Labour wants to funnel Crown dividends into a new sovereign wealth fund restricted to domestic investments. The stated goal is to boost domestic risk capital, but the design is terrible. 

Labour says New Zealand lacks capital for investment. Maybe. But since there is plenty of capital in the world, the real question is what is stopping that capital from coming to New Zealand. 

Part of the answer is that New Zealand has made it too hard for investors to enter the market. Another is that constant policy flip-flops from one government to the next scare them away. 

So, if you are concerned about New Zealand’s lack of capital, improve the investment climate and create policy stability. Establishing a government fund only treats symptoms, not causes. 

Labour promises to back “the next Xero or Rocket Lab,” but that is just another way of saying bureaucrats shall pick winners. Sadly, this never works. 

While private investors risk their own money and watch investments like hawks, government investors play with other people’s money. We have seen how badly this ends, from the Provincial Growth Fund to KiwiBuild’s centrally planned targets. 

On top of this, there is the risk of what economists call “crowding out.” This happens when a large government fund squeezes out private investors and distorts market incentives. Competitors face an uneven playing field when the state co-invests with favoured firms. 

Next up, the fund is supposed to have a “dual mandate”: financial returns and vague “social returns.” But what does this even mean? 

The definition will become whatever the government wants. If the fund loses money, it will claim social success. If it fails socially, it will claim commercial discipline. In practice, it will likely fail on both counts and still claim it is doing a vital job. 

Finally, those Crown assets supposed to go into the Future Fund have an opportunity cost. Every dollar of dividends diverted is one not used to reduce debt or maintain services. And that is before we even ask whether government should own all these assets in the first place. 

So, if you want more investment, do not start a new government fund. Instead, cut red tape. Open New Zealand to foreign capital. Stop threatening capital gains taxes. 

If New Zealand gets these policy settings right, private capital will build the future without government picking it or taxpayers carrying the risk. 

And without a so-called Future Fund. 

You can hear more on this topic from Dr Oliver Hartwich on The Platform here and from Dr Eric Crampton on RNZ here.