Home ListingMarch 7, 2012

Australia Treasury Says No to Sovereign Wealth Fund

<p class="p1"><em>Australian Treasury Secretary Martin Parkinson has voiced disapproval of a sovereign wealth fund for the country following strong support for such a fund from resource-rich Western Australia.</em></p>

Reported by Featured Author

(March 7, 2012) — Australian Treasury Secretary Martin Parkinson has dismissed calls for a sovereign wealth fund.

“An SWF does not constitute a contribution to future fiscal sustainability,” Parkinson said, according to the Dow Jones Newswires, adding that the Treasury continued “to observe that the creation of an SWF per se does nothing to address either Australia’s net debt position or, more broadly, the level of government or national savings over time”.

Parkinson’s dismissal of a sovereign wealth fund for the country stands in contrast to views voiced last month by Western Australia’s Premier Colin Barnett, who expressed plans to form a sovereign-wealth fund to better harness the region’s natural resources. Barnett said that the investment vehicle would be comparable to the existing AUS$73.07 billion (US$78 billion) Future Fund set up by the Commonwealth government in Canberra. “Despite the fact that Western Australia is clearly the powerhouse driving the nation’s economy—we have the highest forecast growth in the country—rising state debt is the constraint on our economic growth,” Barnett told the WSJ.

Barnett’s plan, however, has been met with continued resistance, not only from Parkinson, but also from Australia’s Prime Minister Julia Gillard, who has asserted that the country’s superannuation stands in the place of a sovereign wealth fund, saying that the superannuation system 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 last year.

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 2010, 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.”