Greens' support for a sovereign wealth fund to quarantine mining proceeds deserves praise

MANY business leaders are naturally sceptical of the policy positions the Greens adopt.

From advocating carbon pollution reduction while also railing against nuclear power, to pushing a social rights agenda despite a narrow party name like "the Greens", it isn't always easy for the pragmatic world of business to understand the role Bob Brown and his merry men (and women) fill in the system. Are the Greens a protest party, a single issue organisation or a portent of voter dealignment?

But there is one policy the Greens support, which we should all tip our hats to because it is a good idea: a sovereign wealth fund for a portion of the proceeds from the mining boom. Managed the right way, it would help protect the prosperity of the future in this country when our ability as a nation to dig stuff out of the ground diminishes.

Of course the exact parameters of the sovereign wealth fund the Greens have advocated needs to be redesigned for it to be as good an idea in practice as it is in principle. For example, insisting the monies go into reducing future national carbon emissions, as the Greens do, is more than a little narrow. It might suit a green agenda but it doesn't suit the broader national interest.

Nevertheless, investing some of the proceeds of the mining boom in a sovereign wealth fund is the sort of long-term planning our major parties don't do enough of. The three-year electoral cycle in the volatile modern political age reduces governments' preparedness to plan beyond their own electoral short-term interests. The 24-hour news cycle doesn't give political leaders enough credit for long-term planning. And the decline of quality personnel choosing a career in politics (for a host of reasons) means that we don't have the national leaders we should have who can set up tomorrow's prosperity.

When you look around the world, there are a number of nations which, like Australia, are rich in natural resources. But many of them, unlike Australia, are planning for a time when those resources might diminish.

The top three sovereign wealth funds globally each has more than $500 billion invested, and those proceeds are based on state revenue raised from oil production. The United Arab Emirates, Saudi Arabia and Norway between them produce a large share of the world's oil. Their governments are aware that resources are finite and if their populations are to have anywhere near the prosperity in the future that they do now, planning for a time when oil production diminishes is paramount.

Australia has the world's largest deposits of uranium and the second-largest iron ore deposits. And we are the world's fourth-largest exporter of coal, with ever growing natural gas extractions. The taxation wealth generated from the mining of these resources -- which could be far greater in the case of uranium -- should not simply be used in the here and now. It should be stored up so that the dividends of the capital can be used in the years ahead to help with fiscal strains on health, ageing population costs, and to improve the very infrastructure that facilitates resources extraction.

The story isn't all bad in this country when it comes to realising the importance of sovereign wealth funds. It isn't just the Greens that recognises their usefulness. In 2004, Peter Costello started the Future Fund to plan for state superannuation payments in the years ahead. That fund sits just outside the world's top 10 sovereign wealth funds by size, with just under $100bn in it. But compared to what's needed to cover existing taxation receipts from mining royalties, company taxes and perhaps super-profits taxes, the Future Fund is a mere drop in the ocean.

And the Future Fund can be carved into by governments searching for cash. Doing so is difficult, but not impossible. The limits on doing so need to be much tighter. Guaranteed quarantining of any new mining boom-based sovereign wealth fund is an important design principle.

There isn't a lot businesses applaud the Greens for. But supporting the general parameters of a sovereign wealth fund is one policy worthy of applause.