Apparently, some people aren't happy with the Australian Future Fund having a $210M holding in tobacco holding, which included $37.8M worth of purchases over a 14 months period. This is despite a $40.2M increase in value of the stocks (lower estimate is 23% return over a 14 months period, equiv 20% p.a.), a return that is crazy to pass up.
What's the return specific to the tobacco stocks though?
It's hard to come up with a kind of comparison here. I see the law, at least partially, as a way of enforcing widely held moral standards of society and making illegal things that deviate from them. It's not like they are investing in a company that harvests the organs of orphans but then again, considering what the law is, that company wouldn't be legal in the first place.
I think the tobacco issue lies along a thin, grey area. Arms manufacture is legal and we have some small companies that do that in Australia. What if we invested in a company that produced landmines or something like that? An issue that come up recently in the USA is a particular pharmaceutical company stopped manufacturing chemicals used in the lethal injection, what if a company like that was on the fund? Capital punishment of that nature seems repulsive to most Australians.
We're mostly OK with understanding people choose to smoke. We know the tobacco companies dont force it into their mouths. Help is available if you want to get off it. Addiction (as i'm currently learning more and more through my pharmacology major) is a very complex beast. We really can't boil it down. I don't think too many people have a problem with it though, i don't necessarily have a problem with it on ethical grounds.
I don't think the issue is only on ethical grounds though, it could be a conflict of interest thing. For example, the state of Victoria draws something insane like 25% of taxes from gambling (or even crown alone, i forget). We know gambling is harmful and addictive. We know it disproportionately affects the worst off in society. However, the state of Victoria relies on that tax revenue. If we outlawed gambling tomorrow, the sky would come pretty close to falling with a revenue cut of 25%. We couldn't get rid of it easily even if we all did think it was very harmful. It's also in the interests of the state that the people gamble. The more people that gambling, the more revenue the casino draws, the more tax we get. It's almost a perverse arrangement.
I think people are worried about that kind of thing with tobacco. Especially considering we have one of the strongest regulatory frameworks on tobacco in the world. I wouldn't say its much worse than holding stocks in Carlton and United breweries or something like that. In-fact, in terms of harm done to a society, alcohol causes far more. I think investing in alcohol if anything is more morally reprehensible than investing in tobacco.
1. Should government investment funds only consists of 'ethical' investments? Could it, for instance, benefit from 'ethically questionable' investments such as nuclear weaponry and tobacco?
Fine grey line. I think if the majority of the populace doesn't agree with it, we shouldn't invest in it. That is our tax dollars after-all and government is just a vehicle of the collective will of the people.
2. Should the government have any intervening power in fund management of the Australian Future Fund?
I don't see why it should. It should be a independent board but we should still pay some kind of attention to ethical standards and indeed reasonable business standards.
3. The Labor government has been contributing to this fund despite running a budget deficit and increasing debt. What should be our priority?
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I don't think we have a real choice. The future funds prime purpose isn't to invest in infrastructure or build the economy, as put by Wikipedia "The purpose of the fund is to meet the government's future liabilities for the payment of superannuation to retired civil servants of the Australian Public Service".
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