Australian Finance Leaders Back SWF To Save Resources Boom

First Published Wednesday, 16th March 2011 04:43 am - © 2011 Dow Jones


By Rebecca Thurlow

Of Dow Jones NEWSWIRES

SYDNEY -(Dow Jones)- Two of Australia's most senior and respected financial industry figures on Wednesday added their voices to calls for the creation of a new sovereign wealth fund to store away some of the windfall from the country's mining boom.

Commonwealth Bank of Australia (CBA.AU) Chief Executive Ralph Norris and Future Fund Chairman David Murray said Australia can benefit from debating ways to ensure the country as a whole benefits from strong global demand for the country's resources.

"We really should be looking at a sovereign wealth fund," said Norris in an a panel interview webcast hosted by The Australian newspaper. "At some point in time, the cycle is going to end, and to have something left from that, something that can actually act as a buffer going forward, I think is absolutely essential."

Australia's existing wealth fund, the Future Fund, administers 72 billion Australia dollars (US$71.35 billion) set aside to cover the government's pension liabilities. The creation of a larger sovereign wealth fund along the lines of those set up in the Middle East's oil-rich states could see Australia taking significant holdings in major foreign companies and banks as a way to reprocess profits from any possible tax on the nation's miners.

As the government led by Prime Minister Julia Gillard plans to introduce a new mining tax, Reserve Bank of Australia Governor Glenn Stevens has said the creation of a new sovereign wealth fund is worth considering as a way to prepare for a possible end to the resources boom. His comments spear headed a debate on the issue amid concerns the mining boom is creating a two-speed economy where strong demand for resources is helping sections of the community but creating potential problems in other areas such as by driving up prices, boosting the local currency and creating skills shortages.

The Future Fund's Murray said Wednesday a two-speed economy that causes significant difficulties for some industries is common in countries with with large resources and a small population. Many countries that find themselves with two speed economies set aside some of the proceeds of their resource sales for future generations through a sovereign wealth fund or invest in infrastructure that will benefit future generations, he said.

"The value of a discussion about this is that it helps Australians understand that with a lot of resources and a small population we do run this risk when these cycles happen and maybe we need some institutional framework in the future that's better placed to handle it," he said during the interview.

"There are two ways to do this, you can have a wealth fund for future generations or a budget stabilisation fund for a nearer term management of a more volatile budget."

(The above comments were made during a Market Insights web event hosted by The Australian)

-By Rebecca Thurlow, Dow Jones Newswires; 61-2-8272-4679; rebecca.thurlow@dowjones.com

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