Article by Dimitri Burshtein, courtesy of The Australian
31.01.2026
With commonwealth debt set to tick over $1 trillion any day, Australians might reasonably expect the government to be focused on paying it down. Instead, Canberra has squirrelled away more than $400bn in a sprawling web of offbudget funds and investment vehicles, borrowing heavily so politicians and bureaucrats can meddle in markets under the guise of “investment”.
Roughly 40 per cent of commonwealth debt now underwrites these bureaucratic playthings.
This is not just bad optics; it is economically destructive. Liquidating these funds would enhance the economy’s productive capacity, free up billions in interest costs, and create genuine fiscal space to reduce and properly index income tax rates. Instead, Australians are paying more tax to fund leveraged government speculation while their own living standards fall.
And fall they have. While global GDP per capita continues to rise, Australia’s has stalled. For more than a decade the economy has drifted from stagnation to malaise.
Productivity has flatlined, real disposable incomes have shrunk, and bracket creep has quietly lifted the tax burden. Government spending is now at record highs for a peacetime, non-pandemic era, yet living standards continue to slide.
Faced with this failure, neither Labor nor the Coalition has shown any appetite for hard reform: removing barriers to private initiative or restoring incentives to invest and innovate. Instead, both have chosen the path of least resistance, layering new interventions atop old failures and treating every shortcoming of government as an argument for more government.
The end point of this trajectory has an unbroken record of failure across countries and history. Australia’s journey, however, is being accelerated by a distinctive local variant of state capitalism built on elaborate off-budget, funnymoney financing schemes.
These arrangements allow politicians and highly paid bureaucrats to speculate with taxpayers’ money while presenting the exercise as investment, nation-building or vision.
The commonwealth now operates seven Future Funds and eight Special Investment Vehicles overseeing more than $400bn of public capital. At the same time, with federal debt closing in on $1 trillion, interest costs are now the fastestgrowing item in the budget; rising faster than the NDIS, childcare, and defence, and far faster than the economy itself.
The alphabet soup of this fiscal melange includes the FF, CEFC, NRFC, HAFF, NAIF, AIFFP, ARENA, RIC, MRFF and DRF.
Strip away the branding and these entities are simply leveraged investment vehicles operating on the government’s balance sheet.
Unlike private funds, however, their managers put no personal capital at risk. Instead, they enjoy generous taxpayer-funded salaries and one-way incentives: bonuses for gains, while losses are quietly socialised.
The culture that follows is predictable.
Branding is glossy, offices are lavish and perquisites are generous.
Even personal assistants at the Future Fund travel business class internationally to evaluate hotel mattresses and pillows, all funded by taxpayers who are themselves going backwards.
The underlying economics, however, are brutally simple. If the commonwealth borrows at 4-5 per cent, any fund deploying that capital must earn risk-adjusted returns well above that rate to justify its existence. Matching the bond yield is not enough. Risky and illiquid investments must clear a higher hurdle to compensate for volatility and the possibility of loss. If they do not, taxpayers are unequivocally better off paying down debt.
This is not ideology. It is arithmetic.
And even if that hurdle could be cleared on paper, most of these vehicles fail a second routinely ignored test: additionality.
Public capital is not free. When government pours borrowed money into commercial assets, it competes directly with private investors, crowding out private capital, distorting price signals, and steering resources toward politically favoured sectors rather than those that generate the highest value. The result is not more investment, but worse investment and weaker productivity.
The problem is compounded by duplication. These funds increasingly compete not only with the private sector, but with each other, multiplying rather than diversifying risk.
Many of these funds are quick to benchmark their performance against private sector peers while conveniently overlooking their most important advantage – taxexempt status. Comparisons with sovereign wealth funds in Norway, Singapore or the UAE are similarly misleading. Those countries invest accumulated surpluses. Australia runs structural deficits as far as the eye can see.
The persistence of these schemes has little to do with economics and everything to do with politics. Labor is instinctively drawn to state-directed capital allocation, while the Coalition lacks the courage to dismantle a oncedefensible Peter Costello legacy that has long outlived its usefulness.
Retired politicians are also conveniently rewarded with well-paid sinecures on fund boards. The result is a bipartisan death grip that preserves off-budget playthings while fiscal discipline dies.
Australia’s economic recovery will not come from Canberra pretending to be a hedge fund. It will come from the work governments avoid: cutting waste, simplifying tax, breaking regulatory sclerosis, restoring incentives, and lifting productivity.
These off-budget investment schemes should be wound up and the proceeds used to pay down debt before more capital is wasted, more risk accrued, and a larger bill handed to taxpayers.
Households are being squeezed by higher taxes, higher interest rates and falling real incomes while Canberra borrows ever more to play investor with other people’s money. Every dollar locked away off budget is a dollar not used to pay down debt, relieve bracket creep, or reward work and enterprise.
The choice is no longer abstract.
Either government restores fiscal seriousness, or Australians will keep getting poorer while being told, repeatedly and unconvincingly, that it is all an “investment in the future”.
