Labour is proposing that we leverage the success of the Super Fund.<\/p>\n
It plans to assign it a side-hustle, investing in local companies and infrastructure projects that help drive the nation\u2019s overall economic progress.<\/p>\n
It would use the dividends from crown assets, like the power companies, to invest in the New Zealand projects.<\/p>\n
Act and numerous right-leaning commentators and economists hate the idea.<\/p>\n
There is a branch of economics that remains vehemently opposed to governments getting involved in this kind of investment.<\/p>\n
Even if you put to one side the ideological opposition to state investment funds, there are still fish hooks in Labour\u2019s plan.<\/p>\n
It\u2019s risky. The Super Fund has a mandate to maximise financial returns, so it invests all over the world.<\/p>\n
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.<\/p>\n
But despite a purely commercial focus, the NZ Super Fund is already weighted quite heavily towards local investments.<\/p>\n
As its chief executive, Jo Townsend, told me in an interview earlier this year: \u201cNew Zealand is just a small country in a financial sense and only represents 0.12% of the global pool of potential investments. <\/p>\n
\u201cBy contrast, we have 11% of our investments here in New Zealand.\u201d<\/p>\n
There\u2019s no question the Super Fund has a great track record. It also has a highly qualified Risk Committee and an Investment Committee.<\/p>\n
It is rigorous and professional in a way politicians (in my view) aren\u2019t always.<\/p>\n
National has naturally picked holes in the Future Fund policy.<\/p>\n
It pointed out that if you invest SOE dividends in growing local businesses, you don\u2019t have them for funding other things \u2013 like health and education.<\/p>\n
That\u2019s true, but it\u2019s also a typical fiscal sleight of hand in New Zealand politics.<\/p>\n
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\u2019t debt-funded?<\/p>\n
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.<\/p>\n
The same logic applies to continuing to put (debt-funded) money into the Super Fund \u2013 something Labour does and National doesn\u2019t.<\/p>\n
The biggest criticism of Labour\u2019s plan was that it was short on detail.<\/p>\n
After two years of policy silence, it was a bit underwhelming.<\/p>\n
But I wonder if that was by design.<\/p>\n
First of all, for better or worse, it\u2019s a policy about wealth creation.<\/p>\n
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.<\/p>\n
This policy also makes it clear that Labour won\u2019t be selling state assets \u2013 a deliberate juxtaposition with National (even though it\u2019s not clear how far Luxon and co actually want to go with that strategy).<\/p>\n
Ironically, though, I think it might make asset sales easier for future centre-right governments.<\/p>\n
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.<\/p>\n
That could allow the Future Fund to sell down (or buy up) those assets based on a less nationalistic investment case.<\/p>\n
It might be easier than trying to organise an outright sale of assets in their current ownership framework.<\/p>\n
Depending on the final details and how it was implemented, there might be some in the National Party who don\u2019t hate the hands-on economic management style of this Future Fund.<\/p>\n
It certainly puts Labour on a similar page to NZ First. <\/p>\n
Winston Peters and Chris Hipkins fell out during the 2023 election campaign but could a Future Fund reunite the parties? Photo \/ Alex Burton<\/p>\n
It highlights the vast gulf between NZ First and Act on this issue and the problems National has reconciling them in one coalition.<\/p>\n
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).<\/p>\n
I found the lack of detail reassuring rather than worrying.<\/p>\n
Hopefully, it\u2019s an admission that the politicians won\u2019t get too involved in the investment strategy beyond setting a general framework.<\/p>\n
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.<\/p>\n
There are ways to structure things to minimise risk, even if a fund targets a specific geographic area, which some funds do.<\/p>\n
Labour\u2019s policy document suggested the Future Fund would target infrastructure and innovative tech start-ups.<\/p>\n
These are two opposite ends of the investment spectrum.<\/p>\n
That seems problematic on the face of it.<\/p>\n
Infrastructure \u2013 things like toll roads and bridges \u2013 is a relatively low-risk, long-term investment.<\/p>\n
It might only deliver a bit more than keeping your money in the bank, but the returns are generally stable and predictable.<\/p>\n
Innovative tech start-ups are a lot of fun to talk about, but they mostly fail.<\/p>\n
Specialist seed and venture capital funds tend to have a large number of investments on the go.<\/p>\n
When one of them does pay off, it can deliver percentage returns in the triple digits, more than making up for all the failures.<\/p>\n
So you could, in theory, balance the fund between those two investing extremes to find a risk profile that wasn\u2019t crazy.<\/p>\n
There are other issues, though, like whether there are actually enough viable investments for a New Zealand-only seed fund to spread its risk.<\/p>\n
The idea that New Zealand is short of capital for this stuff is widely contested.<\/p>\n
We can\u2019t 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.<\/p>\n
A bigger issue has been scaling up the successes we do have.<\/p>\n
New Zealand\u2019s two most heroic tech success stories of the past decade \u2013 Xero and Rocket Lab \u2013 are now listed on foreign stock markets and largely foreign-owned.<\/p>\n
If the Future Fund had invested early, would these companies have had constraints on their international expansion and their attraction of foreign capital?<\/p>\n
And would those constraints have limited their success?<\/p>\n
Or would the Fund have had to sell out early, missing out on some largest capital gains?<\/p>\n
It seems there would need to be a lot of arbitrary lines drawn around what constitutes a New Zealand company.<\/p>\n
That takes you down the messy path the US now finds itself on with its tariff policy.<\/p>\n
It\u2019s easy to talk about New Zealand Inc owning the next Xero or Rocket Lab, but not easy to engineer.<\/p>\n