Call for states to set up wealth funds
THE head of the Future Fund has joined the mining tax and infrastructure debates by suggesting that state governments use mining royalties to set up their own sovereign wealth funds.
THE head of the Future Fund has joined the mining tax and infrastructure debates by suggesting that state governments use mining royalties to set up their own sovereign wealth funds.David Murray said goods and services tax distribution methods discouraged states from putting royalties into a long-term savings fund and setting aside the money for infrastructure projects."The states own the minerals under the surface. They do levy royalties and the Commonwealth doesn't, so [the states] are entitled to decide how they reimburse their own people in each state for the loss of that resource," he said after a speech in Melbourne yesterday.Mr Murray, an honorary chair of the International Forum of Sovereign Wealth Funds, said Australia had a "resource depletion problem" and was heavily dependent on resources revenue to maintain a high standard of living.He said state-based sovereign wealth funds should be used to invest in infrastructure which has the "effect of lowering the cost of doing business". Without sufficient infrastructure, Australia would keep running into capacity constraints and the Reserve Bank would have to increase interest rates."When you look at the characteristics of Australia, we have high real interest rates because this is a continuing problem and we have huge dependency on the rest of the world for capital," he said.However, a GST distribution system that takes into account a state's net financial assets per capita discourages the states from accumulating money."I am from NSW and they keep digging coal out of the ground and shipping it somewhere. I would like to know that there is some future activity that will replace it," he said.Mr Murray reiterated that money from the Future Fund could not be used for infrastructure because it was set up with the specific purpose of paying future Commonwealth superannuation obligations. However, the fund's governance model and expertise could be used to help set up a fund to manage state royalties.His comments came a day after the federal Treasury secretary, Martin Parkinson, said the national budget would have to return to surplus before the country could consider starting a sovereign wealth fund.Dr Parkinson told an Australian Industry Group conference in Canberra on Monday it wouldn't make a lot of sense to have such a fund until the country's debt had been paid off.He also said the mining boom from the digging up of non-renewable assets was "finite" and that was part of the rationale behind the federal government's proposed minerals resource rent tax.