THE taxpayer-owned Future Fund invested more than $37 million in tobacco company stocks at the same time as the government was finalising the world's first plain-packaging laws for tobacco products.
The fund's stake in global tobacco companies has risen by almost 50 per cent in recent years to $210 million at the end of June, angering health groups.
Until now, the fund has not said if it has been actively buying more stock, or if the shares have risen in value. Tobacco company shares have performed strongly recently.
Now the fund has disclosed that its managers bought more shares in tobacco companies before February this year.
In response to questions put to the fund in May, it has said that $37.8 million of the $78 million rise in its tobacco holdings between December 2010 and February this year was driven by increased buying. Share prices and currency movements accounted for the remaining $40.2 million of the increase, the fund said in reply to a Senate estimates question.
The purchases occurred while the federal government was passing legislation for its plain packaging rules, which will require branding to be replaced by drab packaging with graphic health warnings.
The laws, first announced in April 2010, were passed by the Senate in November 2011, and upheld by the High Court in August. They come into effect in December.
In reply to its critics, the Future Fund says the tobacco investments do not breach its internal policies because cigarettes are legal.
With the $77 billion fund also investing millions in nuclear arms companies, the Greens have proposed ethical investment rules for the fund, a position rejected by Labor and the Coalition.
The Greens Senator Richard di Natale said it was "incredibly disappointing" that the government refused to intervene.
"The government must take some responsibility for the fact that the fund is investing in an industry which is essentially doing all it can to thwart government policy," he said.
In August, the Finance Minister, Penny Wong, said it would be "inappropriate" for a government to intervene in investment decisions by the Future Fund, which is independent from government.
Senator Wong argued that breaching the fund's independence could set a precedent for "rather odd" outcomes, such as politicians who were sceptical of the science on climate change preventing the fund from investing in renewable energy.
"Whatever one's personal views about investments, I do, and the government does, have a concern with a proposition that says the personal views of a politician should be the ones guiding investment decisions in the Future Fund," she said.
The tobacco industry has warned that it will increasingly compete on price, resulting in cheaper cigarettes. There has been speculation in Canberra that the government will respond to this by raising tobacco excise by 25 per cent in its mid-year economic outlook. A spokeswoman for Senator Wong would not respond to the speculation.