Josh Frydenberg (Kooyong, Liberal Party) Share this | Link to this | Hansard source

It was Mark Twain who said, ‘I was seldom able to see an opportunity until it had ceased to be one.’ It is a warning the Gillard government would do well to heed. On the back of China and India’s historic industrialisation, Australia is enjoying a once in a generation mining boom. Our terms of trade are at a 140-year high and the Australian dollar is at levels not seen since the floating exchange rate was adopted in 1983. Treasury estimates that the mining boom will produce a windfall gain of $30 billion for the government in the current financial year, on top of the $65 billion that has already flowed to Labor since its election in 2007.

What is more, these so-called rivers of gold show no sign of abating. In a speech earlier this year, Treasury Secretary Dr Martin Parkinson was at pains to emphasise that we are seeing not a temporary appreciation, but a sustained shift in the exchange rate. The terms of trade may come back slowly over time, with Treasury estimating a fall by around 20 per cent over a 15-year period. Such a prediction will see the Australian dollar, in Parkinson’s words, ‘remain consistently high for some time’.

This is both a challenge and an opportunity for Australia. Ensuring the competitiveness of our manufacturing base and other important exchange-rate-exposed sectors, like tourism, will not be easy. Workplace reform and productivity gains will be key. But at the same time Australia has a unique opportunity. We must save the proceeds of the boom and invest it for a time when it is needed most. International experience would indicate that a sovereign wealth fund for a commodity-driven economy like ours could be an appropriate vehicle towards this end. Sovereign wealth funds are not new. Kuwait established theirs in 1953, Abu Dhabi in 1977 and Norway in 1990. Owned by the government, these funds and others like them in Chile, Russia and Qatar hold, manage or administer a diverse set of financial assets in the pursuit of commercial objectives. They are distinct from state-owned enterprises whose remit often includes the ownership and operation of commercial businesses.

It is estimated that today around $4 trillion in assets are held by sovereign wealth funds. While other mature assets classes like pension funds are significantly larger, it is expected sovereign wealth funds will grow significantly over time and could surpass $6 trillion by 2012. In other words, they are here to stay. A sovereign wealth fund can perform a number of different functions. It can be the source of long-term wealth creation, otherwise known as intergenerational equity, or have a shorter term objective to stabilise revenue cycles. In the case of the former, when the finite resources run out, future generations will still benefit from the wealth created. In the case of the latter, when commodity prices take a downward turn there will be money available for governments to call upon when it is needed. In both instances, countries that use the significant reserves of a sovereign wealth fund to invest offshore may see downward pressure on the exchange rate, providing welcome relief for the non-commodity export sector, which constantly lives in fear of catching the Dutch disease.

In terms of determining the best fit for Australia, Chile’s sovereign wealth funds are quite instructive. In 2006, Chile morphed its existing copper stabilisation fund into two funds, the first of which is a pension savings fund which they seeded with $600 million and contributed 0.2 per cent of the previous year’s GDP to on an annual basis. In the event the fiscal surplus is greater than 0.2 per cent, the fund can receive a maximum of 0.5 per cent of GDP. Significantly, no withdrawals are allowed from this fund for the first 10 years. The second fund, which began with $5 billion and now has more than $20 billion, is the recipient of fiscal surpluses when they are above one per cent of GDP. Given Chile’s strong commodity based economy, both these funds are designed to provide the government with fiscal flexibility should the commodity cycle turn.

This is the key point the Assistant Treasurer, Bill Shorten, fails to understand. We are talking about commodity cycles. Domestic superannuation is not a sovereign wealth fund, as he likes to tell us. It provides no insurance against a downturn in a commodity cycle, nor does it impact the exchange rate in the way a sovereign wealth fund potentially can. The minister, like the rest of the Gillard government, is deaf to the calls for a sovereign wealth fund from senior business leaders like Mike Smith at the ANZ, Ralph Norris when he was at the CBA and the Fairfax chairman, Roger Corbett; nor does he hear the words of the IMF and even Australia’s own Reserve Bank Governor, Glen Stevens, when they raised this issue. There is no excuse. Treasury’s own briefing to its ministers, released under FOI earlier this year, detailed how the Secretary General of the OECD, Angel Gurria, called for a countercyclical Chilean style fund to smooth macroeconomic fluctuations. Maybe the minister does not read his brief.

On our side my colleague Malcolm Turnbull has made a very considered speech on this subject and Joe Hockey suggested that it is the Maserati of public policy. They are much more attune than the government is.

There are many issues that need to be fully fleshed out; least of all is paying back the $100 million of Labor debt and returning that budget back to surplus. However, Australian policymakers have responsibility to play the long game, and a sovereign wealth fund is part of that decision making process.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

I remind the member for Kooyong that under standing order 64 he is to refer to other honourable members by their titles or by the names of their electorate.