QIC could still invest Govt super funds in GOCs, while Govt would argue it hasn’t technically raided super

I recalled a great scene from one of my all-time favourite movies All the President’s Men when the Queensland Government today issued what may be a “non-denial denial” regarding the alleged Budget plan to use super funds to pay down debt. The alleged Budget plan was first suggested in a Courier-Mail article a couple of weeks ago, an article which was the inspiration for a post of mine setting out how the Government might pull it off (see QIC takeover of GOCs is a very bad idea).

There is nothing in the Treasurer’s statement today that would rule out the Government indirectly taking advantage of the funds it has set aside for the defined benefit superannuation liability, using the means I described in my post from two weeks ago. That is, the Government could direct QIC, which it owns, to invest part of the $30 billion or so it has invested with QIC (to fund the super liability) in government-owned corporations (GOCs). For example, QIC might buy Gladstone Port or Townsville Port, or invest in Energex or Ergon.

QIC would pay the Government for its new assets using money currently invested to help meet the Government’s super liability, giving the Government cash to pay down debt. The Government would save on its interest bill, but dividend payments it could previously have used to help pay its expenses would now go to QIC and be saved and re-invested to help meet the Government’s defined benefit super liability. Further, QIC would have traded whatever return it was earning on the Government’s funds in alternative investments (e.g. shares) for the GOC dividends, and there is a big question about whether this would be a sensible investment strategy, as I discuss below.

The Government is correct to say super entitlements wouldn’t be affected, because it is legally required to pay the defined benefit super payments regardless. It could also argue it hasn’t withdrawn money from super, and that the funds it has invested in QIC remain the same, as QIC has simply substituted its new GOC investments for whatever investments it previously had the Government’s funds invested in. The problem, of course, is that investing in GOCs might not be the best use of the Government’s funds. As I noted in my previous post:

The big problem I have with the QIC GOC takeover idea is that QIC should be making the best investments it can in order to ensure it gets the best possible return on the money the Government has invested to meet its long-term defined benefit super liability. But why would investing in a GOC the Government has directed QIC to purchase be the best possible investment? There would surely be much better investments than an inefficient GOC hamstrung by Government ownership. A QIC GOC takeover would compromise the Government’s ability to manage its long-term liabilities.

There is a precedent for this plan in the Bligh Government having sold Queensland Motorways to QIC in 2011 for $3 billion. Queensland Motorways was later sold by QIC for $7 billion, but I wouldn’t expect any future QIC investments in GOCs to be anywhere near as profitable, especially given the Government’s aversion to privatisation.

I really hope the Government doesn’t do something tricky with the funds it has invested in QIC, but I think it’s still possible and not necessarily ruled out by today’s statement. Tomorrow will end the speculation, of course, and we will find out exactly what the Government has planned. It’s sure to be a very interesting Budget!

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