A sovereign fund, a cure for everything
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CANBERRA, Aug 26 AAP
August 26 2011, 11:28AM
It seems to have become a catch-all solution to any catastrophes that hit our society.
Whether it is rebuilding after the devastating impact of the summer floods on Queensland, or trying curb the affect of a strong Australian dollar on manufacturing and its workers, one issue keeps returning to the political debate - calls for the establishment of a sovereign wealth fund.
Treasurer Wayne Swan was again this week batting away such suggestions to ease upward pressures on a dollar that is crippling manufacturing, and a key factor that has led to the loss of 1000 jobs at BlueScope Steel as it shut down its export operations.
"It wouldn't do anything in our current situation and it wouldn't do anything for some time to come," Mr Swan said of calls for a fund.
This is true.
But one suspects if Norway had taken the same attitude, it wouldn't be wallowing in around a half a trillion dollars of its own sovereign wealth fund, which it has been accumulating since 1990 from government oil revenues.
Yes, there is our Future Fund, but that is already earmarked to pay for future superannuation liabilities of public servants, rather than being put to other uses, such as building roads, ports, railways or bridges.
Still, neither of the two major parties appear that enthused by the idea of a new fund to harness boosted government revenues as a result of the mining boom, and which could be used for a rainy day.
Apart from Liberal leader Malcolm Turnbull, that is, who agrees with the Australian Greens, the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD), which have urged the government to save the benefits of higher commodity prices.
Mr Turnbull said this week that Norway had set a good precedent, and a sovereign wealth fund would help counteract the pressure on an appreciating exchange rate.
"We can also invest in the long-life infrastructure that will be so important in maintaining our productivity in the years ahead," he said.
"(The government is) saving none of this boom, they have wasted it."
Mr Swan unsurprisingly disagrees, saying the government remains committed to using the revenue from its new mining tax to fund a cut in the corporate tax rate and other tax breaks for small business, the cost of increasing compulsory superannuation to 12 per cent, and paying for regional infrastructure.
But Greens Leader Bob Brown doesn't believe this is enough.
He will be going to the October tax forum with a proposal to introduce a sovereign wealth fund, as well as arguing for a return to the original 40 per cent resource super profits tax (RSPT), instead of the government's watered-down 30 per cent minerals resource rent tax (MRRT).
"The big parties should be doing better, particularly the Abbott opposition, which has even opposed the much more modest mining tax proposed by the Gillard government," Senator Brown said.
An analysis by the Greens shows MRRT would reap up to $115 billion less revenue over nine years than under the RSPT plan.
"This would be a perverse outcome at a time when the mining industry is already putting a huge strain on the rest of the economy," he said.
BHP this week posted a full-year net profit of $22.5 billion, up 85.9 per cent on the previous year.
In contrast, and highlighting the pressures of a two-speed economy, BlueScope Steel posted a $1 billion loss.
But Mr Turnbull and Senator Brown are not alone in arguing for a sovereign wealth fund, with the IMF having again urged the government in April to consider saving revenues that have been boosted by higher commodity prices.
"(This would) ensure a more equal distribution of its benefits across generations and reduce long-term fiscal vulnerabilities from an aging population and rising healthcare costs," the Washington-based institution said.
The OECD, in its Economic Survey of Australia released last November, said that while a mining tax was "justified" and is set to finance a number of welcome initiatives, should commodity prices fall faster than expected "this policy could lead to a structural deterioration of the budget".
"Spending decisions should be disconnected from resource tax revenues," the Paris-based institution advised, while suggesting parking resource revenues in a fund.
It also recommended broadening the scheme and eliminating state royalties, as suggested in the Henry Tax Review, chaired by former treasury secretary Ken Henry.
Under MRRT state royalties will be refunded under the scheme, as was the case of the RSPT.
"Replacing the royalties by a well designed resource rent tax extended to all commodities and all companies irrespective of their size would be desirable," it said.
Senator Brown is demanding a review of the mining tax.
"The government doesn't and the opposition says it will oppose any new tax on these resources. That is highly irresponsible," he said.
And of course, if we don't have a mining tax in any shape or form, the discussion over a sovereign wealth fund becomes somewhat irrelevant.
Until the next catastrophe, that is.
By Colin Brinsden, AAP Economics Correspondent