Australia shows why we need a sovereign wealth fund now

Australia has not managed its great mining boom well, says HSBC’s chief economist for Australia and New Zealand, Paul Bloxham. When times are good, governments need to save for the bad times that will inevitably follow, and this can be done by establishing a sovereign wealth fund, he said.

The Australian Government is now facing budgetary pressures exacerbated by the impact low iron ore and coal prices are already having on the economy.

The Green Party supports the establishment of a mining royalties reserve fund built up by the royalties from mining. And the best time to do this is before a boom and the inevitable political pressure that follows to start spending the windfall. (Of course, some forms of mining, like deep sea oil drilling, don’t have any place in a modern, green economy.)

A sovereign wealth fund, like the $1 trillion Norwegian Pension Fund, ensures the preservation of capital for ours and future generations to benefit from the one-off windfall.

A large mineral wealth fund can also act as an important stabilisation tool in uncertain times. It also limits the damage mining booms have on the exchange rate, by limiting any rise in the kiwi dollar which can hurt local industry and exporters – the so-called ‘Dutch disease’.

A sovereign wealth fund is smart green economics in action.


5 Comments Posted

  1. We did have a sovereign wealth fund. It was called tax. To build up infrastructure, homes, health, incomes and education to ensure ours, and our children’s, future.

    Unfortunately, it has been asset stripped.

  2. we did have a pension fund here and that if Muldoon AND SUCCESSIVE GOVTS EXCEPT Michael Cullen and Helen Clarkes management of the govt funds, had left it alone we would not be over a barrel to continue polluting the environment with oil, excessive oil use and have this crunch type thinking when the answer is Green ELECTRIC POWER as the base, not oil, Change the Thinking. Pension off the oil polluters onto their oil continent floating in the Pacific

  3. The Greens realise sensible mining is a must in our modern lifestyle so business as usual where it is sensible and without potential for major damage. We can’t even do the required maintenance at present – Tauranga Mobile tank spill, or clean up the past mess – Mobile Viaduct Auckland.
    We need realistic royalties on activities presently on the books so the taxpayer doesn’t lose when the companies renege their cleanup – Tui Mine TeAroha, probably in the range of 50%. A Wealth Fund to put this would see this money in a useful place.

  4. This Russel Norman posting is astounding. The Norwegian Pension Fund is 100% derived as a percentage from the Norwegian state deep sea oil sales.

    As of the valuation in June 2011, it was the largest pension fund in the world, although it is not a pension fund in the traditional sense as it derives its financial backing from oil profits and not pension contributions.

    So the Greens want sovereign wealth funds but are against deep sea oil exploration. So how is New Zealand ever to develop such a fund as the Norwegian one? It simply cannot whilst the Greens oppose deep sea oil exploration (never mind exploitation).

    If New Zealand was to set up a sovereign wealth fund with contributions mainly from mining it begs the question what mining the Greens would encourage to provide the funding. Ironsand? Gold?

    A brilliant opportunity to start the New Zealand wealth fund occurred no long ago when, due to a naturally occur event, a huge sway (20,000 acres) of native timber was felled on conservation land. Just imagine if this timber had been logged and sold with the profits generated ploughed into a New Zealand wealth fund.

    But no Eugenie Sage and the Greens were 100% opposed.

    So what industry will the Greens propose to contribute to the New Zealand wealth fund?

    Dairying? No Greens are opposed to expansion of that industry. Not many other industries left of any size. Maybe the wine industry? How about tourism? Fishing? Meat? Wool?

    Just where will the money for the New Zealand Wealth fund be generated from?

    Remembering that the basis of any sovereign wealth fund is from the sale of a community (state) owned natural asset or reserve or a product/service derived from that asset.

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