The story in the Fairfax broadsheets today about how big business wants a sovereign wealth fund to save our windfall from the resources boom again was a horribly lopsided article.

Not one mention of the fact that the money has to be raised, and by what means, higher taxes, a better resources rent tax?

In fact the article and the suggestion of a sovereign wealth fund sounded like the streaker’s defence: it was a good idea at the time these business leaders were asked by the paper, but with little thought the result was disappointing.

It’s all very well for the likes of Roger Corbett and others to sound grand and far-sighted, but it’s very typical of business that they squib the hard stuff, how to pay for those grand visions, and which company or industry  should win and which ones should lose. Or think of it another way, which of the peers should win and which should lose.

But they can’t or won’t go that far because it might see them blackballed for another, better board or chairmanship, or get monstered at a meeting of the Business Council or another old blokes club.

“Chief executives from Lend Lease, Tabcorp, Mirvac, CSL, Foster’s, Orica, and Coca-Cola Amatil, and the chairmen of Mirvac, Pacific Brands and Gloucester Coal, have told BusinessDay they favour such a fund, the report said.

“They join the ranks of Commonwealth Bank chief executive Ralph Norris, Amcor boss Ken MacKenzie, Boral chief Mark Selway, Fairfax chairman Corbett and Reserve Bank governor Glenn Stevens.”

Excepting Stevens, who isn’t a business leader, he’s the head of the independent Reserve Bank and not a member of the directors club, the others supporting the fund just love having their names in print.

Corbett, the former Woolworths CEO, now chairman of Fairfax Media, Terry Davis, the Coca-Cola Amatil CEO. Both love having a chat at forums, to senior business writers and making speeches.

There seems to be a regularly flow of interviews and profiles each year. Mirvac chairman James MacKenzie, who is also chairman of Pacific Brands and Gloucester Coal, is another who loves seeing his words in print. Would he support Gloucester Coal paying a super tax to the government to be poured into the fund.? Tricky little questions such as that were avoided in the article today.

Apart from James MacKenzie, all the CEOs and chairmen mentioned are from industrial companies, not resource stocks.

Their primary businesses might touch on coal, or iron ore or other forms of mining, or oil and gas, but they are not dependant on the sector for their loot. So it is somewhat easy for them to wave their hands and say, great idea. It is also very lazy and yet another example of how many Australian business leaders think they can get away by saying something that they (or their advisers) think shows leadership, but in reality reveals self-interest and a reluctance to engage in real debate.

The real story would be if some of those far-sighted leaders named in the Fairfax story, plumped for the Rudd government’s style of resource tax, for example (the one whose abandonment could mean we won’t get $60 billion of extra tax from the resources boom, if it continues).

There was mention in the story that we could have a fund modelled on the Norwegian Pension Fund, which is worth over $US500 billion. Do they know how the Norwegians fund that fund each year?

Through very high taxes and royalties, plus a state-owned oil company’s very direct involvement in oil and gas. And why do the foreigners cop that high tax and government intervention? Because the rewards are massive, just as the rewards from exploiting our iron ore and coal and other resources is similarly huge and lucrative for the handful of exploiting companies.

The Norwegian government owns 67% of Statoil, the largest offshore oil and gas company in the world.  Statoil controls the majority of Norway’s oil and gas production.

“State revenues from petroleum activities consist of petroleum taxes, the state direct financial interest (SDFI), dividends on the state’s share in Statoil, environmental taxes, and area fees. Petroleum taxes and the SDFI account for the large majority of state petroleum revenues. In 2008, they amounted to 58% and 37% respectively of the total revenues of NOK 416 billion.”

Interestingly the above report says “contributions of the GPFG consist of government petroleum revenues, less government expenditures on petroleum activities and the budget deficit.”

That means all the tax  and other revenues from the oil and gas industry flow to the fund, less the spending on oil and gas activities by the industry and the budget deficit. Yikes! In other words, the fund is used to balance the budget deficit of Norway capped to a predetermined  long term, return target for the fund of 4%, over the life of the business cycle. That means the deficit will be higher in poor years and lower or non-existent in good years (as we have seen in the past four years).

With some $US500 billion in the fund the targeted return is 4%, or $US20 billion. Now that would help the budget here each year, wouldn’t it?

Would any of our business leaders recommend this arrangement?

The Norwegian Fund is a poor example because it is designed to collect money and store it for the day when Norway’s gas and oil runs out.

Norway has few other resources except some agriculture and minerals, but nowhere near the enormous range of mineral and rural commodities that Australia has and will have for decades (centuries) to come.

And, but the way, the Brazilian government controls Vale, the world’s biggest iron ore miner and exporter. Vale is the main global competitor for BHP Billiton and Rio Tinto, the two companies who think its their iron ore in WA).

The story doesn’t make clear what the fund should do. Should it be a smoothing fund to cover the bad times and allow the government to dip into it to avoid increasing borrowings from the market, while adding to it in the good times as a form of fiscal discipline. Should it be a fund that lends to the banks to lower their dependence on overseas money, or issues bonds to boost their capital and the planned liquidity funds?

Would these business leaders trade off a fund for lower corporate taxes, and improved social welfare? So many ideas, so little thought. And that’s typical of Australian business. By all means have a debate and contribute ideas, but make them worthwhile, not just an easy newspaper headline.

Peter Fray

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