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.