Treasurer Peter Gutwein has told a government business scrutiny hearing low interest rates are behind the poor return on the Mersey Community Hospital Fund.
The $730 million fund, managed by the government’s borrowing and investment arm TasCorp, recorded an after-tax operating profit of $16.8 million last financial year when $25.6 million had been anticipated.
Treasurer Peter Gutwein said a return of 4 to 6 per cent each year from investments was projected for the fund for it to last over a 10 to 12-year range.
Even though it had only achieved a 3.2-per-cent return in its first year, Mr Gutwein said it would last at least until 2027-28.
"We are in an extraordinarily low interest rate environment," he said
"It would be my expectation that over time we will probably see increases in interest rates and the fund lasting for a longer period would be my hope."
Mr Gutwein said components of the portfolio could be reinvested over the decade as cash and interest rates changed.
He said the Mersey would be funded by the budget once the money ran out.
"Our budget by the time we hit the tenth years is going to have somewhere between $9 and $10 billion worth of revenue,” he said.
"The payment to Mersey at that time I expect to be $100 to $110 million. The budget can sustain that."
Payments for the hospital’s operations are made on July 15 and have an annual indexation rate of 3.5 per cent, as was under the previous agreement with federal government payments.
The investment porfolio is made up of $15 million in cash, $473 in mortgage-backed securities and $177 million in corporate bonds and floating rate notes.
TasCorp chief executive Stephen Rochester said more than 68 per cent of the money was invested in AAA-rated investments.
Labor’s health spokeswoman Sarah Lovell said the investment strategy relied on “wildly unrealistic assumptions” including that health inflation would remain below 3.5 per cent.