.
Depending on the final details and how it was implemented, there might be some in the National Party who don’t hate the hands-on economic management style of this Future Fund.
It certainly puts Labour on a similar page to NZ First.
Winston Peters and Chris Hipkins fell out during the 2023 election campaign but could a Future Fund reunite the parties? Photo / Alex Burton
It highlights the vast gulf between NZ First and Act on this issue and the problems National has reconciling them in one coalition.
Perhaps it even puts NZ First back in play as a potential coalition partner for Labour (if the two current leaders can get past their personal animosity).
I found the lack of detail reassuring rather than worrying.
Hopefully, it’s an admission that the politicians won’t get too involved in the investment strategy beyond setting a general framework.
If the final structure of the Future Fund (including its risk profile) is put together by professionals at the Super Fund, then it becomes easier to get enthusiastic about.
There are ways to structure things to minimise risk, even if a fund targets a specific geographic area, which some funds do.
Labour’s policy document suggested the Future Fund would target infrastructure and innovative tech start-ups.
These are two opposite ends of the investment spectrum.
That seems problematic on the face of it.
Infrastructure – things like toll roads and bridges – is a relatively low-risk, long-term investment.
It might only deliver a bit more than keeping your money in the bank, but the returns are generally stable and predictable.
Innovative tech start-ups are a lot of fun to talk about, but they mostly fail.
Specialist seed and venture capital funds tend to have a large number of investments on the go.
When one of them does pay off, it can deliver percentage returns in the triple digits, more than making up for all the failures.
So you could, in theory, balance the fund between those two investing extremes to find a risk profile that wasn’t crazy.
There are other issues, though, like whether there are actually enough viable investments for a New Zealand-only seed fund to spread its risk.
The idea that New Zealand is short of capital for this stuff is widely contested.
We can’t afford to throw money at half-baked ideas, and even with keen government support, there must be a limit to how many world-beating tech firms a country of five million can generate.
A bigger issue has been scaling up the successes we do have.
New Zealand’s two most heroic tech success stories of the past decade – Xero and Rocket Lab – are now listed on foreign stock markets and largely foreign-owned.
If the Future Fund had invested early, would these companies have had constraints on their international expansion and their attraction of foreign capital?
And would those constraints have limited their success?
Or would the Fund have had to sell out early, missing out on some largest capital gains?
It seems there would need to be a lot of arbitrary lines drawn around what constitutes a New Zealand company.
That takes you down the messy path the US now finds itself on with its tariff policy.
It’s easy to talk about New Zealand Inc owning the next Xero or Rocket Lab, but not easy to engineer.
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