Future Proofing: One Campaign Ends, Another Begins

Premier Jay Weatherill is first out of the election campaign starting blocks, flagging that Labor will make a series of major policy announcements well before the March state election is called. Early indications suggest that Labor’s campaign will focus on economic transformation and jobs. Labor is setting the pace by announcing the establishment of a ‘Future Fund’, an idea first set out in the Government’s March Economic Statement. Funds like this are commonly used to capture revenue from major resource extraction projects for macro-economic stabilisation and future strategic use, sometimes to offset the negative impacts of mining on the exchange rate – something we know a great deal about in Australia with the persistently high dollar continuing to do harm to our manufacturing and tourism sectors. Future funds normally operate at a national level, capturing mining and energy resource extraction royalties for strategic investments in productivity enhancing infrastructure, particularly roads, ports, communication, education and skills. They are widely regarded as smart public policy tools, designed to help ensure that communities experience enduring benefits from mineral and energy resource exploitation. The present system of levying royalties on companies helps to achieve this but it falls short of directing some of the benefit towards transformative projects that help to reduce our dependence on the fluctuating fortunes of the mineral and energy resource sectors. Great riches were accumulated at the height of the commodity boom but not enough of this flows back to the wider citizenry or to those sectors of the economy harmed by mining booms. Establishing a Future Fund can help channel some of the income generated from mineral and energy resource extraction into productivity enhancing investments that respond to long, rather than short-term, industry and social development objectives. While the proposed Future Fund will take a decade to mature as a significant investment vehicle, it is worth the wait if it helps to drive a faster pace of economic and industrial diversification in South Australia. The trigger for accumulating income in the proposed Fund is the achievement of a surplus. During periods of economic stability this is normally straightforward. Not so in recent times. The problem has been the impact of the GFC on state and national revenue, particularly through the GST – the reason why Western Australian Liberal Premier Colin Barnett has recently been pushing Prime Minister Abbott to increase the GST or remove some exemptions. State politicians across the political divide agree that states and territories have been starved of the revenue they need to fund core health, infrastructure and other services. Looking to the future, the State Government rightly anticipates a return to solid rates of economic growth, picking up as high demand for mineral and energy resources from China and India resumes. While commodity prices may not reach the stratospheric levels reached during the recent boom they will deliver windfall profits to investors. The key policy challenge for government going forward is to create an institutional environment in which it is clear that royalties from mineral and energy resource extraction must be directed towards productivity enhancing infrastructure investments and industrial diversification – a form of economic insurance when mining booms inevitably end and we rely on other sectors to drive growth. The establishment of a Future Fund can help with this if it is given the mandate and the authority to invest wisely for the longer term. While prudent public sector borrowing should remain the major source of revenue to fund infrastructure investment, the proposed Future Fund could complement and guide this, helping governments and communities to identify what forms of investment are likely to be the best drivers of employment and economic growth this century. In this digital age where South Australian industry faces the challenge of modernisation or decline, the choices can be stark – move up the value chain or be overwhelmed by the rise of low cost manufacturing and services. A Future Fund won’t solve this, and nor is it intended to do so, but it can play an important role in helping to move beyond the short-termism that so often compromises the quality of Australian political and corporate decision making. It would be a novel start to campaign 2014 if there was bi-partisan support for establishment of the Future Fund. There are plenty of other policy issues to fight over. Associate Professor John Spoehr is the Executive Director of the Australian Workplace Innovation and Social Research Centre at the University of Adelaide