AUSTRALIA's Treasury chief has urged caution on the increasingly popular concept of a national sovereign wealth fund, questioning whether it would be the best way to achieve its mooted aims.
Martin Parkinson, the secretary to the Treasury, said that although there were "well-motivated intentions" in the growing calls for Australia to follow countries such as Chile and Norway by channelling mining wealth into a sovereign fund, more clarity was needed on the exact aim of such a fund.
Dr Parkinson also said Australia's focus should be on delivering surpluses and reducing net debt rather than "getting ourselves all hung up on whether we do it by reducing gross debt on issue, or maintaining gross debt and building up financial assets in a sovereign wealth fund".
The idea of a new Australian sovereign wealth fund has gained currency, backed by the likes of opposition frontbencher Malcolm Turnbull, Commonwealth Bank chief executive Ralph Norris and economist Professor Warwick McKibbin.
David Murray, chairman of the Future Fund a sovereign wealth fund set up to cover public-sector superannuation liabilities called for Australian states to set up their own sovereign funds with mining royalties.
But Dr Parkinson, speaking at an American Chamber of Commerce in Australia function in Melbourne yesterday, said "different commentators" calling for a new fund had "different motivations" with some wanting the fund to better spread the benefits of the mining boom, for example, and others arguing that an offshore fund should ease pressure on Australia's above-parity exchange rate.
Dr Parkinson said Australia's superannuation system already acted as a series of "mini wealth funds", helping to ensure some of the mining boom's proceeds were invested over time.
And trying to contain the exchange rate through a fund investing in offshore assets was "unlikely" to work, he said, adding that measures to bring down the value of the dollar could lead to Australia "throwing away" some of the mining boom wealth.
He said he was not suggesting that the idea of a new fund was without merit "but that we should be clear about what role it could play".
"Given that we have around 7 per cent GDP of net debt, and will not be back to surplus until next year on current projections, we do have time . . . to consider further the merits of whether we should consider a sovereign wealth fund," he said. "To be clear our first priority has to remain fiscal consolidation."
Frequently Asked Questions about this Article…
What did Treasury chief Martin Parkinson say about creating a sovereign wealth fund for Australia?
Martin Parkinson urged caution, saying a new sovereign wealth fund might have well-motivated intentions but needs clearer aims. He stressed that Australia’s first priority should be fiscal consolidation — delivering surpluses and reducing net debt — before committing to a new fund.
Why are some people calling for an Australian sovereign wealth fund?
Proponents argue a sovereign wealth fund could help spread the benefits of the mining boom and, in some proposals, ease pressure on Australia’s above-parity exchange rate. Supporters include politicians, bankers and economists who want to channel mining wealth into longer-term assets.
Who has publicly backed the idea of a new Australian sovereign wealth fund?
The article notes support from figures such as opposition frontbencher Malcolm Turnbull, Commonwealth Bank chief executive Ralph Norris, and economist Professor Warwick McKibbin. David Murray, chairman of the Future Fund, has also suggested states could set up their own funds using mining royalties.
How does Australia’s superannuation system factor into the sovereign wealth fund debate?
Parkinson pointed out that Australia’s superannuation system already acts like a series of 'mini wealth funds,' helping ensure some proceeds of the mining boom are invested over time rather than being spent immediately.
Would investing in offshore assets through a sovereign fund reduce the value of the Australian dollar?
Parkinson said trying to contain the exchange rate by investing offshore is 'unlikely' to work and warned such measures could risk 'throwing away' some of the mining boom’s wealth — so relying on a fund to lower the dollar is not guaranteed.
What did David Murray suggest about using mining royalties for state-level sovereign wealth funds?
David Murray, chairman of the Future Fund, called for Australian states to consider setting up their own sovereign funds funded by mining royalties, using those revenues to build long-term financial assets.
How does Australia’s current fiscal position affect the sovereign wealth fund debate?
Parkinson noted Australia had around 7% of GDP in net debt and, on current projections, wouldn’t return to surplus until next year. Given that position, he said there is time to consider a fund’s merits but emphasized the priority must be reducing net debt and achieving surpluses first.
Is the idea of an Australian sovereign wealth fund completely ruled out by Treasury?
No — Parkinson didn’t dismiss the idea outright. He said the concept isn’t without merit but urged clarity about what role a sovereign wealth fund would play before moving forward.
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