Australia's Prime Minister Says Superannuation Trumps Sovereign Wealth Fund

(August 31, 2011) — In response to domestic and international pressure, Australia’s Prime Minister Julia Gillard has asserted that the country’s superannuation regime is robust enough to stand in the place of a sovereign wealth fund.

“That’s because it’s privately managed by thousands of trustees instead of a sovereign wealth fund managed centrally by a Canberra-appointed manager,” Gillard said in an address to the Financial Services Council in Sydney, Money Management reported. “Or alternatively, you could say that Australia has 8 million sovereign wealth funds–the superannuation accounts of Australians across the country.”

While trade unions and institutions worldwide have urged the Australian government to create a sovereign wealth fund, Gillard has asserted that superannuation is already a trillion-dollar sovereign wealth fund–but with market benefits. “That’s because it’s privately managed by thousands of trustees, instead of a sovereign wealth fund managed centrally by a Canberra-appointed manager,” she said.

This is not the first time that widespread calls for Australia to establish a commodity-backed sovereign wealth fund has been met with stiff resistance. Australia is faced with the question of what to do with the proceeds of a large surge in demand for its vast deposits of coal and iron ore. At the heart of the dispute is whether Australia should try to emulate Norway by establishing a sovereign wealth fund or rather impose a tax on mining profits as the best way of capitalizing on the boom. In May, the International Monetary Fund (IMF) urged Australia to create a sovereign wealth fund to protect the country against a possible Asian market bubble. IMF director Anoop Singh said at the time that the revenue from the current resources boom should be saved “to ensure a more equal distribution of its benefits across generations and reduce long-term fiscal vulnerabilities from an aging population and rising health care costs.”

Similarly, in April, Robert Mead, managing director and head of portfolio management at Pacific Investment Management Co. (PIMCO), told Dow Jones Newswires that Australia should create a sovereign wealth fund to manage the proceeds of its mining boom.

The Australian government may be wise to use Norway’s oil fund, Norges Bank Investment Management, as the archetype, Mead asserted. “The Norges bank model has obviously been a very successful model,” he told Dow Jones, adding that for Australia’s model, “quarantining the additional revenues raised from the resources boom should be fed into a long-term fund structure.”

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