Make use of this opportunity now to fund our future

JULIA Gillard says we don't need one but Malcolm Turnbull says we do. The Business Council of Australia says we should. The chief executive of the Commonwealth Bank and the chairman of Fairfax have given support. Access Economics supports it but another think tank the Institute of Public Affairs does not. All of a sudden everyone has a view on whether Australia should establish a Sovereign Wealth Fund. Every parrot in every pet shop is talking about it.

The International Forum of Sovereign Wealth Funds (SWFs) is a voluntary association for the SWFs of the world. Looking at the members it is easy to see it is predominantly the commodity-rich nations that have established SWFs the oil-rich nations of the United Arab Emirates, Kuwait and Bahrain the copper-rich country of Chile. In the midst of huge commodity booms these countries are saving some of their wealth to prepare for the challenges of tomorrow.

People wonder why Australia, which is rich in iron ore and coal, is not doing the same. The former Reserve Bank board member Professor Warwick McKibbin put it well when he argued we should save some of the proceeds of the current prosperity since "this incredible historical experience will eventually go away and we need to prepare for that day". So it may come as a surprise as you look down the membership of SWFs to see Australia is listed there. Not only does Australia have a SWF, its fund is so respected that an Australian former Commonwealth Bank chief David Murray was the first chairman of the International Forum.

Australia's Sovereign Wealth Fund the Future Fund is far better understood outside the country than in it.

The confusion in Australia arises from the difference between ownership and purpose. By definition a sovereign wealth fund is owned by a sovereign power, which in our case is the government. The fund is a mechanism to save and invest: to use the proceeds of good times to cushion the bad. The oil-rich kingdoms are preparing for when the oil runs out.

Our fund was set up to prepare for the time when the ageing of the population will put such pressure on our national budget that taxes will need to rise to crippling levels or borrowings become unsustainable to meet the cost of health and pension obligations. The fund was set up in 2006 to invest money that will be available to take pressure off the budget just when the full impact of retiring baby boomers is set to kick in, in the year 2020.

The specific purpose it is earmarked to cover is the growing liability of public sector pensions. By covering these it will free up taxes to be used for other programs such as health and infrastructure.

But the money in the Future Fund (now $75 billion) is not owned by public servants. Public servants did not pay any money into it. It is not a superannuation fund. It was built by budget surpluses. That money in the Future Fund belongs to all of us and not just to us, but to future generations. By changing the legislation the government could direct it to any purpose it chooses. By changing the legislation it could even raid the fund to pay its current deficit, or to pork barrel for an election. Which is why the Parliament, the press, and interested taxpayers must be vigilant to repel any sign of financial trickery. In circumstances where the government is short of money it will have a huge temptation to raid the savings of future generations.

When people ask whether we should have a Sovereign Wealth Fund they are asking the wrong question. We do. The real question is how much we should be putting into it.

Other countries with once-in-a-generation opportunities are saving. But nothing has been deposited in our fund since the 2007 budget and that was when our export prices were far below the record levels they are now.

Sometimes the government claims that private superannuation is a substitute for an SWF. That is nonsense. A superannuation fund holds contributions from individuals that come out of their wages. They own that money no less than they own the money they deposit in a bank account. The government cannot take it and use it to pay to future generations. It is good that we have this form of private saving. But it is no substitute for a sovereign fund, which is a mechanism by which the current generation provides for the next.

The real reason we are not saving is that our government is spending all it receives and more. If it were more responsible we would be saving for the future just like other commodity-rich countries are doing.