NATIONAL AFFAIRS: by Patrick J. ByrneNews Weekly
Business leaders call for national investment fund
, March 5, 2011
A group of Australia's biggest corporate leaders have called for a Norwegian-style sovereign wealth fund to channel windfall revenue from Australia's mining boom into national investment.
The chief executives from Lend Lease, Tabcorp, Mirvac, CSL, Foster's, Orica, and Coca-Cola Amatil, and the chairmen of Mirvac, Pacific Brands and Gloucester Coal, told The Age
(February 18, 2011) that they favour such a fund.
Others who have called for the fund to be established include Commonwealth Bank chief executive Ralph Norris, Amcor boss Ken MacKenzie, Boral chief Mark Selway, Fairfax chairman Roger Corbett and Reserve Bank governor Glenn Stevens.
The leaders expressed different ideas on how the fund should be financed and managed. However, as AXA Asia Pacific chief executive Andrew Penn said to BusinessDay
, ''It is very important to find a far more equitable way to share the benefits of Australia's natural resources for current and future generations than is currently the case."
A sovereign wealth fund (SWF) is a state-owned investment fund that can be composed of a variety of financial assets (stocks, bonds, property, precious metals or other financial instruments) and also directed towards infrastructure and industry development.
Norway operates two sovereign wealth funds. The Government Pension Fund Global is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited.
Valued at US$512 billion, it invests globally, while the second, the Government Pension Fund Norway, invests in domestic companies.
The call by Australian business leaders for such a fund is likely to put pressure on the Gillard Government to secure returns from the resources boom in preparation for the time when the boom subsides.
The call for a SWF comes at a pivotal time for Australia.
While most Western economies are reeling in the wake of the global financial crisis, with long-term unemployment soaring to levels not seen in 75 years, Australia has been largely insulated from the worst of the economic slump by the income received from supplying minerals and energy to rapidly growing China.
The downside of the mining boom was that it drove up the value of the Australian dollar, making more and more export industries uncompetitive and imports cheaper. Manufacturing industry and jobs have continued to be exported to low-wage China and its neighbours.
Despite the loss of so much industry, the former Howard Coalition Government managed to sustain surplus budgets, which mitigated Australia's burgeoning foreign debt.
However, in Howard's last year, which coincided with the onset of the global financial crisis, the federal budget went into deficit. Under Labor, it has remained in deficit, made worse by wasteful, short-term stimulus packages. Indeed, from 2007-08 to 2013-14, Australia will have run an annual federal structural deficit of over 3 per cent of the economy (gross domestic product).
These deficits will leave Australia vulnerable to several major economic challenges.
Major new mining ventures in west Africa will start significantly to come into production around 2015. On current plans, these mines will collectively be larger than the Western Australia's Pilbara region, which supplies vast amounts of iron ore to China.
These new mines are likely to bring an end to Australia's mining boom, bringing down mineral prices, profits and tax revenues.
Around the same time, Australian imports of oil will have soared to around 80 per cent of the nation's needs. In 2000, Australia was importing only 20 per cent of its oil.
The combined effect of years of budget deficits, the end of the mining boom and our huge demand for imported oil and consumer goods will put major pressures on the economy. Our already massive foreign debt will be set to expand rapidly.
At the same time, Australia is going to be left with a manufacturing industry "black hole".
Now is the time, while mining exports are still booming, to put in place forward-thinking policies to avoid this disastrous confluence of economic pressures.
Vital to any plan for national development is the creation of a major Australian sovereign wealth fund for long-term national investment. Such a fund would give Australia room to manoeuvre.
It would enable governments to fund public investment, particularly in much-needed infrastructure such as water, power, transport and communications. It would allow for investment in manufacturing and service industries, particularly at a time when the growing foreign debt will make it more difficult to fund imports.
It would allow for the development of agriculture, when Australia is set to become a net importer of food.
Most importantly, it would enable these national developments to be undertaken without the government having to run budget deficits.
Creating such a fund and directing it in a way so as to anticipate the looming economic problems will take time.
However, time is running out. Australia's political leaders are yet to acknowledge the problems and the need for long-term solutions.Patrick J. Byrne is vice-president of the National Civic Council.