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Treasury chief wary of wealth fund zeal

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.

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."


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